Report 'SVET Markets Weekly Update (August 1, 2022)' by Crypto_Steward at 01 Aug 2022

SVET Markets Weekly Update (August 1, 2022) Source

August starts with two important leading indicators published by the Institute for Supply Management (ISM): ISM Purchasing Managers Index ( PMI) for July, which is coming out Monday, 1st of August at 09:00 AM and ISM Non-Manufacturing PMI for the past month, which will see the light of day at Wednesday, 3rd of August, 09:00 AM.

The previous Manufacturing PMI report (that of June 2022) says:

QU: The June Manufacturing PMI registered 53 percent, down 3.1 percentage points from the reading of 56.1 percent in May. This figure indicates expansion in the overall economy for the 25th month in a row after a contraction in April and May 2020. This is the lowest Manufacturing PMI® reading since June 2020, when it registered 52.4 percent. EQ:

However, as a PMI management (Timothy Fiore, ISM Chair) insisted: QU: Manufacturing performed well for the 25th straight month.EQ:

On a detailed level:

QU: Fifteen manufacturing industries reported growth in June, in the following order: Apparel (incl. Socks), Leather & Allied Products (incl. Footwear and Handbags); Textile Mills (incl. Fiber, Yarn, and Thread); Printing & Related Support Activities (incl. Books); Computer & Electronic Products; Machinery (incl. Lawn Tractors :)); Electrical Equipment, Appliances & Components (incl. Electric Lamp Bulbs); Primary Metals (incl. Steel Mills); Nonmetallic Mineral Products (incl. Glass); Plastics & Rubber Products (incl. Tires ); Transportation Equipment (incl. Automobiles); Fabricated Metal Products (incl. Kitchen Cookware); Miscellaneous Manufacturing (incl. Sporting Goods); Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Chemical Products (incl. Ethyl Alcohol). The three industries reporting contraction in June compared to May are: Paper Products (Paper Bags); Wood Products (incl. Manufactured Homes); and Furniture & Related Products. EQ: (classified according to North American Industry Classification System (NAICS))

In plain English it means that we are still expected to eagerly eat, drink, work, exercise and to travel but to do all of that in our old, dilapidated lodgings (as all of the three industries, which reported contraction in June, are related to either new homes purchases or old ones renovations).

Most market analysts predict that Manufacturing PMI will move one pips further down (to 52) in July. I disagree with those assessments. They look too optimistic to me, as almost all small and medium businesses across the country continue to slow down. Consequently, each day more and more peoples are facing long-term unemployment perspectives. That have not yet been reflected in job reports but it certainly curtails already consumers appetites. That can’t be missed by producers and will be reflected in Monday’s report shifting PMI Index more drastically than it is expected by main-stream analytics.

My estimate is Manufacturing PMI going down for at least 2 pips and, even, more, putting July Manufacturing PMI below 50.

On a Services PMI side the previous month (June 2022) ISM report, which is based on surveys of about 400 services firms purchasing and supply execs, says:

QU: In June, the Services PMI registered 55.3 percent, 0.6 percentage point lower than May’s reading of 55.9 percent. This is the lowest reading since May 2020 (45.2 percent). EQ:

If we look into its details:

QU: The 18 services industries reporting growth in June — listed in order — are: Mining; Management of Companies & Support Services (incl. owning stocks for management purposes); Other Services (incl. pet care services); Construction (incl. building and highways construction); Arts, Entertainment & Recreation (incl. events and exhibits); Utilities (incl. electric power services); Public Administration; Wholesale Trade; Health Care & Social Assistance; Professional, Scientific & Technical Services (incl. computer services); Transportation & Warehousing; Accommodation & Food Services (incl. fast-food and restaurants); Retail Trade; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Information; Real Estate, Rental & Leasing; and Educational Services. No industry reported a decrease in the month of June. EQ:

Other saying, purchasing and supply execs of various services providers are much more exited about their business perspectives than their more sober and forward looking colleagues from the manufacturing sector. This attitude is expected to shift south but a little in July (to 53.5) by mainstream economists. Although most service execs are likely to overestimate the soundness of US economy in mid-summer I venture to question corporate economists assumptions once again and put my own Services PMI estimate at the 51–52 range.

The first week of every month is a time when US Bureau of Labor Statistics publishes its The Job Openings and Labor Turnover Survey (abbreviated to JOLTS). The one for June is expected to come out at Tuesday, 2nd of August (9.00 AM).

