Morning Report: Manufacturing continues to contract

Posted on May 1, 2023 by Brent Nyitray

Vital Statistics:

Stocks are flattish this morning after First Republic Bank was seized by regulators over the weekend. Bonds and MBS are down.

The big event this week will be the FOMC meeting on Tuesday and Wednesday. The Fed Funds futures are predicting about a 80% chance of a 25 basis point hike this week. Besides the FOMC meeting, the other big piece of data will be the jobs report on Friday.

First Republic Bank was seized by the FDIC over the weekend. JP Morgan will acquire the bank for $10.6 billion. JP Morgan will also get loss coverage from the FDIC of 80% on all acquired loans. The underlying assumption of the deal was that FRB’s loans were marked at 87.

Separately, the Fed’s review of the Silicon Valley Bank situation is here. It basically lays the blame on deregulation and limiting the regulatory burden on the banking system: “In the interviews for this report, staff repeatedly mentioned changes in expectations and practices, including pressure to reduce burden on firms, meet a higher burden of proof for a supervisory conclusion, and demonstrate due process when considering supervisory action,” the report says, adding that this may have “in some cases led staff not to take action.”

I still find the fact that the Fed didn’t even consider the scenario of rising interest rates in its stress tests to be the biggest surprise. Especially since their policies made that scenario happen. The assets that got the bank in trouble were Treasuries and MBS, but just because an asset doesn’t have credit risk doesn’t mean it has no risk.

The US manufacturing economy improved in April, according to the ISM Manufacturing survey. That said, it remains in contraction territory.  “The U.S. manufacturing sector contracted again; however, the Manufacturing PMI® improved compared to the previous month, indicating slower contraction. The April composite index reading reflects companies continuing to manage outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period. Demand eased again, with the (1) New Orders Index contracting, but at a slower rate, (2) New Export Orders Index slightly below 50 percent but improving, (3) Customers’ Inventories Index entering the low end of ‘too high’ territory, a negative for future production and (4) Backlog of Orders Index continuing in strong contraction. Output/Consumption (measured by the Production and Employment indexes) was positive, with a combined 4.4-percentage point upward impact on the Manufacturing PMI® calculation. The Employment Index indicated slight expansion after two months of contraction, and the Production Index logged a fifth month in contraction territory, though at a slightly slower rate. Panelists’ comments continue to indicate near equal levels of activity toward expanding and contracting head counts at their companies, amid mixed sentiment about when significant growth will return. Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index dropped further into contraction as panelists’ companies manage inventories exposure. The Prices Index moved back into ‘increasing’ territory, at a moderate level, after one month of marginally decreasing prices.

Filed under: Economy |

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46 Responses

  1. ScottC, on May 1, 2023 at 9:51 am said:

    This is pretty good:

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    • Brent Nyitray, on May 1, 2023 at 10:02 am said:

      price controls for rent. how smart!

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      • Let the mutherfuker burn!, on May 1, 2023 at 10:10 am said:

        That will never cause unintended consequences.

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        • Brent Nyitray, on May 1, 2023 at 10:37 am said:

          how dare you assume the government hasn’t thought this through.

          shame on you.

          Like

      • ScottC, on May 1, 2023 at 10:30 am said:

        Just more evidence that socialist ideas are like tooth decay…if you are not constantly taking steps to protect yourself from it, it just naturally keeps coming back and destroying.

        (BTW, another stupid pet peeve of mine…every single one of the “four more upstate cities” mentioned in the article are actually south of the southern tier border between New York and Pennsylvania. They are “upstate cities” only in the sense that any city north of Times Square is “upstate”)

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        • Brent Nyitray, on May 1, 2023 at 10:38 am said:

          They are also dumps. Poughkeepsie and Newburg are awful.

          Like

        • jnc4p, on May 1, 2023 at 10:49 am said:

          So update New York typically refers to any location north of the border with Pennsylvania if it continued all the way across the state?

