Investors eye manufacturing data, jobs report this week

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Yahoo Finance Live anchors discuss Asia manufacturing data weakening in July amid supply chain woes.

Video Transcript

Now here are three things you need to know this morning. Investors will turn their attention from earnings to economic data in the week ahead. New manufacturing data out of Asia and Europe weakened in July as supply chain woes persisted. All this comes ahead of Friday’s July jobs report.

And it is interesting now to see this market continue to focus on this notion that bad economic news is good news for the markets. That was the theme they played out in July. It seems to be the theme at least here in the early going. Some of the early estimates I’m seeing for the jobs report on Friday looking for about 300,000 increase on non-farm payrolls, but lots to digest here in this coming week.

Well, and that’s the importance too is when we get into the jobs data and how the Fed continues to evaluate that, clearly right now, in the employment situation, we’re not seeing a large pullback at least that’s showing up in the jobs data numbers and the levels of employment. In fact, we’re still seeing and monitoring labor force participation still hovering around this 62.2, 62.4 range. And so with that in mind, we’re going to look to see if that holds steady and then additionally going forward from here, how the Fed continues to monitor the risk of an impending recession with the reality that employment right now is still perhaps still adding on jobs to the broader economy at this point in time.

Yeah, I was thinking a consensus estimate for Friday’s report at 250,000. So we’ve got a pretty good dispersion there of estimates. The challenge, of course, is that you have slowing economic growth. And by the way, this morning we got factory numbers from around the globe that continue to show weakening from China to Europe. We’re going to get US numbers a little bit later on this morning.

So you’ve got all of this weakening going on. You still have inflation. So you have this conundrum for the Fed. Is it going to have to continue to be aggressive in the face of high inflation even on this weakening? We heard from Neel Kashkari who spoke on “Face the Nation”, the CBS show, over the weekend. And he said we’re still a ways off from getting to the long term inflation goal for the Fed, which is 2%.

And so again, that sort of– now, he is a non-voting member of the Federal Reserve right now. But again, it emphasizes the challenge that the Fed is going to have.

Well, that’s pretty terrifying if he views– Kashkari, of course, a big name, Minneapolis Fed Chief right there. Look, now we talked about this with Nathan Sheets on Friday. We’re looking at a potential synchronized global slowdown. Nathan said he’s not seeing a synchronized recession. But a lot of this manufacturing data we’ve seen out today signals that the whole world is slowing. And the next shoe to drop could be all of these major economies in recession.

Then you look at markets trading about 17 times earnings after July’s rally. And you get the sense that maybe none of this is priced in yet.

Well, if we’re already seeing FX headwinds, number one, be cited as much as they are over the course of this earnings season, then you start to think about the number of companies that have global exposure and are reliant on other countries for their revenue that they’re continuously producing. And where that comes into play is if we do see a pullback economically in other countries prior to the US, which we are clearly, it comes back to how much they’re also going to have to see that within their financial statements, within their own balance sheets.

And at a time where they’re already reducing some of their costs, at this point in time, does that decrease the amount of revenue that they see in other parts of the world prior to it hitting their US businesses as well?

Well, and they’re already earning less on that money because when they bring it back to the US because of the stronger dollar, the conversion is hitting them there. So if you get weaker sales and then an FX hit as well, you get sort of the double whammy from those two factors. So obviously, this doesn’t set up well. I mean, in terms of whether it’s priced in or not, which is the question that we keep asking everyone.

Every day asking everyone.

I mean, still no one that we’ve spoken to, I would say zero people that we’ve spoken to, have said it’s going to be a severe or deep recession. So even those that are predicting a recession with a relatively high probability are saying it’s going to be, especially when you look at it versus our great financial crisis, that it is going to be a relatively mild recession. Will we see that start to change? We’ll see. But for right now, that seems to be the consensus.