The previous one (for May) reports:

QU: On the last business day of May, the number and rate of job openings decreased to 11.3 million (-427,000) and 6.9 percent, respectively. The largest decreases in job openings were in professional and business services (-325,000), durable goods manufacturing (-138,000), and nondurable goods manufacturing (-70,000). … In May, the number of hires was little changed at 6.5 million. The hires rate was unchanged at 4.3 percent. Hires decreased in finance and insurance (-40,000). EQ:

From previous JOLTS reporting we can see that businesses start to project US economic climate cooling starting from April 2022, when first decline in jobs openings was registered (11.681 mio from 11.855 in March). Further down the line this decline precipitates and is expected to fall to 11 mio in July by analytics.

Jobs openings can be deducted from corps previous financial and accounting reports with more precision than PMI which is based on surveys. So analytics tend to be more precise with their projections of JOLTS than PMI. However, I expect lower than 11 mio (in a range of 10.7–10.9 mio) of actual new jobs openings to be reported this Tuesday.

Monitoring US international exports and imports is becoming more important as the US economics continues to be progressively more and more influenced by the rest of the world economic and political developments.

U.S. International Trade in Goods and Services for May 2022, published by US Bureau of Economic Analysis (BEA) in July, reported that:

QU: … the goods and services deficit was $85.5 billion in May, down $1.1 billion from $86.7 billion in April … The goods deficit decreased $2.9 billion in May to $105.0 billion. The services surplus decreased $1.7 billion in May to $19.4 billion. … May exports were $255.9 billion, $3.0 billion more than April exports. May imports were $341.4 billion, $1.9 billion more than April imports. The May decrease in the goods and services deficit reflected a decrease in the goods deficit of $2.9 billion to $105.0 billion and a decrease in the services surplus of $1.7 billion to $19.4 billion. Year-to-date, the goods and services deficit increased $126.5 billion, or 38.4 percent, from the same period in 2021. Exports increased $197.1 billion or 19.4 percent. Imports increased $323.6 billion or 24.0 percent. EQ:

One thing which is quite obvious from this report is that all those ‘self-reliance’ speeches produced by politicians are just a noise. The trade deficit continues to increase year after year starting from 1990th, when it was less than USD 10 billion to 2007–2008 financial debacle which abruptly reduced financial incomings into US assets, consequently cutting the deficit from 75 to 35 billion.

After that the US trade balance of goods has been only going lower and lower into the red territory. It reached to 65 bln in Feb 2020 and then abruptly precipitated to 125 billion in Feb 2022 on a wave of local enclosures, international travels stoppage and trade wars. A slight increase in services trades balance can’t and won’t be able to offset trade goods deficit, specially, with continuing dependence of foreign oil supplies.

The resent June’s deficit analytical projection is 83 bln, among other things counting in the expected reduction of Russian oil supplies. I put it on 78–80 bkn range because I expect further reduction of foreign supplies and an increase in in-bound travels.

The Unemployment Rate monthly report, which is due this Friday, August 5th at 7:30 AM, completes this week’s economic news stream, which is likely to affect crypto market.

This report is issued by the same U.S. Bureau of Labor Statistics which produces the Inflation Rate estimates. Because those accounts play a crucial role in defining US monetary policy the fact that one govs body produces both of them undermines its credibility.

Besides those reports tend to be highly politicized whether BLS statisticians want it or not. So, I am not inclined to fully trust in its absolute impartiality, specially, with regards to methodology used to produce those records.

For example, the Employment Situation Report is based on payroll and household surveys of about 145 thousand businesses and government agencies, which is conducted by, so-called, computer-assisted telephone interviews (or CATI), which is not verified by independent parties.

Respondents of such interviews are likely to misrepresent their occupational and financial situations guided by a variety of hidden incentives. Besides, there are multiple groups of population, which are unable or unwilling to take such interviews, for different reasons, including, a lack of trust into central governments or a concern with their personal information safety.

After all those scandals with agencies leaking top secret data, not many believe that with wire companies storing all calls on their servers for NSA usage, there is such a thing as anonymous interviews anymore.

It leads to that the real unemployment is higher than a reported one, because those population groups which are more likely to be unemployed are also more likely to avoid those surveys or to misguide interviewers (bots).

For example, all four constitutive BLS reports published since March have shown the unemployment rate remains unchanged at 3.6%. Accordingly, analytics expect the rate be the same in July too. It is very unlikely if we able to use real unemployment data.

The US economy had started to enter into the recession in November 2021 already. Since that almost all US big corps either notably slowed their hirings or cut their work-force for at least 10% or more. Not to mention a growing reluctance of potential employees to take job offers for stagnating salaries faced by a galloping inflation.

I disagree with both — the BLS unemployment estimates and main-stream uninformed analytics forecasts. Assuming that the real unemployment rate is above 5–6% and the situation on a labor market is not getting better (which is clear from currently issued corps’ monthly earning worsening reports) some increase will be showed in BLS accounts sooner rather than later.

That concludes my August 1, 2022 weekly Markets update.