Daily Commentary

MarketMinder’s View: Some more positive news for America’s factory sector, as the Institute for Supply Management’s July manufacturing purchasing managers’ index (PMI) rose to 55.6 from June’s 53.3, marking its highest reading since May 2022 (50.0 marks the line between expansion and contraction). The report was broadly strong as all but one industry (chemical products) showed growth, and the forward-looking new orders subindex ticked up from 56.0 to 56.7—a positive sign for future production. Export orders notably improved, jumping from June’s contractionary 48.5 to 53.0. Note this broad improvement happened despite raw materials prices still rising swiftly (easing just slightly from 73.0 to 71.1), illustrating demand’s resilience in the face of higher costs. Now, it is worth noting PMIs measure only growth’s breadth, not its magnitude, and their backward-looking nature renders them largely moot for stocks’ direction ahead. This reading also contrasts somewhat with S&P Global’s manufacturing PMI, which matched June’s three-month low at 53.9 and showed softer new orders growth and declining international sales. But both surveys showed continuing factory growth in July, defying pundits’ worries at the war’s outset.

MarketMinder’s View: “The Federal Reserve’s 12-person policy committee meets eight times a year and votes on whether to lift, lower or hold borrowing costs. [New Fed head Kevin] Warsh raised the idea of changing the frequency of those meetings at the Fed’s gathering this week, according to four people with knowledge of the discussion who were not authorized the speak publicly.” Now this is all just a rumor, which the Fed hasn’t confirmed, and it may come to nothing. The Fed could mull meeting fewer times, then keep the status quo. Either way, this article does a decent job giving the current lay of the land, in the process showing why the official meeting frequency isn’t as important as you might think (even if the article says otherwise in places). For one, the existing statutes mandate only a minimum of four meetings per year, which Warsh has already said is too seldom. And whatever the number the Fed chooses, it can meet ad hoc to deal with rapidly changing conditions as policymakers see fit—as it did during the first rumblings of subprime mortgage trouble in the mid-2000s, the acute phases of the global financial crisis in 2008, COVID lockdowns in 2020 and more. These guys and gals are really good at having last-minute conference calls. So we disagree with the notion that fewer Fed meetings could reshape “the way the Fed steers the economy and potentially making it less responsive to changes in inflation and the labor market.” (Setting aside our major disagreements with the idea the Fed or anyone “steers” a market economy.) As the article also notes, any three Fed members could schedule a meeting when they see fit. And given how much Fed people yap between meetings, we doubt fewer meetings actually means less “transparency,” which hasn’t done anything for Fed credibility or policy success anyway. Overall, a less talkative Fed looks like a big opportunity for reality to exceed dreary expectations. For more, see today’s commentary, “Digging Into Last Week’s Fed ‘Credibility’ Concerns.”

MarketMinder’s View: “Seven members of the broader group called OPEC+ said Sunday they will raise output by about 188,000 barrels a day in September, a sixth straight monthly increase. The participating countries include Saudi Arabia—the group’s de facto leader—along with Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman.” In a vacuum, this may sound like positive news for global oil supply and thus prices, which rose throughout much of July. Yet the OPEC+ cartel’s production targets aren’t as influential as many think—and not just for the war-related reason provided herein. In reality, OPEC’s influence on global supply has waned significantly over the past decade-plus due to the US’s shale boom. Two, OPEC participants have consistently missed their production targets tied to weak enforcement and various local constraints. Before the war, the cartel consistently overshot its targets. Since the war broke out, as the article notes, several states have undershot. So while OPEC may be “planning” to add to global supply, it doesn’t mean they will. Ultimately, though, markets are looking at the global supply and demand landscape over the next 3 – 30 months, which has little to do with production targets from a handful of producers.