
The low self-esteem from consumers was not welcomed by the U.S. markets today. The Consumer Confidence Index was down to 49.3 in June after hitting 54.8 in May. This data point did not fall in the “less worse” category and made the U.S. markets tank almost 1% across the board.

“This index, along with other consumer readings, had been showing big improvement as consumers grew increasingly less pessimistic on current conditions and especially on the outlook. But the expectations component fell back in June, down 6 points to 65.5. The assessment of the present situation, in another setback, fell nearly 5 points to 24.8.
High unemployment and high gas prices are two central reasons for the pessimism. Those saying jobs are plentiful fell 1.3 percentage points to a microscopic 4.5 percent. Those saying jobs are hard to get rose nearly 1 percentage point to 44.8 percent. These readings are not promising for Thursday’s employment report. Inflation expectations jumped 3 tenths in the month to 5.9 percent fed by a roughly 5 percent rise in pump prices during the month. There’s no indication that concern over monetary inflation is at play in inflation expectations.”
Source: Bloomberg
Overall, high-debt levels and a tough labor market remain a problem for the U.S. consumer. As a result, expectations are not so bright. Wall Street would have rallied some 2%+ if this data had come in better-than-expected, but unfortunately, it didn’t.
These days, any “green shoots” that become “brown manure” is not a happy day for the market.
Does this bode well for the other economic data coming out this week? Here is Bloomberg’s economic calendar for the week.
The big things on the plate tomorrow are the Motor Vehicle Sales, the ISM Manufacturing Index, the Pending Home Sales Index, and the EIA Petroleum Status Report.
Motor Vehicle Sales
On a gut-basis, I would say that motor vehicle sales would be down given the economic environment and lower consumer confidence. But once again, some tricky things are always in the workings. If you watch some of these car deals today such as Hyundai Assurance, you can get a car with some instant cash-back or monthly payment, plus you get to return the car if you lose your job. It’s obvious they won’t give this deal to anyone, but it’s likely to spur some buying and get some other non-qualified people in the store.
Such unsustainable things, which has been my topic of choice lately, doesn’t last forever. My point is that tomorrow’s numbers could be slightly inflated due to deep discounts where the car companies are taking the toll (smaller profit margins) to increase revenues. The warning is to not be fooled by slightly “less worse” numbers and start calling an economic recovery again.
If the numbers blow everyone away by a good margin, I may be convinced and even pop some champagne for the occasion.
ISM Manufacturing Index
The second important data point is the ISM Manufacturing Index. As seen in the graph below, this index has been getting “less bad” pretty steadily and I like it.

If this data point is positive tomorrow, it’s good news and it seems like a trend may be forming. But when applying the concept to long-term economic recovery, we have to be cautious once again. Overall, inventories in the economy got very low at the beginning of 2009 and firms were forced to start ordering again. The magic question would be if this increase in manufacturing is from sustainable (once again) demand or just firms replenishing their inventories. If not just the latter, more champagne!
Pending Home Sales Index
We’re also getting data on the Pending Home Sales Index. This index tracks pending home sales, which is when a contract is signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
The S&P Case-Shiller Housing Price Index came out today and it fell into the fabulous category of “less bad”. The 10-city composite went from 151.41 to 150.34 and the 20-city composite went from 139.99 to 139.18. In the words of Robert Shiller, it was a “striking improvement in the rate of decline” (Source) ( To me it was…”less bad”.)
Is the housing market bottoming? I don’t know. But, would I buy a house? No.
Why? I prefer to lose some upside appreciation than to be the moron that buys a house and it depreciates by 10% or more in the next year. Things may be getting “less bad”, but why would you want to be the person in the front line to test drive something that just crashed?
Additionally, prices are coming down to REGULAR levels from BUBBLE levels, which means they will (or SHOULD) not just pop back up. Unless, that is, we get into a new bubble just like the one that created this whole mess.
EIA Petroleum Status Report
This report shows weekly information on petroleum inventories in the U.S., whether produced here or abroad. Oil has been swinging back and forth the $70 a barrel level just waiting for news. You get a slight decrease in inventories, and I could see the price hitting $75…for no reason. You get an increase in inventories, you’ll probably get the people in denial saying that demand is still going to increase and you get a drop to $67 or so.
The moral of the story is that (it seems to me) people want to stick with the “green shoots” bias and rally like there’s no tomorrow on slightly positive data and deny any setback in the data. In other words, turn their eyes away from what they don’t want to see.
Summary
So, the consumer is still feeling hung-over from getting drunk on credit and some big data points are coming out tomorrow. If things are positive, I would predict a big 2%+ rally across the board. Plus, it’s the week before July 4th, so people just want to be happy. If things are mixed, I could see some rationalization around the “green shoots” and the markets ending slightly positive or mixed.
I’m putting some currency trades tomorrow in the morning and I’m feeling a little bearish.
I feel like manufacturing is going to be up, car sales a little up (maybe), pending home sales somewhat down, and the Employment report (which I did not mention) could be bad. Adding all this up, I see risk-appetite going down and plan to capitalize on it by going long on the dollar. Research through the night will dictate the final decision.
Lastly, I will be sharing my Forex (foreign-exchange) trades in my blog. This means it’s time to get yourself a micro or mini account and make some money following my trades. Or losing money :).
Cheers.
Quote of the day:
“We will not very likely see ‘brown manure’ as the catchy horticultural replacement to green shoots.”
-David Rosenberg, Chief Economist and strategist at Gluskin Sheff & Associates
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