With most traders back at their desks after the holidays, there’s a host of key economic data coming out of the US on the last day of the trading week.
Chief among them is what looks like will be a less than stellar performance by US manufacturing, with the release of ISM Manufacturing PMI. Despite the stock market hitting record highs recently, the manufacturing sector doesn’t seem to be as optimistic.
We should note that the survey was conducted through the time in which the Phase 1 US-China trade deal was announced.
Although it was widely expected, the formal release might have had an effect on the projections from corporate executives. The result could come in significantly above market expectations. And this could be adjusted following the Markit PMI survey scheduled to be released later today.
What We Are Looking For
The key data to keep an eye on is the headline ISM Manufacturing PMI.
Expectations are for this to stay in contraction at 48.3 with a slight improvement over the 48.1 in November. The result would imply that the indicator has found something of a floor after slowly declining since the middle of last year.
Generally, the weakness in PMI figures has been attributed to the global trade situation. The easing trade tensions might mean the manufacturing sector could be getting some relief going forward.
Other analysts have argued that the damage of the trade war has already been done. And without any certainty that tariffs might be ramped up again, wholesalers are going to stick with their new suppliers.
The ISM employment survey is not immediately market-moving. However, it’s still relevant to projecting the market.
This is especially true regarding what we could expect from the NFP that will be released next week.
Surveyed economists are expecting manufacturing to have added a significant amount of jobs. This would push the indicator to 53.5 from 46.6. That’s a major improvement and could foreshadow better performance in the main indicator.
So far, US manufacturers have been grumpy about their new orders numbers, seeing declines over the last several months. New orders would have to rise before they start ramping up production. So, this would be a good bellwether to keep an eye on this time around.
Despite less than stellar manufacturing numbers, the US economy continues to forge ahead with record low unemployment and high consumer demand.
Consumer confidence remains high, and many analysts are expecting a generally positive year as election spending ramps up.
The dollar has been weakening in the wake of the Phase 1 trade deal as risk appetite kicks off. We would expect a weaker dollar to push inflation and make exports easier for manufacturers.
If traders come back more optimistic from the holidays, we could see that trend continue. This would help support the euro as a couple of analysts have been predicting.
However, we’ll have to wait for the rush of final quarter and year-end data expected over the next couple of weeks.