Slowing, Slowing, Gone…

By Peter Tchir of Academy Securities

Slowing, Slowing, Gone?

With baseball season coming, I couldn’t think of a better way to start this quick economic update.

Since we highlighted Excess Inventory, Increasing Delinquencies Falling Shipping last week, April has provided us with largely weak economic data.

• Manufacturing PMI fell further to 46.3 (the 5th month in a row below 50)

• JOLTS job openings actually fell and is back to levels last seen in the summer of 2021 (the Quit Rate at 2.6% was still higher than the historical average (2.4%), but well off its peak of 3%).

• Factory orders and durable goods remained in decline.

• ADP was “only” 145k, down from allegedly 261k last month.

• While the service sector is still hanging on, the ISM Services came in at 51.2, down from 55.1 and versus expectations of 54.4, making some (or at least me) wonder if the 49.9 print back in December wasn’t an anomaly after all? The employment component reverted lower again. Finally, new order dropped substantially was well (62.2 from 62.6).

Every bit of data this month has hinted at a slowing economy.

The inflation front is not being helped by oil, with WTI surging from $69 to $80 in less than two weeks, supported by OPEC+ cutting production, rather than from solid global growth prospects (I’m assuming the world’s leading oil exporters have a sense of where demand is heading).

Maybe this is “just” catching up to some overly good data in recent months (The Citi Economic surprise index shot from -10 in early February, to above 60, and was still at 48 before today’s data). Or maybe the data recently was skewed by bad “seasonal adjustments”, “low response rates”, a “shifting economy that isn’t fully captured in current data”, etc…

[ZH: We note that this decline in the macro surprise index has been driven (until very recently) by a collapse in ‘soft’ survey data]

We get NFP on Friday, while the stock market is closed, should make for some interesting trading late on Thursday and Monday.

From a positioning standpoint, I’m updated some things since Sunday’s Fortune Favored the Bold:

• Neutral on bonds. It felt foolish being constructive on bonds with he 10 year at 3.47%, but it fit my models. Here at 3.3% I’m neutral and would be tempted to be short, except the fact that NFP on Friday will be on a day with incredibly low liquidity (even by already low liquidity standards) and almost anything could happen. The 2-year at 3.7% holds little appeal and I am bearish on the economy!

• Medium bearish on risk assets. I am now firmly entrenched in the medium bearish camp and will keep that as stocks (and credit spreads) seem to be trading on recession and earnings fears and less on the hope that the Fed is done hiking and the view (ill advised, in my opinion) that the Fed finishing should send stocks significantly higher.

On the bright side, in the first week of April, everyone’s team is in the running to win the World Series! (unless you are a Washington Nationals fan, in which case you can give up already).