Morning Minutes

Manufacturing/Service Economy Divide, and Retail Sales In Focus




US index futures are up 0.3%-0.5% this morning, clawing back much of yesterday’s 0.4%-0.7% losses by the three main US market indices. European markets are also bouncing back today with the Dax up 0.7% and the FTSE up 0.2%.  

Economically sensitive commodities such as copper, up 2.0%, platinum, up 0.4% and lumber, which has reached $1,000 per thousand board feet today, are climbing as well. Energy contracts, on the other hand, are backsliding today as the impact of recent weather storms on supply and demand starts to fade. WTI crude oil is down 1.9% while Natural Gas is down 0.5% and heating oil is down 0.6%.

Investors appear to be taking some comfort from flash PMI reports from overseas. The first peek into February economic conditions suggests a robust manufacturing economy with flash manufacturing reports for Japan (back above 50 into expansion territory, 50.6 vs street 49.7), Germany (60.6 vs street 56.5), France (55.0 vs street 51.4) and the UK (54.9 vs street 53.2) all coming in significantly stronger than expected.

Service flash PMI reports, however, remained below 50 in contraction territory and below expectations for Germany (45.9 vs street 46.5) and France (43.6 vs street 47.0), although the UK came in better than feared (49.7 vs street 41.0 and previous 39.5). This suggests that lockdowns have been having more of an impact on the service side of the economy than on manufacturing.

Investors may look to the US for additional signs of life with flash manufacturing (street 58.5 vs previous 59.2) and flash services (57.5 vs street 58.3) both due at 9:45 am EST.

In other economic news, retail sales reports for Canada (December -3.4% vs street -2.5% and previous 1.3%) and the UK (January -8.2% vs street -2.5%) were disappointing, offsetting positive US January retail sales and stronger than expected Walmart earnings from yesterday as investors await next week’s flurry of earnings reports from US retailers.

Speaking of earnings, two reports of note are out this morning. Auto parts producer Magna International* posted positive results (EPS $2.83 vs street $2.02, sales $10.5B vs street $9.4B, 7.5% dividend increase, up 6.5% premarket), along with farm equipment producer Deere ($3.87 vs street $2.14, up 5.6% premarket).   

*Shares of Magna International are held in some portfolios managed by SIA Wealth Management

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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