Monday, June 10, 2013

Market/Economic Analysis: US

As usual, let's start with last week's data:

The good

The best piece of news last week was the employment report which showed an increase of 175,000 last month.  NDD correctly called it a mixed report that isn't good enough.

Auto sales gave us another piece of solid data, with a 2.7% increase m/m and 10% increase Y/Y.  For the graphs, see Calculated Risk.  Strong durable goods sales figures tell us the consumer has a certain level of confidence in the economic future.

The service sector of the economy picked-up: The NMI™ registered 53.7 percent in May, 0.6 percentage point higher than the 53.1 percent registered in April. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.5 percent, which is 1.5 percentage points higher than the 55 percent reported in April, reflecting growth for the 46th consecutive month. 

Construction spending also increased: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2013 was estimated at a seasonally adjusted annual rate of $860.8 billion, 0.4 percent (±1.6%)* above the revised March estimate of $857.7 billion. The April figure is 4.3 percent (±2.0%) above the April 2012 estimate of $825.1 billion. Note that residential construction increased at an 18% Y/O/Y clip, and total private construction is up 9% Y/O/Y. 

The trade balance registered -$40.4 billion  in the latest report.  Of particular interest here is the graph of US exports:

The last 12-14 readings have this number printing right around the $130 billion level.  This shows how the EU and Chinese slowdown are hitting US exporters and partially explains the weaker manufacturing numbers we're been seeing.

The bad 

The  manufacturing ISM number printed at 49.  This is actually in line with some of the weakness we've see in the regional manufacturing surveys over the last few months (see the latest Philly Fed index and Richmond Fed survey).  The internals of the report showed the slowdown was caused by slowing international markets and contracting government spending in the US.


We're still in a moderate expansion, as explained by the Fed in the latest Beige Book:

Overall economic activity increased at a modest to moderate pace since the previous report across all Federal Reserve Districts except the Dallas District, which reported strong economic growth. The manufacturing sector expanded in most Districts since the previous Beige Book. Most Districts noted slight to moderate gains in consumer spending and a moderate increase in vehicle sales. Tourism showed signs of strength in several Districts. A wide variety of business services expanded, and transportation traffic increased for producer, consumer, and trade goods. Residential real estate and construction activity increased at a moderate to strong pace in all Districts. Commercial real estate and construction activity grew at a modest to moderate pace in most Districts. Overall bank lending increased since the previous report. Credit quality and deposits increased, while credit standards were largely unchanged. Agricultural conditions remained mixed across Districts, as weather patterns varied. Overall activity in the energy sector was flat, and mining was down. 

Let's turn to the charts:

The 60 minute SPY chart shows that prices moved from 169-160 in a disciplined trend channel.  After hitting support right around the 50%  Fib level, prices moved strongly higher, breaking through the upper channel.

On the daily chart, note that prices hit support at the trend line the connects the early January and mid-April lows.

Both ETFs that track the belly of the treasure curve are still trading right at technical support.  However, a move lower looks more and more likely.  Consider the following news:

Investors have pulled a record $12.53bn out of global bond funds in the past week, beating a speedy retreat from fixed income holdings that can fall in value as interest rates rise.

Two-thirds of the total outflows came from US funds, where nervousness over the Federal Reserve’s next moves in monetary policy is at its height. EPFR’s data stretch back to 2001.

The dollar has fallen sharply over the last week, dropping a little over 3%.  Prices are now right below the 200 day EMA and resting on the 38.2% Fib level from the mid-July highs and mid-September lows.  We see a bit of a volume spike, but nothing indicating more than a standard sell-off.