US stocks are mixed as investors digest a better-than-expected Empire State survey, a triple threat of bad news from China (casino crackdown, soft economic data, and Evergrande contagion fears), and as concerns start to grow over surging oil and gas prices. Right now, Wall Street knows the Fed is not going anywhere, but nervousness is growing that this string of Chinese crackdowns/concerns could be the first domino to fall and help trigger the first 5% pullback in well over 200 trading days.
The dollar is paring losses as Treasury yields bounce back after New York manufacturing surprisingly surged alongside prices. The dollar’s gains will likely be limited until we hear from the Fed next week.
US Data The Empire manufacturing index is telling a new story about the direction of the economy. The headline index rose sharply by 16 points to 34.3, as business conditions improve. Demand is looking healthy and if this report is not just a one-off, this could trigger a slightly more optimistic reset for the third quarter. One report does not make a trend, but if this positive theme spreads across all the other regional surveys, Wall Street could rush to upgrade forecasts for how the US economy will finish the year.
Import prices in August declined, another round of data that goes to the inflation is transitory camp. Export prices also rose 0.4% month-over-month after increasing 1.1% in July.
August industrial production showed the economic recovery is intact, albeit at a slower pace. The impact of hurricane Ida was at the end of the month, so expectations will be some pricing pressures next month.
Today’s data is incomplete as the Empire State survey is limited in size, but if the rest of the regions are strong and the flash PMI readings show a pickup, economic growth calls will be upgraded.
China The headlines continue to deter foreign investor interest back into Beijing. Asian stocks were mostly lower over the Macau crackdown, weak economic data, and a nervous market over Evergrande’s collapse impact on the Chinese real estate market.
The future of gambling stocks in Macau is dragging down US casinos, with Wynn having its worst decline since early in the pandemic last year. Margins will be crushed at the gambling capital of the world and that will drag down all the big casinos. Today, the house loses as Macau regulations will yield a lot of uncertainty over what new rules will be in place once the 45-day consultation ends.