Which matters more: PMI data or new home sales?
Manufacturing slows in China and creeps higher in Europe while US home sales surge. Which says the most about the future of the stock market??
By Nick Kalivas
Although it's earnings season, the stock market saw important macro data Wednesday morning. Which of the four releases are most important to future stock market direction, and why? Here are your choices:
1. The 0.5 drop in the July HSBC Chinese Flash Manufacturing PMI to 47.7 [48.6 was forecast]. The index hit an 11-month low in July. Output, new orders, and employment fell at faster rates -- suggesting the Chinese economy is sinking toward recession. Calls for government stimulus could rise in the wake of the data.
2. The 1.7 rise in the July Markit EZ Flash Composite PMI to 50.4. The EZ Manufacturing PMI rose 2.3 to 50.1 [49.1], and the EZ service PMI increased 1.3 to 49.6 [48.7]. The data show the eurozone economy stabilizing and provide hope for improved growth. Germany and France are showing an upswing, but output prices in the eurozone did fall for the 16th straight month.
3. The 1.3 rise in the July Markit US Manufacturing PMI. The index suggested improvement in employment, new orders and output, but output prices rose at a slower rate. Note: The flash PMI has tended to overstate the final PMI and ISM manufacturing index over the last year.
4. June new home sales rose 8.3% month-over-month and 38.1% year-over-year to 497,000 units. Inventories remained lean at 161,000 units and the median price rose 7.4% year-over-year to $249,700. The strength in the government data is overlaid by the following:
In the last week of measures, the MBA purchase index eased below 200 for the first time in March. It is now down 10% from the May high.
Homebuilder Meritage (MTH) reported stronger than expected earnings, noting its second-quarter order volume rose 21% over last year and its average home price rose to an eight-year high of $350,000.
Real estate relocation service provider Realogy Holdings (RLGY) projected a 17% to 19% rise in transaction volume in the third quarter, suggesting continued momentum in the housing sector.
My choice is no. 2. Why? Europe has been a major drag on the global economy and corporate profits. Moreover, some of China's slowdown is related to a reduction in European demand for Chinese exports. If upward momentum in the eurozone economy can continue into year end, it could provide a pillar of support to stock prices by confirming the outlook for earnings growth.
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