QT - Fed To End It Sometime Between Late 2019 And Late 2020

QT - Mixed Dallas Manufacturing Fed Report

Before getting into QT or Quantitative Tightening, let's review the Philly Fed. Relatively speaking, the Dallas Fed report was solid because the Philly Fed report was negative and the Markit flash PMI fell. The production index was down 4.4 points to 10.1 and the general business activity index was up 12.1 points to 13.1. This beat estimates for 4.8 and the high end of the consensus range which was 11.7. The new orders index was down 4.7 points to 6.9. However, the growth of new orders index was up 2.2 to 3.4, capex was up 2.7 points to 18.7, and the company outlook was up 7.1 points to 14.2.  

QT - The outlook uncertainty index fell 11.5 points to 4.1. That’s good news as there was less uncertainty. 17.2% of firms saw uncertainty increase, 69.7% saw no change, and 13.1% saw uncertainty drop. The government shutdown ending and the China-America trade war cooling down probably helped this index fall. The rebound in oil prices probably helped this district which is a heavy energy producer. The Permian basin is in west Texas. The latest oil price is $56.90. It’s good to see oil prices rebound because it increases manufacturing activity and signals demand is solid. However, I don’t want to see oil get above $80 because it would be a big cost increase which would crimp margins.

The 6-month future estimates were also mixed as the production index fell 9.1 points to 44.3 and the general business activity index was up from 11.7 to 17.7. The new orders index was up 0.2 to 44.9 and the company outlook index was up 4.4 points to 26.7. However, the growth rate of new orders fell from 38.5 to 30.8 and the capex index fell 10.2 points to 24. As I mentioned earlier, a mixed report is solid considering the weakness we’ve seen in other manufacturing reports.  

The quotes are important because they tell us why this report was stronger than some others. A machinery manufacturing company stated, “We’ve had a solid start to the new year, and if Chinese trade negotiations go well and an agreement is reached in March, we think the economy will take off again.” A trade deal will definitely boost some areas of the economy. The quotes were all over the map as a machinery manufacturing firm stated, “we are hurting bad; we need work” while a textile product mills firm said, “business is booming, and our customer are writing bigger orders for a broader product assortment.”

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