Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Tuesday, June 4. The Bottom Line segment of today’s podcast starts at (2:53) for listeners who want to skip ahead.
State of Play
The manufacturing survey we spoke of yesterday came in below estimates, leading to fresh concerns about the economy and a rally in the bond market. We also got a bad report from the FDIC on regional banks, but for all the dramatizing on Xitter the SPDR S&P Regional Bank ETF (KRE 0.00%↑) is not moving in the pre-market. As we look at our board of indicators at 0650, risk appetite is clearly retrenching however:
Stock index futures are pointing to a lower open led by small caps. The Russell 2000 is down 1.1% with S&P 500 (SPY 0.00%↑) and Nasdaq 100 (QQQ 0.00%↑) futures down 0.5% each;
The damage is far worse in commodities land. WTI crude oil is down 2% to trade below $73/barrel for the first time since January. Copper prices are down 2%;
Bonds are continuing to gain, with the yield on the 2-year down 2 basis points to 4.80% whilst the 10-year yield is down 2bps (yields move inversely to prices);
Cryptos are flat. Bitcoin trades around $69,000.
Earnings
A couple of retailers to start us off this morning: Bath & Body Works (BBWI 0.00%↑) and Designer Brands International (DBI 0.00%↑), formerly known as Discount Shoe Warehouse, are out before the open at 0930.
After the close at 1600 we’ll hear from CrowdStrike (CRWD 0.00%↑), Hewlett Packard Enterprises (HPE 0.00%↑), PVH (PVH 0.00%↑), and others.
Economic Data
The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS, is out at 1000. This is a little dated so we’re getting April’s data today. Economists expect 8.4 million job openings, slightly less than the 8.49 million seen the previous month. The quits levels were 3.3 million at last month’s reading, corresponding to 2.1% of the workforce. There unfortunately isn’t an economist estimate for that.
Factory orders are also out at 1000. The expectation here is for an increase of 0.6% month-over-month, which is a drop from the 1.6% recorded last month. If you strip out transport items, the number is expected to come in at 0.4% MoM, slightly lower than the 0.5% from the previous reading.
The Bottom Line©️
Suddenly economic concerns are back in focus. The ISM figures didn’t miss by that much but the prices survey was well below estimates, which speaks to demand being soft. The action we’re seeing in commodities is a logical result.
This could be a sign the economy is turning or it could be another false positive. We’ve had several of these in the last couple of years. Ultimately the US consumer will drive things. Yes, if manufacturing activity dries up Americans will lose their jobs and that will crimp consumers. But manufacturing is just part of the US economy. A growing part for sure, with this resharing from China stuff, but still just part. Services are the larger part and those are holding up fine.
Our most recent podcast guest Bob Elliott points out that the link between ISM Manufacturing PMI and actual industrial production is, well, non-existent. So there’s also that.
A buying opportunity then? If you believe this is all overblown then it may make sense to get long cyclicals. Commodity names may present an opportunity as well. Oil majors maybe, though these are still trading near highs even after selling off a bit.
The Contrarian added to his stake in copper miner Taseko Mines (TGB 0.00%↑). This information is provided for transparency purposes and is not intended as investment advice.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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