• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: ISM reflects the broader slowdown in December Macro. Labor gets more interesting from here.

In reviewing the domestic December PMI data (see:  (HEDG)EYE-CANDY | SURVEY SAYS...) we noted that the underlying Macro reality probably stood somewhere between the ongoing slowdown reflected in the Markit PMI measure (which slowed for a 6th consecutive month in Dec) and ongoing peak strength reported in the ISM survey. 

We posited that alongside a reversal in here-to favorable seasonals and a deceleration in global growth and export demand, the reported ISM/IP data would follow the Markit reading lower in the coming months. With both the ISM mfg and services surveys slowing in December, it looks like that trend is playing out.  

Captain Obvious:  December ISM - ISM vs Markit

The U.S.’ s world share of trade and GDP may be in retreat but its glacial transition towards global interconnectedness is not.  Is anyone particularly surprised that export orders (export orders don’t directly feed into the ISM index calculation but they obviously impact total activity) have slowed or domestically based global conglomerates remain hesitant to materially accelerate capex into OUS disinflation and discrete growth deceleration? 

The ISM employment sub-indices remain good on balance and the domestic labor market remains insulated from the broader global reality, for now.  Historical cycle precedents suggest labor market strength/improvement still has some runway before inflecting negatively. 

Captain Obvious:  December ISM - ISM Employment

Captain Obvious:  December ISM - IC Cycle

The acute collapse in energy prices and any associated (negative) flow thru to capital spending and net hiring introduces some significant uncertainty, but represents a risk that can be largely monitored and managed in real-time with the high frequency labor data.   

Captain Obvious:  December ISM - Energy State Claims

Bond yields and capital flows, meanwhile, continue to confirm the economic gravity of a global entre into Quad #4.  

We wouldn’t be incremental buyers of the long-end on weakness but TLT/EDV remains one of our favorite global macro positions.  Consensus disagrees (see net spec positioning), but #MacroMisfit has repeatedly proven to be profitable profile.

Captain Obvious:  December ISM - 01.05.14 Chart

Captain Obvious:  December ISM - 10Y US Japan German Anchor

Captain Obvious:  December ISM - 2004 vs Rates 

Christian B. Drake

@HedgeyeUSA