Previous Research Copper Going to Nowhere Town
Yesterday, the ISM Non-manufacturing PMI (ISM Services PMI) was released, revealing a decrease in the index value from 51.9 to 50.3 compared to the previous month. This index holds significant importance as historical data has shown that periods of manufacturing and services PMI dropping below 50 have coincided with economic contractions. Currently, the manufacturing PMI has already remained below 50, while the services PMI hovers near this critical level. Therefore, this data point suggests a potential weakening of economic activity.
Typically, services PMI tends to lag behind manufacturing PMI, so the decline in the present value though unexpected was probable. However, the market reacted to this information by factoring in the reality of a potential economic downturn. Looking ahead, it is probable that the services PMI will drop below the 50 mark in the coming months, aligning with Airtham’s recession predictions for this year, despite the equity markets largely dismissing such concerns.
Can US Skip the Recession?
The most recent labor market data paints a concerning picture of overall weakness. Typically, the effects of changes in interest rates take some time to ripple through the economy. Historically, this lag has been around 18 months. Interestingly, this pattern held true as, precisely 18 months after the initial rate hike in March 2022, we are now witnessing the visible impact this month. The Federal Reserve consistently raised rates throughout 2022, suggesting that the consequences of these consecutive hikes will continue to materialize as the year unfolds.
SP500 & Inflation Update: Aug 2023
Airtham Macro Research: The July headline CPI release followed predictions of a slight increase, yet the actual magnitude was less significant than anticipated. This outcome sparked optimism within the market, leading to a surge in activity and speculation of a potential pause in rate hikes. However, this optimistic rally was short-lived as market participants quickly adjusted their expectations. The weaker-than-expected inflation reading meant a potential decline in economic demand. This perspective gains support from jobless claims data released a few days back, that showed claims rising to a 1.5-year high. Consequently, there's now a debate over whether further inflation reduction is beneficial or detrimental to the markets.
What’s Happening to US Tax Receipts?
One of the most crucial indicators for gauging the health of a country lies in its government tax receipts. When tax receipts rise in tandem with economic growth, it signals a thriving nation. Conversely, economic downturns often witness an accompanying decline in tax receipts. However, what's truly concerning is when tax receipts decline despite a healthy and expanding economy.