Authored by Simon White, Bloomberg macro strategist,
A significant miss in the November manufacturing ISM, released later today, leaves stocks open to downside, as overboughtness and less favorable liquidity conditions meet hard-landing fears.
The US manufacturing ISM is one of the most consequential pieces of macro-economic data for markets.
It is the single largest explanatory factor for the performance of global stock markets, it is leading, and it is minimally revised. Last month it surprised to the downside, coming in at 46.7 versus 49 expected.
It’s a volatile number, and last month’s print could just be noise.
Moreover, short-term leading indicators for the ISM, such as the new orders-to-inventory ratio (see chart below), point to a continued rise in the headline index. Also the manufacturing PMI is more stable, and came in for November at 49.4.
Nonetheless, ISM could surprise negatively again. Stocks would be exposed to more downside this time, as it would happen when they are significantly more overbought – after one of the best November performances on record – and when liquidity conditions are becoming less favorable.
As discussed fully earlier this week, liquidity…
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