Economic Activity Remains Mixed

The headline durable goods orders data released yesterday showed a surprising bounce after multiple soft prints in prior readings. However, a closer look at the figures showed that the number ex-transportation continues to slump, contracting for almost 5-straight months as economic activity remains below-trend. Capital expenditures continue to bear the brunt of the losses in the numbers, in-line with developments already evident in large corporations which have reduced investment and spending on longer-term assets. Despite the stronger headline figures which saw core durable goods orders rise 0.80% and the regular figure inclusive of transportation and defense grow 3.40%, stocks continued to give ground with the S&P 500 breaking a critical uptrend line that has been intact since the depths of the last financial crisis. This could indicate the beginning of a larger correction and reversal lower in the US benchmark ahead of the perception of upcoming monetary policy tightening.

Along with dumping exposure in other commodity classes, hedge funds have been rapidly closing out remaining long positions in crude oil as the market gears up for another round of downside. According to the Commodity Futures Trading Commission (CFTC), long positions in crude oil have fallen to two year lows while short positions have risen by over 25%. The adjustment has seen prices continue to trend lower ahead of this week’s critical inventory data which could show another build to inventories already sitting near 80-year seasonal highs. Momentum lower in crude prices is accelerating as output gains from the US, Iraq, and Iran force other established peers like Saudi Arabia to compete further on price to maintain market share. The spread between Brent and West Texas Intermediate has narrowed to just under $6 points after widening to nearly $8 point in the prior week.