Our Growth Slowing call has been consistent since March (we shorted XLI on March 12th).
From our purview, the global economy is still feeling the ill-effects of the +13.6% run-up in global crude oil prices (Brent) from JAN 25 to its MAR 16 YTD peak (among other things, of course). As we penned in the Early Look on JAN 26 – the day our central planning chairman Ben Bernanke decided to extend ZIRP to 2014 and, thereby, reigniting the Inflation Trade – Growth Slows as Inflation Accelerates. Our process hasn’t changed (i.e. analyzing and forecasting deltas and noteworthy inflections in GROWTH, INFLATION and POLICY).
This morning we received additional evidence supporting the fact that economic growth continues to slow domestically. The Institute for Supply Management reported its monthly survey results this morning and the Manufacturing survey came in at 49.7. This is the lowest reading since JUN '09 and well below the consensus view of 52.2. Further, a reading below 50 implies a contraction (versus expansion) within this sector of the economy.
In addition to the ISM number in the U.S., we've had a slew of additional economic data points globally that continue reinforce that economic growth is tepid at best and that the great US decoupling is not really occurring. These JUN data points are as follows:
- Eurozone Manufacturing PMI: 45.1 from 44.8; and
- China Manufacturing PMI: 50.2 from 50.4; HSBC Index: 48.2 from 48.4;
- South Korea Manufacturing PMI: 49.4 from 51;
- Australia Manufacturing PMI: 47.2 from 42.4;
- Taiwan Manufacturing PMI: 49.2 from 50.5;
- Vietnam Manufacturing PMI: 46.6 from 48.3; and
- Brazil Manufacturing PMI: 48.5 from 49.3.
Whether or not this morning’s unfriendly reminder of the state of the global economy opens up the door for more stimulus at these prices remains to be seen, however. In this era of increasing short-termism out of both elected officials and stock market operators, the AUG 1 FOMC meeting seems like a lifetime away. There’s a great deal of risk to be managed between now and then. Our updated SPX levels are included in the chart below.