Data Keeps Sending Out Conflicting Signals, Fails To Give Direction

Earlier this week a data survey showed that sales of existing U.S. homes rose in June to their highest level in nearly 8-1/2 years and new jobless claims fell to their lowest in more than 41 years. Good news. Or should we add a question mark… good news?

Today, another report said that new U.S. single-family home sales fell in June to their lowest level in seven months and May's sales were revised sharply lower.

Is this a case of two steps forward and one step back? The data is so conflicting that it’s near impossible to get a good reading. The new homes data appears to be a minor setback for the housing market recovery, but, and it’s a big caveat, because fewer new homes being sold means fewer are being built and that means less economic activity in construction and associated industries such as equipment, materials, home products, shipping and so forth.

Early in the day, Markit's July flash manufacturing purchasing managers' index edged up to 53.8 from a 20-month low of 53.6 in June. So, there is a patch of blue in the partly cloudy skies but we won’t be saying, “Weather is beautiful, wish you were here” too loudly this month.

The dollar inched upward and the euro down in uneven, uncertain trading. Again, the condition is directionless. Meanwhile all major equities indices fell, the DAX in Germany and Shanghai getting hit the hardest.

Maybe it’s always sunny in Philadelphia but it was gloomy on Wall Street today. Earnings and forecasts disappointed for the most part, although there were some bright spots. In what is this worldwide mood rooted? If we had to pick scapegoats, they would be China and commodities overall.

The world’s second largest economy saw the preliminary China Caixin purchasing managers index (PMI) blindside markets by dropping to a 15-month low in July. Analysts blamed the hit on the recent stock market crash and weak export demand.

The index, released Friday, fell to 48.2, coming in well below the 49.7 forecast from a Reuters poll. (Anything below 50 indicates contraction.)

The Caixin data undermines the credibility of a recent report that said China’s economy had expanded by a robust 7% in the second quarter. That is an impossibility if manufacturing is shrinking. The Chinese need to pull their data collection and publishing act together so the rest of the world knows what’s going on there.

Commodities and commodities dependent businesses are getting hammered. Oil – which has been a short/sell move for a while – fell again today. West Texas Intermediate is down almost a percentage point in midafternoon. Brent North Sea, the world benchmark, has fallen more than 1%.

Gold jumped up off the canvass and turned positive in the afternoon session, hovering right below the 1100 mark. Silver is down slightly but platinum and palladium are both up.

Tellingly, all the base metals are down except for lead, which is up slightly. Those lower prices certainly are reflective of the manufacturing slowdown in China.

Agriculture is also getting hurt as big harvests across North America are expected. Coffee and cotton bids were up. All other ag commodities, including meat and live animal prices were down.

Wishing you as always, good trading,