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Macro Monday 24~New York Empire State Manufacturing Index MACRO MONDAY 24 The New York Empire State Manufacturing Index Trading View Ticker: $USNYESM The New York Empire State Manufacturing Index (NYESM Index) is a month to month economic indicator that measures the general business conditions in the manufacturing sector of New York State. It is published by the Federal Reserve Bank of New York and is based on a survey of 200 executives from the largest manufacturing firms in the state of New York. The top six manufacturing states in the U.S. are California, Texas, Ohio, Illinois, Michigan, Pennsylvania and then New York. Whilst New York is only ranked the 7th largest state in terms of manufacturing jobs, the state is strong in pharmaceutical manufacturing, printing and publishing, and electronics, with some of the top tier manufacturing companies including big names such as Pfizer, IBM, Lockheed Martin and L3Harris Technologies. Total output from manufacturing in New York was $75.24 billion in 2021. In comparison total output from manufacturing by the largest manufacturing state in the US - California was $394.83 billion in 2021, magnitudes larger than New York. So whilst the New York Manufacturing Index holds some weight in terms of its reputation, location and large well known firms, it is a smaller index and it should be considered in combination with other indexes/metrics to assess the broader economic picture. How to Read the Index As with many of the survey led indexes, it is a diffusion index that oscillates above and below the 0 level. Above 0 suggests manufacturing activity is expanding, below zero means manufacturing activity is contracting. The Chart In today’s chart will also attempt to see how good the NYESM Index has been at predicting general market performance/direction using the S&P500 CBOE:SPX as a market gauge: 1. One of the main findings on the chart is that 7 out of the 8 times the NYESI fell below 0 for longer than 2 months (shaded areas) the S&P500 moved lower or did not increase in price. - This suggests that in the event the NYESM Index falls below 0 for greater than 2 months there is a higher probability that market performance will be impaired. 2. The one time the S&P500 increased whilst the NYESM Index was below 0 for greater than 2 months was from July 2022 to present. - The index during this period was very volatile jumping briefly above the 0 level before falling under it again (see the red box). It is the only time in history that this occurred on the index. One could compare it to a sector gasping for air above the 0 level over that period, however the S&P500 was rallying hard as the index gasped for air. This highlights the need to review other indexes and charts, and not rely solely on the NYESM Index in isolation. One such additional index that might shed some light on the S&P500 rally during point 2 above is the relative strength of the ISM Services PMI which has remained in expansionary territory throughout the same period. The Services Index is designed to measure the economic activity and health of the services sector in the United States some of which are professional services (accounting, legal, etc.), healthcare (hospitals, clinics & other practitioners), accommodation, leisure and food services. One could imagine with everyone cooped up during COVID-19, the resilience in the services metric could help explain the resilience in the market with people enjoying more experience orientated activities. We covered ISM Services Vs ISM Manufacturing on Macro Monday 22 which you can check below in the attaching links. The ISM metrics cover all areas of the U.S. and are considered a more all-encompassing measure of manufacturing and services in the U.S. Regardless looking at individual states such as California, Texas and New York can provide clues and insights into the overall trend. Current Readings & Expectations The New York Empire State Manufacturing Index increased from Sept to Oct 2023 demonstrating a sharp rise from -4.6% to +9.1% pushing the Index into expansionary territory. Expectations for this Fridays release is a reduction of 7.1% resulting in a reading of 2 for the month of Nov 2023. This would still be expansionary for manufacturing in NY State but a reduction all the same, demonstrating less manufacturing to the prior month. Lets see how the Index performs this Friday. PUKA
ECONOMICS:USNYESMI
by PukaCharts
Inequality.Now when we look at the old saying 'the rich get richer, the poor get poorer' most shrug it off as a pun or a joke in time of self reflection about a current financial situation ect. But the reality is its becoming a major problem in our modern societies. So what does this mean for the average person, now we have all just lived through one of the largest ever increases in inequality during covid, now when we delve into the statistics behind where the furlough and stimulus ended up we can see how much inequality increased, what we saw is a debt passed on to every tax payer, in the UK I believe it was around £7000 a tax payer and in US towards FWB:12K , this wealth was then transferred to the rich, and saw staggering wealth increases in the 'rich' category, either through stock owners or landlords ect, rising interest rates. In the UK we saw interest rates rises, but the usual correlation to house prices in which typically we see rate risers lowering the house prices didnt occur! I work in the building business and have contracts with wealthy clients, These guys are currently buying elderly peoples property in a nice seafront location local to me, they then destroy the house and rebuild modern second home £5m mansions! whilst UK house prices to salary is the same as it was in 1876! Is this not a serious issue to the working man! What we are seeing is living standards drop generation to generation as well as asset purchasing becoming harder and harder to youngsters. Inequality has been a trending issue since 2008 when the interest rates were kept low due to the broken economies world wide, during this time we have seen the price off XAU rise staggering amounts. The problem we face is the constant lowering of wages due to inflation, since 2008 the UK government has pretty much been flat broke, we see it currently in the poor state of roads, NHS ect. The real question is where is this money? Part 2 coming soon
ECONOMICS:GBAHP
by ZenFlo
2
🚨 Bitcoin NOT at all-time high yet! 🚨🚨 Bitcoin NOT at all-time high yet! 🚨 I developed this formula a long time ago and have been observing it. When the founder of ADA (Charles Hoskinson) said that the previous Bitcoin all time high was $69,000 based on the value of the dollar in 2021, I remembered my formula. The essence is quite simple: multiply the sum of the Fed's liabilities, the US budget balance, and the debt-to-GDP ratio by the dollar index and divide by the price of Bitcoin. From an economic point of view, this formula attempts to correlate US monetary and fiscal indicators, as well as the strength of the dollar, with the price of Bitcoin. It is my attempt to measure the "fundamental value" of Bitcoin relative to the indicators of the US economy and the strength of the dollar.
