Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

U.S. FLASH MANUFACTURING PMI POINTS TO ACCELERATION

July data pointed to a solid improvement in overall business conditions across the manufacturing sector. The seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) edged up to 53.8, from a 20-month low of 53.6 in June. The latest reading was comfortably above the 50.0 no-change value, although still slightly weaker than the post-crisis average (54.3).

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A rebound in overall growth momentum largely reflected stronger rises in output and new business levels in July. Meanwhile, softer job creation was the main factor weighing on the headline PMI during the latest survey period.

Manufacturing production volumes increased at a robust and accelerated pace in July. Reports from survey respondents cited improving domestic economic conditions and a general upturn in client demand. That said, some manufacturers noted that reduced capital spending within the energy sector continued to act as a drag on sales.

Measured overall, July’s survey pointed to a strong rise in incoming new business, with the rate of expansion picking up to its fastest for three months. A number of survey respondents noted that subdued export demand, as well as the strong dollar, had encouraged them to focus sales efforts on faster growing domestic markets. July data nonetheless indicated a marginal rebound in total new work from abroad, which ended a three-month period of falling export sales across the manufacturing sector.

Despite an upturn in output and new business growth in July, the latest survey signalled a degree of caution among manufacturers in terms of input buying and job hiring. The latest increase in purchasing activity was the slowest for a year-and-a-half, which some survey respondents linked to excess inventories at their plants. Meanwhile, manufacturing payroll numbers expanded at the least marked pace since April.

July data indicated that cost inflation remained subdued across the manufacturing sector. Although input prices increased for the third month running, the pace of inflation moderated since June and was well below the survey average. Manufacturers pointed to subdued raw material costs and lower prices from overseas suppliers (especially those based in Asia). Factory gate price inflation also remained subdued in July, with the latest rise in U.S. manufacturers’ output charges the weakest recorded for three months.

NEW$ & VIEW$ (24 JULY 2015): Cool Housing Stuff; Cold Revenue Trends; Warm Earnings.

Demand for Housing Could Cool in August, Report Says

Redfin has created a forward-looking read on the housing market that it plans to issue monthly. It looks at the number of people viewing listings on its website, customers requesting tours and those writing offers in the 15 major metro areas in which it has a large presence. (…)

This is the first time that Redfin has released the index, but it has looked at data going back to January 2013. In June, it showed year-over-year price growth of 5.7% and growth in sales of 14.2%.

Brokers said that they are starting to see prices keep clients out of the market, who are deciding to stay renters because they can’t afford homes or don’t want to get into a bidding war.

From the horse’s mouth:

The Demand Index, an early indicator of housing-market performance, is based on millions of visits to Redfin.com home-listing pages, and thousands of Redfin customers requesting home tours and writing offers in 15 major metro areas. It is scaled to equal 100 on January 2013, which is the first month of the estimation period. The Demand Index is adjusted for Redfin’s market share growth.

The Demand Index debuted today at a level of 113, up 13 percent year over year, the smallest increase since January. In 2015, the Demand Index followed a similar seasonal pattern to previous years, increasing from January to April, then beginning to decline. However, this year’s 6.7 percent decline from May to June is steeper than the 3.9 percent decrease for the same period in 2014. Over the past 30 months, the Demand Index has averaged 103.

housing demand

Redfin forecasts that year over year, home prices will be up about 4.3 percent in July, and just 2.2 percent in August.
housing demand

This year’s seasonal slowdown is more extreme than normal due to buyer fatigue over high prices and low selection, combined with gradually increasing mortgage interest rates. Buyers are still in the market, but they’re setting boundaries on what they’re willing to pay. (…)

Two major factors driving the forecasts are fewer people making offers and lower list prices for homes going under contract.

Homebuyers are still touring in force, but they’re more price sensitive. Fewer are making offers, and when they do, they’re buying less expensive homes. The median list price of pending homes fell by $10,000 to $300,000 in just the last two weeks.

Unlucky Emerging Markets Don’t Get Lift From Weak Currency The bright side of a currency decline is supposed to be rising exports. But in key emerging markets around the world, that isn’t happening.

Currencies in some countries are hitting new lows, down as much as 30% in the past 2½ years. Meanwhile, emerging-market export growth has fallen to its lowest levels in more than half a decade. Exports themselves fell 14.3% year over year in the three months through May, the biggest decline since 2009, according to Capital Economics.

But weak growth in the U.S., Europe and China combined with lower commodity prices wiped out any hoped-for bounce. Now with U.S. interest rates set to rise, investors are pulling out, pushing currencies down further and leaving nations from Indonesia to Brazil scrambling to shore up their economies.

Problem is, prices of the stuff they sell are falling faster than their currency…

The lower euro is not helping German exports either:

Markit’s gauge of German manufacturing growth unexpectedly cooled in July as exports fell for the first time in six months. The factory index slipped to 51.5 from 51.9 in June, missing economists’ forecast for an unchanged reading. An export index fell below the key 50 level for the first time since January, indicating a contraction. (BloombergBriefs)

Lowflation and weak demand is also impacting the U.S.:

Here we come to an ugly possibility — the world may be closer to a downturn than is commonly thought. The 0.9% year-over-year rise by the sum of the sales of US manufacturers, retailers, and wholesalers during the year-ended June 2015 included a -1.9% yearly drop for Q2-2015. Comparable deteriorations by business sales previously occurred in November 2008 through January 2009 and August 2001, where both incidents overlapped recessions. (Moody’s)

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EARNINGS WATCH

At the half, the score is pretty good:

  • 173 companies (49.7% of the S&P 500’s market cap) have reported. Earnings are beating by 5.8% (5.3% last Wednesday) while revenues have positively surprised by 0.3% (0.5%).
  • The beat rate is 76% (74%). Ex-Financials: 80% (77%).
  • Expectations are for revenue, earnings, and EPS of -3.7%, -1.3% (-2.1%), and +0.1% (-0.6%). EPS growth is on pace for 3.0% (2.7%), assuming the current 5.8% beat rate for the remainder of the season. This would be 7.9% (7.4%) on a trend basis (ex-Energy and the big-5 banks). (RBC Capital)