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        • ScottC, on May 1, 2023 at 12:29 pm said:

          jnc:

          So update New York typically refers to any location north of the border with Pennsylvania if it continued all the way across the state?

          To people from upstate NY, yes. You can always tell when someone is from NYC because they refer to anything north of Manhattan as “upstate”. And since there is nothing south of NYC, that means that to people from NYC, NY state breaks down into just 3 parts: NYC, Long Island, and upstate. But as someone who grew up in Syracuse, a place like Poughkeepsie is definitely not upstate. Binghamton barely qualifies.

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  3. Let the mutherfuker burn!, on May 1, 2023 at 11:59 am said:

    We’re going to be bitterly disappointed. I only see Alito, Thomas and Gorsuch doing the right thing.

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    • ScottC, on May 1, 2023 at 12:34 pm said:

      I don’t want to get my hopes up, but I don’t think they would have bothered hearing the case if there wasn’t a good chance that it got overturned. KBJ recused herself, but unfortunately I don’t think that will have any impact. It’ll depend on Kavanaugh and ACB.

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  4. jnc4p, on May 1, 2023 at 12:38 pm said:

    This is why they had to get Tucker off the air. To prevent any push back to this narrative:

    “The war in Ukraine is about much more than Ukraine; it is about the very subjects that animate this magazine: democracy, freedom, justice, humanism. So Anne, and others, will continue to cover this war and its consequences vigorously and ambitiously. As you will see, the pictures accompanying our story were taken by Paolo Pellegrin, one of the greatest living photographers, and the cover was designed and drawn by Bono, who, in addition to … being Bono, is a gifted illustrator. Not long ago, he told me that he sometimes re­designed and reimagined Atlantic covers on his iPad. I was, as you might imagine, curious about this hobby, and I asked to see his sketches. They were very good. I suggested that he make an actual Atlantic cover. Zelensky, a man we both admire, was a natural subject for his first go. Like Anne, Bono is pre­occupied with issues of freedom and dignity, and, working with Oliver Munday, our associate creative director, he made a stunning cover that captures the resolve of Ukraine’s wartime president.”

    https://www.theatlantic.com/magazine/archive/2023/06/ukraine-russia-war-consequences/673792/

    Apparently Fox hasn’t released Tucker from his contract, so they are essentially paying to keep him off the air.

    https://www.racket.news/p/transcript-america-this-week-42823

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  6. jnc4p, on May 1, 2023 at 12:59 pm said:

    Jamie Dimon helps the Fed again.

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  7. jnc4p, on May 1, 2023 at 1:10 pm said:

    Here’s a question for our resident financial traders:

    Do you think that an AI trading system is possible and/or already in use?

    If I was spending money on developing AI, that’s what I would be working on, not improved Chat bots.

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    • Brent Nyitray, on May 1, 2023 at 1:28 pm said:

      AI trading has been in use for decades. The Crash of 1987 was due to an AI trading program called portfolio insurance.

      Do I expect one to beat the market? No. Because everyone’s models will look almost identical.

      When I was at Elliott and Long Term Capital Management blew up, I was excited to see what these Nobel laureates had cooked up. I was expected to be blinded by science. Instead they had the same trades on that every hedge fund and prop trading desk had on.

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      • ScottC, on May 1, 2023 at 1:41 pm said:

        Brent:

        AI trading has been in use for decades. The Crash of 1987 was due to an AI trading program called portfolio insurance.

        Was that really what we would call AI? There was definitely algorithmic or automated program trading, but those were basically mindless machines executing actions determined by people and placed into computer code. They weren’t “learning” and then coming up with their own independent strategies, I don’t think.

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        • Brent Nyitray, on May 1, 2023 at 1:44 pm said:

          They weren’t. I was lumping in program trading with AI.

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        • Let the mutherfuker burn!, on May 1, 2023 at 1:46 pm said:

          Seems like it was a bunch of If/then type programming.

