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A Bird's Eye View Blog

Fireside Charts: Manufacturing Weakness Weighing Down U.S., Britain and Germany (but Not China) as Trade Negotiations Resume in D.C.

By:BCM Investment Team | Date:Oct11, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

Unemployment is rising in San Francisco despite the low national rate and we're seeing a growing divergence between high yield and investment grade bond performance—both phenomena the Fed should keep its eye on—but the big news today is President Trump's 2:45 pm meeting with China's Vice Premier Liu He on trade. Hopes appear high for progress, or at least a tentative truce, as Trump says the first round of meetings yesterday went "very well" and reports came out of a potential "mini-deal." This would come as a relief as the two nations' Manufacturing PMI readings are diverging significantly, with the U.S. sinking deeper into contraction while growth reignites in China. Manufacturing and industrial production are also down in Britain—where Brexit uncertainty and the 10/31 negotiations deadline is weighing heavily on the economy—and Germany's PMI has sunk so far below the global figure that's it set a new record. Could positive news from today's trade meeting revitalize these increasingly anemic economies?

1. The FOMC will be watching this closely...


unemployment rate

Source: Merk Investments, as of 9/30/19



2. Is the recent weakness in high yield bonds relative to IG bonds an early warning sign?


high yield investment grade bonds

Source: Scotia Capital, as of 10/11/19



3. Another new U.S. oil production record.


u.s. crude oil

 Source: WSJ Daily Shot, as of 10/11/19



4. ...and we are now producing more energy that we use... true independence!


us energy independence

Source: WSJ Daily Shot, as of 10/11/19



5. Will a BREXIT deal and a trade deal happen at the same time? Even so, there is work to be done beyond a truce...


uk industrial production

Source: WSJ Daily Shot, as of 10/11/19



6. Germany could use the dual deal for sure...


german pmi

Source: Pantheon Macroeconomics, as of 10/11/19



7. While it is next to impossible to "win" a trade war, it appears that China's manufacturing sector is holding up much better than here at home. Will this give China more leverage?


us china manufacturing

Source: Alpine Macro, as of 10/10/19



8. Yet there are visible signs of duress in China as well...


bond defaults china

Source: Bloomberg, as of 10/8/19



9. With these types of numbers, how can the WTO categorize China as an Emerging economy?!


china consumption production

Source: WSJ Daily Shot, as of 10/10/19



10. Who really benefits from hedge funds in general? Perhaps the 1.5% fee + 20% of the gains gives a clue...


hedge fund returns

Source: The Wall Street Journal, as of 10/6/19



11. And a great example of competition versus a monopoly:


U.S. CPI phones

 Source: WSJ Daily Shot, as of 10/11/19



These charts paint a good picture of what's been happening in the markets this week, but are you looking for a longer term view? Check out BCM's 3Q Market Commentary "Blinking Yellow Lights: The Inverted Yield Curve and other Recession Indicators" for our recap and analysis of the third quarter.


BCM's 3Q19 Market Commentary


Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.