The day ahead in US economy and worldwide markets

Just when you thought it was safe to return to the banking system, First Republic Bank declared bankruptcy and agreed to sell its assets to JPMorgan.

JPMorgan was one of several potential purchasers for the First Republic. Remarkably, the bank has been on the verge of failure since the collapse of Silicon Valley Bank.

The ensuing crisis, which also took down Credit Suisse, shook investors to their core. However, central banks and regulators throughout the world redoubled their efforts to shore up the financial system.

After almost two months, many of those fears faded away, refocusing market attention on the economic details.

With many markets closed for International Labour Day, the Institute for Supply Management (ISM) in the United States will have a small – and probably apprehensive – audience for its April manufacturing activity index.

The decline in industrial activity in the United States in March came as a cruel surprise. Those who anticipated the economy would withstand increasingly entrenched inflation. Besides, the quickest rate-hiking cycle in decades has struck the banking sector quite hard.

ISM manufacturing index expected to rise from March’s low

A Reuters survey of analysts predicts the ISM manufacturing index will be 46.7. Experts expect it to go up from March’s three-year low of 46.3. However, it will still be the sixth consecutive month of loss.
The index hasn’t been below 50 for this long since the 2008 financial crisis. Employment is down, new orders are down, and work backlogs are down. That is a pretty clear indicator of a significant decrease in demand.

In fact, Deutsche Bank issued the March figure in early April. The bank observed that there had only been four times in the past 12-18 months when the ISM manufacturing reading was this low without a recession – the early 1950s, 1967, the mid-1990s, and shortly after the 2000s recession. According to the bank, a recession is unavoidable at this stage.
Some of the world’s most important industrial bellwethers are also telling a bleak picture.

Caterpillar, 3M Co, which produces everything from Post-It notes to smartphone screens, and Dow Inc, a chemical manufacturer, are all having to adjust to decreasing demand and a tough economic picture.

But it’s not all bad news. Deutsche Bank also pointed out that the tone of the commentary in the most recent ISM report wasn’t as bleak as the headline figures, suggesting that Corporate America isn’t wholly negative.