FRED:RRPONTTLDLong
by sholi_software
Macro Monday 37 Continued - The RICS & Savills Plc Chart Comparison ~ The RICS & Savills Plc (extension to this mornings Macro Monday 37) After sharing todays Macro Monday I couldn’t help be notice some similarities in between these charts. RICS The Royal Institute of Chartered Surveyors (RICS) House Price Balance is a monthly survey that indicates whether more or less surveyors expect housing prices to rise or fall in the U.K. housing market. For more on the RICS see the below Macro Monday Post shared earlier today. Savills plc Savills plc primarily operates as a global real estate advisory firm, offering a wide range of services including property sales, leasing, valuation, advisory, and investment management. While it does include auction services as part of its portfolio, auctions may not be the primary focus of its business compared to specialized auction houses. Before we review the chart its important to recognize that Savills operates globally and provides real estate services in various countries and regions around the world, including the United Kingdom. While the company may generate a significant portion of its revenue from the UK market, the exact percentage of house sales in the UK versus other regions would vary depending on factors such as market conditions, business strategies, and client demand. The below slide from their July 2023 report gives a nice overview of their types of business transactions and geographical spread All of the above is important because if we are going to compare these charts we need to be aware that there are a lot of nuances to the Savills price and whilst it is a good indicator of the UK Property market and the performance of the UK segment of the company itself, its business and operations are far more broadly spread and have a corporate & services edge. One could argue that the defensive aspects of the business are consumer needs based (property management), thus not necessarily discretionary or market price driven. The riskier end of business actually seems to be in residential sales and holds a much smaller weighting, likely meaning it impacts the stock price a lot less (which the chart later appears to confirm). This is very different to the likes of the data from the RICS survey which is a direct representation of the UK housing market prices in isolation. Also, Savills plc is a stock thus investor sentiment and many other variables like business performance and business structural changes impact the price on the chart. RICS vs Savills plc First lets look at the Savills plc chart in isolation. We can see that there is a long term diagonal parallel channel (blue) and the recently price fell out of this channel suggesting that this could be the beginning of a long term trend change. We appear to be moving through a parallel horizonal channel at present and typically, when you break out of such a box or channel there is an increased probability to continue in the direction of the break up or down. This could also be considered a Darvas Box, it that were the case, Darvas box price movements typically move in the same direction from entry which in this case would be down. In support of this chart not breaking down we are above the 200 day SMA at present (red line) and we have strong historic price support and volume support (red box) under price at present. This area would be hard to break through but if it was it would be confirmation of a trend change. RICS vs Savills plc Chart You can clearly see that the RICS and Savills plc on the chart have moved in unison in the past. Lower highs on the RICS (red arrows) were a great indicators in 2007 and 2010 of a subsequent declines in the Savills plc stock (and the UK housing market). However in 2013 a deviation appears, where by lower lows on the RICS did not impact Savills plc like it previously had in the past. From 2013 a large divergence into a megaphone pattern emerges as the RICS makes a series of lower lows and Savills makes a series of higher lows and higher highs. Why this is happening is open to interpretation but one would imagine that Savills plc have found ways to diversify their business and based on the RICS downward volatile trend, the performance of Savills plc is very impressive. The UK housing market has clearly been volatile in recent years however the company has weathered this volatility and is deviating away from it in an upward trajectory. The companies focus on real estate services means money during market swings and their management fee business can act as a float throughout When I first started this comparison I presumed the RICS and Savills plc combined could really help inform us of what is happening in the UK Property, however having dug a little deeper, it is clear to me that the business model and the price of Savills is not directly correlated to the UK property market prices, rather it is a diversified business model which leans on property management transactions, Corporate Real Estate (CRE), property services and has a wider geographic reach. Savills plc may be better suited as a general chart to review for the general global CRE market, property services and management market. RICS on the other hand can continue to help us interpret housing market prices in the UK in a more direct way. I have to admire the progression of the Savills Company away from the market volatility on the RICS and towards sustainable growth, purely from a chart observation standpoint. Unfortunately I cannot complete a comparison of large residential auctioneers in then UK like Alsop's, Auction House UK and SDL Auctions as they are not public. I will keep a look out for any charts that could use to help guide us in the UK property market. PUKA
ECONOMICS:GBRICSHPB
by PukaCharts