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        • Kevin S. Willis, on May 1, 2023 at 10:44 pm said:

          Most of what we have now still isn’t what I’d call AI. Much closer than anything from 1987 but still relying heavily on the same kind of structural logic, just at much larger scales. I think some of it might be the root of real AI but there’s not a lot of discussion about how heavily dependent “AI” is on training. It’s very interesting as to what it can reveal about human thought but it’s not intelligence. It’s massive data processing with filters.

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      • jnc4p, on May 1, 2023 at 1:42 pm said:

        You don’t see the Chat GPT and very large data set models that are now in vogue changing anything?

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        • Brent Nyitray, on May 1, 2023 at 1:44 pm said:

          Perhaps, but I think all the models will be identical, and if everyone has the same trade on, it won’t make money.

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        • ScottC, on May 1, 2023 at 2:04 pm said:

          It’ll be interesting to see if various AI models all do end up with the same herd mentality (if you can call it that with AI) that plagues human-directed trading.

          I am not aware of any AI trading programs yet, but I have to think it is being worked on.

          Like

    • Kevin S. Willis, on May 1, 2023 at 10:48 pm said:

      You’d have to be a group with a novel training model, key confidential. And I expect any good novel training model could easily be detected and adapted to. And if enough models out there making trades, people might figure out how the models “think” and start gaming the models to move the market. You’d have whole Reddit groups dedicated to fucking with the trading AIs.

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  8. Let the mutherfuker burn!, on May 1, 2023 at 2:00 pm said:

    Tranny runs a rape crisis center in Scotland.

    Despite lacking a gender recognition certificate, Wadhwa, 43, was appointed chief exective of Edinburgh Rape Crisis Centre in May, a post that was advertised as for a woman only.

    Goddamn right, bigots!

    Mridul Wadhwa, a transgender woman, said people would not truly recover unless they addressed their “unacceptable beliefs” because “therapy is political”.

    She said: “We will work with you… but please expect to be challenged on your prejudices.”

    https://www.heraldscotland.com/politics/19509343.outcry-plan-educate-bigoted-rape-survivors-trans-rights/

    In the end, Tranny’s will save us all. Even rape victims who are disgusting bigots.

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  10. jnc4p, on May 1, 2023 at 3:00 pm said:

    Starting to see a pattern:

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  11. jnc4p, on May 1, 2023 at 3:45 pm said:

    Sometimes the Bee just nails it:

    “Local Carpenter Continues To Spread Disinformation Deemed Harmful By Religious Experts

    Theology · May 1, 2022 · BabylonBee.com ”

    https://babylonbee.com/news/local-carpenter-continues-to-spread-disinformation-and-teachings-deemed-harmful-by-religious-experts

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  12. jnc4p, on May 1, 2023 at 3:55 pm said:

    Worth noting:

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    • Brent Nyitray, on May 1, 2023 at 3:56 pm said:

      when is the left going to construct the gulags?

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      • jnc4p, on May 1, 2023 at 4:49 pm said:

        What goes around comes around. It will be interesting to see if a different DA ever decides to go after the antifa for mask wearing.

        Although, they have better countermeasures with the dressing in black bloc and the umbrellas.

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  13. jnc4p, on May 1, 2023 at 4:52 pm said:

    This is hilarious. Someone criticizing the Met Gala for having Karl Lagerfeld as the theme because:

    “I think that everything that Karl represented is something that we all generally are very against,” said Senam Attipoe, 23, who is one of the organizers of the HFTMG account. “We value democratization. He valued exclusivity, and he demonstrated that throughout his career. And we value inclusivity and creativity. He valued celebrity, and we value self-expression.”

    https://www.washingtonpost.com/lifestyle/2023/05/01/karl-lagerfeld-met-gala/

    The entire point of the Met Gala and fashion in general is to celebrate exclusivity and celebrity.

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  14. Let the mutherfuker burn!, on May 2, 2023 at 8:40 am said:

    Lol!

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