Auto Sales Could Help Drive Market Sentiment

Auto sales and factory orders will be closely watched Tuesday after a surprising decline in a key measure of U.S. manufacturing activity.

Customer at an auto dealership.
Customer at an auto dealership.

The June reading on the ISM manufacturing index Monday was expected to be 52, but it fell to 49.7, under 50 for the first time since July, 2009. A reading under 50 indicates contraction in the manufacturing sector, and the components within the survey were also worrying. New orders, for instance also fell below 50 — to 47.8 — from 60.1 last month, in the worst reading since April, 2009.

Economists caution that just one soft manufacturing number does not indicate a serious dip in the broader economy, but the number did cause concern because it reinforces some other signs of weakness. It also comes ahead of Friday’s June employment report, expected to show possibly that less than 100,000 jobs were created.

“The reports are coming in across the board that makes it more than seasonal. The global slowdown is real,” said Mesirow Financial economist Diane Swonk. “The slowdown in Europe is worse than people thought it would be. The slowdown in China and emerging markets is worse than people thought it would be.”

Monthly auto sales are released by manufacturers throughout the day Tuesday, and are expected to show an annualized selling rate of 13.8 million, slightly higher than 13.7 million last month. Factory orders for May are reported at 10 a.m., and are expected to rise 0.1 percent, from the previous 0.6 percent decline.

“The pent-up demand is huge but we’re not seeing the cyclical pickup. We’re at the point where much of the vehicle fleet is old. They’ve got pretty reasonable financing rates, but people are still delaying it,” Swonk said. She noted that the auto industry has been one of the positives in the economy but now Europe threatens that recovery.

Stocks close early, at 1 p.m. Tuesday, ahead of Wednesday’s Independence Day holiday. Markets reopen, as normal, on Thursday. The Dow Monday fell 8 to 12,871, and closed well off its lows. The S&P 500 was up 3 at 1365, and the Nasdaq was up 16 at 2951.

Nymex crude Monday fell 1.4 percent to $83.75, while Brent lost a half percent to $97.34 per barrel. Iran meets with six nations in Turkey Tuesday to discuss its nuclear program. Dennis Gartman of the Gartman Letter said oil could move even lower despite Iran because of the increased pumping by Saudi Arabia and the increase in production of both oil and natural gas in North America.

Corn and other grains could also be a feature Tuesday, after USDA data Monday showed a further decline in the crop condition rating. The USDA’s latest data shows that just 48 percent of the corn crop in 18 states is in good to excellent condition, less than expected and well below the 56 percent last week. Soybeans also saw a decline, with just 45 percent in good to excellent shape, off from 53 percent last week, but corn is more threatened since a good portion of the crop is in the pollination stage and needs cooler, wetter weather.

Corn for December delivery jumped 3.1 percent Monday, even before the USDA data was released.

“It’s amazing. In the last two weeks, we’ve taken a corn crop that looked like it was going to be 14.7 billion bushels in excellent condition. You put 105 degree temperatures on it. You’ve had no rain upon that corn crop, and suddenly you’ve probably taken about a billion bushels out of it. Corn prices have gone up almost $1 per bushel and they may go up even more,” said Gartman on “Fast Money.” “It depends what happens in the next 10 days. We’re at tasseling time. We’re at the time when the corn crop actually sets itself, and if we don’t get some rain here very soon, what was a great crop suddenly becomes a very diminished crop.”

Hot, dry weather is affecting about two-thirds of the corn belt in the Midwest. “That’s another issue we’ve got to factor in. There could be an offset from the drought,” said Swonk.

What to Watch


Monthly auto sales

1000 am Factory orders

0100 pm Stock market closes early for holiday


Independence Day holiday


Monthly chain store sales

0730 am Challenger job cut report

0745 am European Central Bank rates decision

0815 am ADP employment

0830 am Initial claims

1000 am ISM nonmanufacturing


0830 am Employment report

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