The RICS UK House Price Balance - Trending Up For Now The RICS UK House Price Balance (Released this Thursday 14th Mar 2024 for Feb month) The Royal Institute of Chartered Surveyors (RICS) House Price Balance is a monthly survey that indicates whether more or less surveyors expect housing prices to rise or fall in the U.K. housing market. A positive net balance suggests house price increases, while a negative net balance implies price decreases. The RICS provides valuable insight into the UK housing markets trend and helps gauge the direction of house price movements whilst also offering insight into consumer spending. The Chart The RICS House Price Balance is calculated as the proportion of surveyors reporting a rise in housing prices minus the proportion reporting a fall in prices. It reflects the expected monthly change in national house prices. Positive vs. Negative Net Balance: A positive net balance indicates that more surveyors expect price increases, signaling a robust housing market. A negative net balance implies that more surveyors anticipate housing price decreases, indicating a fragile housing market. Green Area 🟢 = More Surveyors Reporting an Increase in House Prices Red Area 🔴 = More Surveyors Reporting an decrease House Prices Grey Areas ⚫️= Recessions ▫️ The RICS fell sharply from April 2022 down to the 0% level in Oct 2022. This was a leading indication of a downward trend UK House market prices (falling from 78% in Apr 2022 to 0% in Oct 2022). ▫️ The RICS fell into the red zone from Oct 2022 forward indicating that houses prices from this date were in net decline (per surveyors responses). ▫️ Almost 12 months later the RICS reached a low of -66% in Sept 2023. Since this date we have started to trend upwards sharply recovering from -66% to -18.4% today. However we remain in net negative territory indicating house prices are still in declining but not as much as before, a change of trend may forming indicating a move to house price appreciation (not confirmed until we move above the 0% level into + territory). ▫️ The Historic Recession Line on the chart illustrates the -63% level which crossed by the RICS at the onset of the 1990 and 2007 recessions (grey areas on chart). We recently penetrated this level moving to -66% in Sept 2023 which historically does not bode well. This weeks RICS release will be very revealing and could tell us if we have a continuation of the upward trend for UK House prices or if we we remain firmly in negative territory. Lets see what Thursday brings, a fascinating little metric to help us keep an eye on the property market in the UK and the to get an idea of UK consumer behavior. PUKA
ECONOMICS:GBRICSHPB
by PukaCharts
Massive US Unemployment Move Inbound On the FRED:UNRATE dataset, we can see that since 1953, every time the unemployment rate make a significant move above the 24 months SMA, with the sole exception of October '67, we saw a large spike in unemployment allong with a recession. Currently, FRED:UNRATE rose above the 24 months SMA in August 2023 and has been stochastically moving higher ever since. Historically, this means that we can expect an aggressive move in unemployment in the following months.
FRED:UNRATE
by zkdev
JOLTS - Job Openings come in lower than expectedJOLTS - Job Openings Rep: 8.863m 🚨Lower than Expected 🚨 Exp: 8.900m Prev: 8.889m Long Term Trend (DOWN) Since May 2022 we have remained in a downward sloping channel reducing from 11.85m to current day 8.863m in job openings (see channel on chart). Shorter Term Trend (Turning Down) The number of job openings went down by 26,000 from the previous month to 8,863 million in January 2024, the lowest in past three months and below the market consensus of 8.9 million. Recent Months Movements OCT - 8.690m (Local Low) NOV - 8.930m (Local High) ~240,000 Increase DEC - 8.889m (Lower) ~ 41,000 decrease JAN - 8.863m (Lower) ~ 26,000 decrease The hardest hit sector in the JOLTS Job Openings report was Retail with 170,000 less job openings than in Dec 2023 👀 Could this be staff let go in January 2024 after the Christmas retail rush? Interestingly, on Monday the Johnson Redbook Index noted an increase from 2.7% to 3.1% in retail sales suggesting that sales from retail stores increased slightly last week. The Redbook Index provides the YoY percentage increase or decrease of USD in retail sales in the United States (it is released weekly for the week that just past). Currently the Redbook Index is oscillating around the average 3.59% level on the chart for retail sales. The Index currently illustrates that we are in moderate retail sales channel and this might reinforce that the 170,000 reduction in retail Job offerings may be seasonal. Please review Macro Monday from this week for a full review of the Redbook Index and its chart history. Thanks folks PUKA
FRED:JTSJOL
by PukaCharts
1
Macro Monday 36~U.S. Johnson Redbook Index (U.S Retail Sales)Macro Monday 36 The Redbook Index – U.S Physical Retail Store Sales (Released Tomorrow Tuesday 4th March 2024) This Johnson Redbook Index is very useful at providing the most current insights into consumer spending habits in the U.S. It is released every week covering the prior Mon – Sun consumer spend period in physical outlets around the U.S. The index is compiled by Johnson Redbook Service by surveying a sample of 9000 retailers, and tracks year-over-year changes in sales of stores that have been opened for at least one year. The Redbook Index historically tracks sales information from physical stores (Brick and Mortar Stores). Their website describes that they monitor "retail sales" and "same-store sales" which typically refers to physical locations, however some stores also now have an additional online presence, thus in recent years efforts have been made to incorporate some of the online sales data into the index, however this is a secondary and marginal. The Chart The Redbook Index provides the YoY percentage increase or decrease of USD in retail sales in the United States. It is released every week covering the prior Mon – Sun spend period giving a real time read on current consumer spending It being a YoY data release means the percentage change in the Redbook Index is typically measured by comparing the current week's retail sales to those of the same week