Sevens Report 11.26.14

Sevens Report 11.26.14HTG

Sevens Report 11.25.14

Sevens Report 11.25.14AQD

Sevens Report 11.24.14

Sevens Report 11.24.14HSW

Global Flash PMI Analysis

Global November Flash Manufacturing PMIs

  • Chinese PMI 50.0 vs. (E) 50.2.
  • German PMI 50.0 vs. (E) 51.5.
  • EMU PMI 51.3 vs. 50.9.
  • US PMI: 54.7 vs. 56.5.

Takeaway

The biggest disappointment in the data was the German PMI, which very surprisingly plunged to 50.0. This was the biggest negative of all the reports, although the broader EMU manufacturing PMI helped offset some of the negativity of the German report. (European markets would have been down even more if the EMU number hasn’t beat.) Bottom line, the flash PMIs signal that the European economy is still under pressure, and the positive effects of the ECB stimulus haven’t started helping materially, yet. This disappointing reading isn’t altering my opinion that Europe can outperform. However, the data weren’t that bad, and my opinion is based more on negative sentiment and ECB balance sheet expansion more than economic recovery. Case in point, while Europe sold off yesterday, it’s still up for the week.

Turning to the U.S., there were more conflicting data. The manufacturing PMIs missed expectations and hit the lowest levels since January, while the Philly Fed manufacturing survey surged higher to 40.8 (I don’t think I’ve ever seen a number that high). Generally, the national flash PMIs are the better gauge of manufacturing activity, and although they missed estimates, a reading of 54 still is healthy and it’s not going to make anyone nervous about the pace of growth in the U.S.

Finally, the Chinese number hit 50.0, just missing expectations. While the media focused on output dropping below 50, the number wasn’t that far from expectations and new orders (the leading indicator of the report) remain positive.

The pace of growth in China seems to be stable. While there are downside risks, the government remains committed to stimulus where needed, and that’s softening the blow of the “miss.”

Bottom line, they weren’t good numbers but they weren’t enough to materially change the outlook of a very slightly growing global economy.

This was an excerpt from today’s edition of the Sevens Report. To continue reading today’s Report, simply sign up for a Free Trial on the right hand side of this page.

 

Time to Buy XLE?

XLE 11.21.14

Time to Buy XLE?

Fundamentally, the outlook for oil remains broadly the same: Waiting on OPEC. But, as we discussed earlier this week, most major energy companies are not aggressively shutting in aggregate production, as increases from profitable wells are offsetting shut-ins from high-cost wells.

From a macro standpoint, pressure is mounting on OPEC, the Iranian negotiations may be breaking down and miss the late November deadline, and calls for sub $70 oil are very loud. So, we have energy stocks that are sharply off the highs and some potential positive catalysts on the horizon (OPEC meeting next week). So, to a point, XLE now has some “ok” fundamentals and potentially positive-turning technicals. Obviously this is a high risk/high return prospect, but XLE is worth a look especially if it breaks through that 50-day MA, which it should do today.

This was an excerpt from today’s Sevens Report, to continue reading today’s Report, simply sign up for a Free Trial on the right hand side of this page.

Sevens Report 11.21.14

Sevens Report 11.21.14AFS

Housing Starts Data Better than Headline Suggests in October 2014

Housing Starts

  • October Housing Starts were 1.009M (saar) vs. (E) 1.028M (saar).

Takeaway

The housing starts number was a miss on the headline but the details were actually good.

As always with housing starts, the two key numbers are single family housing starts and single family building permits (which led starts by 3-6 months).

Single family “starts” rose 4.2% in October and the September number was revised higher to 4.2%. Also, single family permits rose 1.4% in October.

The drop in the headline number was due to multi-family housing units declining 15.4% in October. But, the reason we look at this number is to get a gauge of the single family housing market, and yesterday’s data implied that demand for housing (specifically new homes) remains very healthy, and nothing in the number would make us doubt the housing recovery.

This was an excerpt from the Economic Section of today’s edition of the Sevens Report. To continue reading today’s Report simply sign up for a No-Risk Free Trial on the right hand side of this page.

FOMC Minutes Analysis

FOMC Minutes

The FOMC minutes didn’t contain many surprises, but on balance they did confirm that the FOMC is more committed to normalizing policy than the market thought before the October meeting.

Yesterday I focused on the difference between market-based and sentiment-based inflation expectations, and so too did the Fed in its minutes. The takeaway is that “most” Fed officials looked at the declines in market-based measures of inflation expectations as “noise” rather than a rising deflation threat.

The FOMC also cited that sentiment-based indicators of inflation expectations remain stable. While inflation likely would decline in the near term thanks to commodity prices, the committee remained confident they would reach their 2% goal sooner than later.

I know this is somewhat tedious, but it’s important, because the bottom line is that, as long as sentiment-based inflation expectations remain stable, the drop in market-based inflation expectations will not make the Fed more dovish.

This was an excerpt from today’s Sevens Report. To continue reading today’s report, simply sign up for a Free Trial on the right hand side of this page.

 

Sevens Report 11.20.14

Sevens Report 11.20.14NOW

Sevens Report 11.19.14

Sevens Report 11.19.14RBR