ITs a funny old world

The Empire State Manufacturing Index fell to 7.1, indicating that manufacturing activity continued to expand modestly in New York State and that firms remained optimistic that conditions would continue to improve. The significance of this monthly survey is that it provides a snapshot of the health of New York State’s manufacturing sector, widely regarded as a leading indicator of national trends.

 Interestingly, this is not the only piece of solid economic data from the US so far this year. Consumer Price inflation ahead of expectations, a strong January jobs report (if we ignore last year’s revision), and a decent earnings season. Yet, US indexes have not performed well and have a negative tone. The Vix fear index is up over 50% since the start of the year.

If you just looked at the broader indexes, it would seem a fairly uneventful start to the year, but that tells only part of the story.  According to Dow Jones Market Data, about one-third of the S&P 500 constituents have gained or lost 20% in the past three months. Tech has seen massive rotation, and chip stocks have outperformed software by over 100% in the past 9 months.

Historically, February is not a strong month for U.S. stock markets, and for those who follow astrology, the Year of the Horse is one of the weaker years for stocks. All those bulls at the start of the year are feeling a tad twitchy. One way to assess current market sentiment is to compare the significant recent outperformance of consumer staples relative to that of discretionary stocks. You need to buy food, and you buy that new jacket when you feel like you can afford it.

Later today, we get the minutes of the Federal Reserve’s last rate-setting meeting. Powell makes much of being data-dependent when it comes to decision-making, but it’s noticeable that so much of the data he relies upon gets revised. The recent revisions to payroll reports for the last two years are a good example. Last year, job creation was overstated by approximately 400,000 jobs. If you exclude healthcare, the revisions suggest that employment shrank last year. Would you believe even these revisions are subject to their own revisions? GDP estimates around the globe are made multiple times and are often revised. No wonder central bankers seem late to the party when it comes to changes in interest rate policy. Being dependent on unreliable data reports seems risky. Perhaps AI will help in the future.

Tuesday’s UK employment data, which again reported another rise in the unemployment rate, but to be honest, was not a great surprise. This is probably one data set you can currently rely on. It does not take a genius to work out that if you make it more expensive to employ people, what does an employer do? Surprise, surprise, they employ fewer people. Wage growth continues to fall, but it remains significantly higher in the public sector than in the private sector. The latest jobs data, along with today’s inflation print, which the headline rate fell to 3%, makes it almost a done deal that the Bank of England cut rates in March after the close call in January, which is why sterling has weakened post the data.