in the previous year. This calculation is expressed as a percentage to show the increase or decrease in sales over that time period. Example: If retail sales for the current week are $110,000 and sales for the same week last year were $100,000, the percentage change would be * 100, resulting in a 10% increase. The chart above illustrates the following: ▫️ The average % from 2005 to 2024 is 3.59% (black line in middle). We shall use this as our average midline barometer of retail sales. ▫️ Moderate levels of retail sales appear to fluctuate between +6% and -0.1% (white area in the middle). ▫️ We have an Exuberance Zone (Green) for when retail sales were over extended to the upside and a Recessionary Zone (Red) which was penetrated during the last two recessions. ▫️ You can see that in the mid 2000's we bounced off the Recessionary -0.1% zone three times as the index also made a series of lower highs (see arrow). This could be perceived as waning or struggling retail spending ahead of the crash. At present we have a series of lower highs and we have bounced off the Recessionary Level (-0.1%) once, if we see continued lower highs and more bounces from the red zone, this could be a concerning repeating pattern. You will be able to press play on my TradingView page at any stage over coming months to see where this index has moved on this chart. Lets see how this index performs over coming weeks and months. PUKA
ECONOMICS:USRI
by PukaCharts
Macro Monday 13~Purchase Managers IndexMacro Monday 13 ISM Purchasing Managers Index The ISM Purchasers Managers Index (PMI) measures month over month change in economic activity within the manufacturing sector. The PMI is a survey-based indicator that is compiled and released each month by the Institute for Supply Management (ISM). The survey is sent to senior executives at more than 400 companies in 19 primary industries, which are weighted by their contribution to U.S. Gross Domestic Product (GDP). A PMI above 50 represents an expansion in manufacturing when compared with the previous month. A PMI reading under 50 represents a contraction while a reading at 50 indicates no change. The further away from 50, the greater the level of change. According to Investopedia "ISM data is considered to be a leading indicator of economic trends. Not only does the ISM Manufacturing Index report information on the prior two months, it outlines long-term trends that have been building over time based on prevailing economic conditions". The ISM reports are released on the first business day of each month for the month that has previously closed. Thus, they are some of the earliest indicators of current economic activity that investors and business leaders get regularly. Something to look out for next Monday 2nd October 2023. The PMI focuses mainly on the five major survey areas; 1. Employment (20%) 2. New orders (30%) Covered in Macro Monday 6 3. Production/Output (25%) 4. Inventory levels (10%) 5. Supplier deliveries (15%) We covered the ISM New Orders Index in Macro Monday 6 as it is the largest component of the Purchaser Managers Index making up 30% of the overall index. I will leave a link to the chart. The Chart The chart outlines the last 12 recessions (shaded red zones) with the PMI readings over the same period. As we are already aware above 50 on the PMI reading is expansionary and below 50 is contractionary (red thick line). Three Main Findings 1. In 11 out of 12 recessions a PMI reading at or below 42 was established. This means if the PMI falls to 42 there is a 92% probability of a recession. At present we have not reached that level, we are currently at 47.6. 2. The PMI has bottomed 10 out of 12 times in Quarter 1 (between Jan – March) with the remaining two bottoms happening in Quarter 2 (both in May). This means that 83% of the time the PMI cycle appears to bottom in Quarter 1 with the most bottoms in January (6) with Feb(2) and May(2) in close second place. - It’s worth noting that the bottom of the PMI cycle may not be the bottom of a stock market cycle. If we are forward looking then a rising PMI is positive for the economy and markets but ideally a move above 50 is the true signal of economic expansion from a manufacturing standpoint. 3. The average PMI bottom to bottom cycle timeframe over the past 6 cycles is 58 months with the shortest being 37 months and the longest being 86 months. We are currently at month 38 and the average month of 58 is Jan 2025 with the max of 86 months being May 2027. - How interesting is it that both these potential PMI bottom dates line up with our two most frequent PMI bottom months indicated in point 2 (January and May). - Interestingly according to U.S. government research, since WWII the business cycle in America takes, on average, around 5.5 years which closely aligns with our 58 month (or roughly 5 year) indication for the PMI chart. The business cycle incorporates an aggregate of economic data such as the ISM data, GDP and income/employment metrics. We might cover the business cycle in more detail on a future Macro Monday. The ISM New Orders Index (30% of the PMI) Similar to the ISM New Orders Index Chart (covered in Macro Monday 6) which makes up 30% of the PMI, we have not reached below the 42 level on this chart either which has provided a 100% confirmation of recession when we have had a definitive move below the 42 level historically. For ISM New Orders if we stay below a sub 50 level on the ISM New Orders Chart for greater than 7 months it has resulted in a recession every time except for 1966 and 1995 (8 out of 10 times). We are currently 14 months below the 50 level which is unprecedented, with the new orders index nudging a little lower on the August reading from 47.3 down to 46.8. ISM Data Release 2nd October 2023 When we receive our next ISM Data release next Monday 2nd October 2023 we can refer back to the PMI chart and the New Orders Index Chart and see how things have progressed and if we have reached and critical levels. These charts and the others I have completed on Macro Mondays are all designed so that you can revisit them at any point and press play on TradingView and see if we are breaking new into higher or lower risk territory. I hope they all help towards your investing and trading decisions. Have a great Monday guys, Lets get after it! PUKA
