ISM MANUFACTURING DATA LOWER THAN EXPECTED; EMPLOYMENT INDEX UNEXPECTEDLY ROSE TO THE HIGHEST LEVEL SINCE SEPTEMBER 2022

The ISM Manufacturing gauge shrank in May at a faster pace than expected as a measure of new orders fell by the most in nearly two years. The headline data was the weakest in three months.
For the moment, the weakness in the statistics is being interpreted as the large increase in the overnight rate is starting to have its intended effect on the economy.
The yield curve has now been inverted for the longest period in history…over two years. Every recession is proceeded by an inverted yield curve but not every inverted curve produces a recession.
Data suggests the yield curve between the two year and ten-year Treasury has been inverted over 93 times since WWII but only fourteen WWII recessions have occurred, none of which were predicated. As noted above, however, the current 2 year plus inversion is the longest in history as many other inversions lasting a considerable shorter period of time.
A recession or slowdown will inevitably occur, but the question is when? As most recall, Wall Street and the Federal Reserve had forecasted a recession over 12 months ago because of monetary policy.
Commenting further on the ISM data, the contradiction in yesterday’s data is that manufacturing employment is accelerating and is at the greatest reading since September 2022.
Will today’s JOLTS Job openings and Friday’s BLS data confirm the ISM Manufacturing Employment data?
Oil declined yesterday as there is a tug of war between OPEC’s decision to extend output cuts “well into 2025.” The bears won the tug of war yesterday between the perceived bullishness and bearishness of OPEC’s intended policy, as crude prices fell about 3% on the statements that production may increase.
It is widely accepted that the West is trying to curtail fossil fuel production. The rhetorical question at hand is why would any country or company increase long lived capital spending programs if the primary markets are attempting to curtail fossil fuels? The sunk costs are horrendous.
Perhaps the more significant question to ask is whether or not this potential ban is feasible? According to Goldman Sachs AI is likely to drive a 160% increase in data center power demand by 2030. Wind and solar power will not be able to rise to the occasion as renewables are only providing between 15% and 40% of projected output according to Goldman assuming Goldman is correct.
OPEC is still projecting oil demand will exceed supplies by approximately 2% for the next 12 months with the extension of the production cuts.
Commenting on yesterday’s activity, Treasuries rose as the data reinforced the Fed will be able to lower rates later this year. Equites were bifurcated as energy shares led value companies and the Dow lower by 0.3%. The NASDAQ reversed an almost 1% advance to close up 0.35%..
Last night the foreign markets were down. London was down 0.43%, Paris down 0.68% and Frankfurt down 0.98%. China was up 0.41%, Japan down 0.22% and Hang Seng up 0.22%.
Futures are down about 0.4% on economic uncertainty. The 10-year is up 1/32 to yield 4.39%.