Stocks started the week with, as we like to say, an “aggressively unchanged” day with only the S&P 500 moving more than 0.2% on the day.
First, the scoreboard:
- Dow: 17,493, -7.4, (-0.04%)
- S&P 500: 2,047, -4.4, (-0.2%)
- Nasdaq: 4,764, -4.6, (-0.1%)
- WTI crude oil: $48.10, -0.5%
It’s sort of a slow week for economic data, but getting us out of the gate on a down note was the flash reading on manufacturing activity in May from Markit Economics.
Markit’s flash PMI for May came in at 50.5, down from a final reading of 50.8 in April and worse than the 51.0 that was expected by economists. Manufacturing output also moved into negative territory and hit its lowest reading since the financial crisis.
In a release, Markit economist Chris Williamson said, “The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter.” In the first quarter the US economy grew just 0.5%, according to the first estimate of GDP growth, though economists expect the second reading on this measure will hit 0.8% when that number is published Friday morning.
But in the wake of last week’s rush of Fedspeak that gave markets a renewed impression the Federal Reserve could be quicker to act than expected, this downbeat data casting doubt on the strength of the US economy could temper jittery markets.
In an otherwise quiet day for market moves, the price of West Texas Intermediate crude oil started the morning with a roughly 2% to trade near $47.50 before recovering to close the day off about 0.5% at $48.10 a barrel.
Over the weekend, Goldman Sachs published a big note looking at the future of oil prices and what factors could keep them down over the short-, medium-, and longer-term.
And in Goldman’s view, it is still the endless loop of lower prices requiring ailing corporate and sovereign producers to continue pumping and selling oil into a saturated market in order to collect whatever revenue they can that will keep the pressure on oil prices.
In the background of these competitive pricing factors, too, is the increased efficiency in bringing production on and off line achieved by advances in shale oil technology.
“We see the industry being reshaped into a ‘new oil order’ as it searches for a new dynamic equilibrium,” the firm wrote.
“The increasing productivity and huge scale of the US shale plays has flattened the industry cost curve and provides substantial new volumes, with a relatively short lead time, at US$50-60/bl oil prices.”
So while it’s sort of a muddle, this chart from Goldman shows how the needs and capabilities of the market’s main players — OPEC, other national producers, multinational corporates, and shale producers — battle each other in a seemingly never-ending cycle pressuring prices downward.
Speaking of oil, Kyle Bass bet oil prices were going higher — much higher — and he was wrong.
According to a Wall Street Journal report, Bass’ flagship Hayman fund is down about 7% this year and has been dragged down by Bass’ call for higher oil prices.
Bass has previously stated that he has a “dogmatic” view of the oil market and argued as far back as January that we’d see an over-supplied market quickly shift to an under-supplied one, dragging prices higher. Quickly.
But as Bass said to the Journal on Monday, “Everyone has terrible periods.” So it goes.
Elsewhere in Kyle Bass news, the Journal’s Rob Copeland reported Monday that Bass is set to launch a new fund this summer focused on his call that the Chinese yuan will fall sharply in value. And this fund will have a scaled benefit for Bass, with his cut of profits falling in the 15%-17.5% range until the fund doubles its money, at which point Bass’ profit share will be the hedge fund industry standard 20%.
As a quick refresher on Bass’ views for China’s economy, he wrote in a letter to investors earlier this year that the world’s second-largest economy is already out of money.
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