ECONOMICS:USBCOI
by PukaCharts
4
ISM Manufacturing New Order IndexMacro Monday (6) United States ISM Manufacturing New Order Index - ECONOMICS:USMNO This week I have honed in on the Institute of Supply Management Manufacturing New Orders Index (ISM New Orders Index) as it is the largest component of the headline Purchaser Managers Index(PMI) making up 30% of that index. I also make the case below for how it can act as leading indicator of demand by way of trend projection. The ISM New Orders Index is an indicator of U.S. economic activity based on a survey of more than 300 purchasing managers at manufacturing firms advising if orders have increased, decreased or stayed the same. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates the expansion in the manufacturing sector which is interpreted as a positive indicator of economic growth. A reading below 50 indicates a contraction in the manufacturing sector which suggests a slowing economy. According to Investopedia "ISM data is considered to be a leading indicator of economic trends. Not only does the ISM Manufacturing Index report information on the prior two months, it outlines long-term trends that have been building over time based on prevailing economic conditions". The ISM reports are released on the first business day of each month for the month that has previously closed. Thus, they are some of the earliest indicators of current economic activity that investors and business people get regularly. ISM New orders provide an indication of current consumer demand. Utilizing a chart of New Orders readings we can attempt to understand the trend of consumer demand forward. ISM New Orders could be considered an additional gauge of consumer sentiment because if businesses are reporting increases in orders month over month, this demonstrates consumers have the consistently had the resources and the desire to spend. If this continues over months a trend can form and we can capture this direction on a chart. To support the ISM predictive argument I include a chart that illustrates a correlation between the ISM Manufacturing New Orders Index and the University of Michigan Consumer Sentiment Index, the latter of which is considered one of thee leading indicators for predicting future consumer spending/demand. This will be posted in the comments. According to the University of Michigan, the Consumer Sentiment Surveys "have proven to be an accurate indicator of the future course of the national economy." Based on the above correlation I postulate that we can use the ISM New Orders Index as an additional leading/predictive indicator to establish what direction consumer demand is trending. The ISM New Orders Chart Focusing on the ISM Manufacturing New Orders Index Chart you can see that a breach below the sub 50 level can act as a leading or affirming indicator of a slowing economy, lowering consumer demand/sentiment and ultimately recession. Orange Zone Historically If we enter into the orange area and stay there for greater than 7 months it has resulted in a recession every time except for 1966 and 1995 (8 out of 10 times). Some analysts have recognised and compared the similarities of the current period to the 1995/96 period. The similarities are evident on this chart with two touches or bounces from the red zone which appears to be happening at present. The August and September ISM New Orders reading will ultimately tell us if this will play out similar to 1995/96 or not. We know what to expect if it doesn’t. Red Zone Anytime we have entered into the red zone we have confirmed a recession. Its key to realise that recessions are typically assigned 8 months after they have started and this could mean we are already in one... Interestingly we have toe dipped into the red zone twice, in Feb and May 2023 however I do not see this as a definitive move into the red zone, I see these as bounces from this level as noted above. Moment of Truth for ISM New Orders What is clear from looking at the chart is that we are at a critical juncture as we have been 13 months in the orange zone which is a historic first. The coming months readings for August (released Sept) and September (released Oct) will be vitally important for providing an indication of the direction of the economy. A drop down into the red zone and you know what to expect. A rise out of the orange area and above the 50 level would be positive however we have been rejected from areas above 50 in the past (see red lines on chart). I have included some rough fractals from periods in the past (arrows in grey) where we were previously rejected from the 52 and 54 level only to be dumped back into the red and into recession. It’s great that we are aware of these potential false flags so that we don’t get ahead of ourselves. It’s important to note that these fractal examples from 1980, 1990 & 1967 are not projections, just observations from past readings on what may be possible. It only highlights that we need to be cautious, even if we rise above the 50 level, we can be rejected into recession from the 52 and the 54 level. This is why we need help from other charts and indicators to help gauge the likelihood of a continuation higher or rejection lower. Here on Macro Mondays we have been and will continue to build a portfolio of leading market charts/indicators that you can check for free on my Trading View and see how they are all progressing. These charts will include trigger events and will be updated as matters progress. The charts can help inform you of the direction of the economy, the market and help you anticipate or time any potential looming recession. Some prior charts and their indications to date (all linked under this article); Concerning Charts: o Macro Monday 2 – The 2/10 year