Morning from Copenhagen.

The manufacturing report yesterday admittedly didn’t play out as the regionals were indicating—likely because the regional decomposition is much more trade-heavy than the national average, given it mainly covers large import/trade hubs such as New York, New Jersey, Texas, and Chicago.

However, it’s worth noting that this report is still incredibly weak—just only for trade-heavy companies. Factory output (the production category) and new export orders/imports weakened a lot in April.

Boiling it down, this report is simply saying that purely domestic companies (those with production and revenue mainly in the US) are not impacted yet.

So, net/net, whether the report released in June will be a catastrophe comes down to whether trade has actually resumed between the US and China. The lag before it hits the rest of the economy was just longer than we anticipated.

On that note, it’s somewhat comforting that China (who were apparently the ones lying when no one was willing to confirm whether the US and China were talking) is now openly announcing that trade talks are happening. But we’re still not seeing any clear signs of trade rebounding, and the question now becomes whether the Walmart/China story has any real significance.

Everything comes down to whether trade has resumed or not, as the illness in the US economy could actually be fixed fairly quickly by removing tariffs.

Chart 1a: Full ISM Manufacturing Table