Treasury Spread FRED:T10Y2Y : The current yield curve inversion on the 2/10 year Treasury Spread historically provided an advance warning of recession/capitulation in 2000, 2007 & 2020 however it provided us a wide 6 - 22 month window of time from the time the yield curve made its first definitive turn back up to the 0% level. September will be month 6 of that 6 – 22 month window and thus we are clearly entering dangerous territory. o Macro Monday 6 – ISM Manufacturing New Orders Index ECONOMICS:USMNO : Its clear from our chart shared today that the ISM New Orders Index is also entering into dangerous territory having been below the sub 50 level and in the orange zone for 13 months. This has never happened before without a recession, bar a lessor 12 month timeframe in the orange zone in 1995/96. The ISM Manufacturing New Orders readings for August and September will be vital indicators for the direction of the economy. o Macro Monday 4 – Global Net Liquidity Vs S&P 500 NYSE:GNL : We shared this chart on the 3rd July as an advance warning of an imminent and expected pull back in the $SPX500. A negative divergence was evident on the chart as Global Net liquidity was decreasing for 6 months from Jan – July 2023 and the S&P 500 increased over the same period. Please review the chart press play and see how accurate this call has been. GNL is currently signalling at minimum a continued correction over the months of Aug and Sept. Side Note: I am very aware of the Halloween effect in which markets rally into the months of October – December thus a pull back in Aug/Sept could end up being short term with a surge in the markets in October. The ISM reading for August (released in Sept) and September (released October) should help us gauge what outcome is more likely. Any increase/decrease in GNL will also offer insight over those months. Aside from this we should be aware of any Fiscal Stimulus that is announced as this would likely have a significant impact. I hope to cover Fiscal Stimulus in coming Macro Mondays, it’s a work in progress. Charts Demonstrating Strength: o Macro Monday 1 - Dow Jones Transportation Index ( DJ:DJT ): The transportation sector acts as a leading indicator as it is further up the value chain ahead of the final products being sold by companies in Dow Jones Industrial Average $DJI. It is similar to ISM Manufacturing New orders in this regard, ahead of or at point of sale execution. When the Dow Jones Industrial Average TVC:DJI is climbing higher while the DJT is falling (Negative Divergence), it can be a signal of economic weakness ahead, this occurred prior to March 2020 capitulation, making this a very valuable tool to have in our arsenal. - In our chart recently shared a positive weekly MACD cross gave us a heads up that price might break through strong resistance levels, which it in fact did. If we can make the prior resistance level support and bounce off the support, price could stretch to all-time highs at which point we can reassess. o Macro Monday 3 – SPDR Homebuilder Index AMEX:XHB : The Chart can be used as a leading indicator for the US housing market as the stocks in the XHB comprise of companies that provide the materials and products to build new houses and renovate homes. These products are higher up the supply chain and sold before construction commences or during. In the past the XHB chart provided a significant advance 12 month+ warning of the 2007 Great Financial Crisis which is illustrated in red on that chart. - Since sharing the chart price appears to be on course to testing its all time high and has a bullish MACD Cross on the monthly. This could also be a double top however historic positive MACD Cross performance suggests we have higher to go. Its looking positive. o Macro Monday 5 – Arca Major Markets Index (XMI): The XMI has proven itself as a leading indicator as it provided an advanced 9 month warning of the follow up recession/capitulation price action that initiated in Sept 2000 on the S&P 500. - Since we shared this chart it has broken above its all time highs and is currently resting on support. A bounce higher here would be confirmation of the uptrend, however this could be a false breakout which would be confirmed if we lost the support. This chart will be important to watch for the August – September period also, again highlighting just how important these 2 months are. Conclusion Its clear from all of the above charts that the price and readings for the months of August and September 2023 will be critical to determining the potentiality of a recession / market capitulation or for letting us know will there be continuation of climbing the wall of worry. Its clear that we are at an inflection point over the next 60 days. Based solely on the charts shared to date the fact that the DJT, XMI and XHB are still leaning bullish, I remain long term long until these charts break down or the GNL and ISM Manufacturing Index confirms to the downside. That does not mean that we can’t get a 10% ,15% or 20% pullback in the S&P over the next 60 days, this would not surprise me, however based on some of the charts I have shared previously I think it is probably that this will be a temporary pull back. This leans me towards thinking that if there is a hard landing, it will come later in 2024 or even 2025. If that view changes and the above positive charts pull back, ill be the first to let you know. Stay Nimble folks, August and September are decision time. PUKA
ECONOMICS:USMNO
by PukaCharts
2
Continuous Jobless Claims Continues to IncreaseU.S. Continuous Jobless Claims Rep: 1,895 🚨 20k HIGHER THAN EXPECTED🚨 Exp: 1,875K Prev: 1,865k (revised down from 1,871k) 20,000 higher continuous claims than expected. This is keeping the long term trend rising and remains one of thee most concerning charts out there. Chart Trend Since Sept 2022 continuing claims increased from 1.302m to 1.895m (593k+). This is significantly concerning trend and suggests that an increasing number of people that have become unemployed are remaining unemployed for longer. Recession Watch For the last 6 Recessions the 2.86m level was surpassed confirming or coinciding with recession initiation (see red dashed line). This is noted as the “Last 6 Recessions Threshold” on the chart. This is a level that was surpassed on confirmation of recession commencement (recessions are in red). The blue levels are pre-recession increases which are the warnings we are trying to interpret to get a lead. The above chart above has min, avg and max levels on the bottom right to illustrate the levels we would need to hit for increased the pre recession risk. Right now this chart demonstrates we are at max timeframe and close to max levels for an advance recession warning. PUKA
ECONOMICS:USCJC
by PukaCharts
1
U.S Core PCE (FEDS FAVOURITE METRIC)U.S Core PCE (FEDS FAVOURITE METRIC) Rep: 2.8% ✅ Slight decrease as Expected ✅ Exp: 2.8% Prev: 2.9% U.S. Headline PCE Rep: 2.4% ✅ Notable Decrease Expected ✅ Exp: 2.4% Prev: 2.6% Both Headline & Core PCE have come in lower and as expected; ✅ Core decreased from 2.9% to 2.8% ✅ Headline PCE decreased from 2.6% to 2.4% Historical Core PCE Norms On the chart you can see that since 1990 the typical Core PCE range is between 1 - 3% (red dotted lines on chart - green area). We are slowly getting back down into this more historically moderate level. We have fallen below the 3% level and down into the historically moderate zone for PCE levels. The Federal Reserve have advised that Core PCE is expected to decline to 2.2% by 2025 & finally reach its 2% target in 2026. At this rate we might reach 2% a little sooner than that. For the full breakdown of the Core and Headline PCE and to know the differences between PCE and CPI, please review the Macro Monday I previously released which explains it all (see below link). PUKA
ECONOMICS:USCPCEPIAC
by PukaCharts
BULLISH SETUP ON HY-IG SPREAD EMERGING. (BEARISH EQUITIES)Back in November of 2022 I wrote about using the HY-IG spread as a potential indicator of 'risk on' vs. 'risk off' sentiment and I will insert that below for readers trying to understand how this spread differential can be utilized. Subsequently I will explain what I currently see emerging on the above chart with the addition of both the RSI and correlation indicators to provide a more robust and predictive analysis than using the HY-IG options adjusted spread alone. Written November 2022 - 'When the spread between High-Yield (HY) debt and Investment Grade (IG) debt contracts or expands, this can be perceived as the market demanding more or less compensation for the risk it perceives to be present in owning the HY debt against the IG corporate debt. (HY-IG) = Risk On/Risk Off market sentiment. Generally speaking HY debt a.k.a. Junk Debt, is considered more risky than IG debt. Because of this increased risk, the market demands a higher yield for taking on HY debt, also known as a ‘risk premium’ or ‘premium’ over the alternative investment opportunities the market provides. This yield premium on HY/JunkBonds can be viewed as ‘extra incentive’ for bids to take on the ‘riskier debt’. When this spread (white) contracts, we can see that the market (yellow) has a tendency to go up (risk on) and when the spread (white) expands we can see the market (white) has a tendency to go down (risk off). This is only one of many indicators I use to gauge ‘market risk sentiment’ and I thought I would share it.' (I have included the link to this piece for reference at the bottom of the page and please excuse the extra charting as I was new to the platform at the time and included the second chart and indicators, but the words remain the same.) Now that the fundamental use case of the HY-IG spread is explained we can dive in to the current situation. As we can see the HY-IG spread called the late October2023 bottom in the AMEX:SPY (orange), as the spread peaked, the broader equity markets found their bottom. This is not always as direct and their is often a bit of a latency where equities will begin to trend upward before the spread peaks due to the forward looking nature of equity markets, however in October of 2023 the spread nailed the bottom. As of today, February 27th, 2024, the HY-IG spread has made a 'lower low' down to 2.27 which gives us a bullish price to RSI divergence on the HY-IG options adjusted spread. The HY-IG spread has made a 'lower low' while the RSI is still printing 'higher lows'. In this particular instance, a bullish divergence on the HY-IG spread could signal a bearish sentiment for broader equity markets ( AMEX:SPY ) at some point over the next 4 to 6 weeks which is the normal time latency between a peak or trough in the options adjusted spread and the time it takes to show up in the price action of equity markets. This divergence theory would be invalidated with an RSI reading below 25 by the HY-IG spread. A reading below 25 would make a lower low on the RSI and would invalidate any divergence. Finally we can look at the correlation (bottom indicator) and see that HY-IG is inversely correlated to the broader equity markets as represented by AMEX:SPY at (-0.92) over the last twenty trading days and has maintained a relatively consistent and significant inverse correlation to AMEX:SPY over the majority of the last year. While I did not include the tech laden NASDAQ:QQQ on the chart, the inverse correlation is still very significant at (-0.87) at the time I am writing this article. This assumes 'corollary significance' is achieved at a greater than or equal to (0.62) level. Given the further contraction in the options adjusted spread down to the 2.27 level, its possible we have a bit more upside room to run in equities, however, assuming the RSI divergence holds with 'higher lows', it's unlikely that we don't see a move to the upside in the HY-IG spread over the next 4 to 6 weeks, which is generally a bearish signal for equities markets. I hope you enjoyed this piece and I welcome any feedback or suggestions you might have so that I might improve further articles. Thank you for reading and happy trading!
FRED:BAMLH0A0HYM2Long
by The_Firewalker
1
Macro Monday 35~Richmond Fed Manufacturing and Services IndexMacro Monday 35 Richmond Fed Manufacturing and Services Index (Released Tuesday 27th Feb 2024 @ 15:00 GMT or 9:00 CT) The Richmond Manufacturing and Services Indexes measures the conditions of each respective industry for the 5th Federal Reserve District which covers the District of Columbia (Washington DC), Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia. Both the indexes are derived from surveys conducted each month of relevant businesses in each respective industry. ▫️ The Richmond Manufacturing Index survey focuses on questions related to production, new orders, employment, prices, capacity utilization, and future expectations within the manufacturing sector. ▫️ The Richmond Services Index survey, on the other hand, asks questions about business activity, new business, employment, prices, inventory, capital expenditures, and future expectations within the service sector. While the specific questions and data points might differ between the surveys, the basic structure and methodology for calculating the diffusion indices remain consistent; The Chart You can see that the green zone is expansionary and the red zone is contractionary. At present Manufacturing (blue line) is in fairly deep contraction at -15 and whilst Services (red line) has recovered from -22 (Apr 2023) to +4 (Jan 2024). Reading the Chart: 🟢Above 0 is expansionary (green zone) 🔴Below 0 is contractionary (red zone) Historic Recession Patterns I have highlighted some patterns on the chart (orange) which demonstrate that historically when Services and Manufacturing declined for a period of between 27 and 45 months a recession can follow such declines. Importantly there was a period of decline in from Apr 2010 – Dec 2013(45 months) which did not result in a recession. During this period Services remained elevated and only fell marginally into contractionary territory for brief spells (which could be a tell of some buoyancy in the market during this period). At present we are 32 months into a general decline in both manufacturing and services. Services have been on the incline since Apr 2023 and recently moved into expansionary territory at +4 in Jan 2024 which is promising and may indicate the beginning of a trend change, however until manufacturing follows this trajectory I believe we are still at risk of repeating history. Manufacturing is down at -15 at present and needs to start as sustainable recovery into expansionary territory. It has remained more a less in contractionary territory since Apr 2022. Why even consider the Richmond Fed index? I think the best way to outline the utility of the Richmond Fed is to compare it to the Dallas Fed Index which will be released later today (Monday). I have covered the Dallas Fed on a previous Macro Monday (link will be in the comments) and I will update you on this index when it is released later today also. Both the Richmond Manufacturing Index and the Dallas Fed Manufacturing Index are valuable indicators of regional manufacturing activity, each offering unique insights. Dallas Fed Index focuses on a major economic manufacturing hub – Texas (An estimated 14.4 million people are employed in the state of Texas) The Dallas Fed Manufacturing Index covers manufacturing activity mainly in the state of Texas. The state of Texas ranks 2nd only to California in factory production & comes in at 1st as an exporter of manufactured goods, thus Texas is an important state for gauging manufacturing & production in the U.S. economy (not services is not included here). Texas also contributes an incredible c.10% towards the U.S. Manufacturing gross domestic product making the index an important metric to consider towards potential GDP trends in the U.S. So, the Dallas Fed is very good at gauging manufacturing in the U.S. simply because of the volume of manufactured goods from the region. Whilst the Dallas Fed Index focuses on a high volume of manufacturing activity and production within the state of Texas, it also specifically focuses on durable goods industries like aerospace, energy, and technology whilst the Richmond Index below is much more diversified in terms of its manufacturing industries, its services sector and regionally diverse. Richmond Index focuses on more economically diverse regions (inclusive of a large services sector) (An estimated 23 - 25 million people are employed in the fifth federal reserve district) This Richmond Index covers the Fifth Federal Reserve District, encompassing an incredibly diverse range of industries across six states. Its difficult to portray the expansive array of various manufacturing and services within these regions but I will try. This index goes far beyond the specific performance of durable goods in an isolated state like Texas and reflects manufacturing and services health across various sectors and regions. It offers economists a broader picture of manufacturing health in the U.S. compared to indices focused on specific industries or regions. To give you an idea of the diverse ranges here: In Washington DC you have a major corporate & services hub; think Accenture, Deloitte, KPMG, Capital One) combined with tech and comms center with the likes of Amazon web services, Verizon Communications & General Dynamics. You obviously have a strong political and legal presence in this region also. Maryland, Virginia and North Carolina appear to have a very strong healthcare dynamic with the likes of Bon Secours Mercy Health System, VCU Health System, Duke University Health System and Atrium Health. Baltimore in Maryland has the Johns Hopkins Hospital and Health System employing over 40,000 employees. All these states appear to have strong university presences also (offering education employment and services) which likely supply the necessary expertise for the medical manufacturing and services that are present across these states. South Carolina is known for having one of the major three Boeing aircraft manufacturing facilities and is also known the manufacturing of Michelin tires. Across all six states you have a rich and diverse farming and forestry industry, food production facilities and waste productions plants. Walmart, Home Depot, Target and Amazon are also present across all these states. You can clearly see why the Richmond Fed offers a more nuanced and complex picture of the U.S. manufacturing and services economy. This diversity in sectors, regions and employment demographic gives us a different insight against the more centralized manufacturing hub contained in Texas under Dallas Fed Index. Furthermore, in terms of employment the six states included in the Richmond Fed Index is approx. 24 million versus the approx. 14.4 million employed in the state of Texas (under the Dallas fed Index). Both indexes are very valuable and should both be equally considered in our assessments of the U.S. economy. Thanks for coming along and learning about the chart history on the Richmond Fed Index, the historic trends and the combined utility of both the Dallas and Richmond Fed Index . PUKA
ECONOMICS:USRFMILong
by PukaCharts
9