The U.S. ISM manufacturing index for October is set to be released at 10:00 AM this morning, and the market is expecting a reading of 54 according to Finviz, which indicates continued expansion. It's a good time however to remind ourselves that even if the ISM meets expectations today, there are those who expect a sharp drop in the index by year-end.

Take Societe Generale, for example, whose Alain Bokobza warns the ISM could hit 48 by year-end, which would indicate a contraction of manufacturing activity. This could end the rally for commodities-related plays, he believes:

SG's Alain Bokobza:

Commodity prices face opposite forces: backed by strengthening QE and its corollary, the USD fall on one side, but also facing a significant slowdown of the US economy by year-end. We’re currently neutral on the commodity asset class within our portfolio, waiting for a sell back to re-weight.


Don’t get overexcited by commodities with the ISM at 48 soon!

Commodities prices are cyclical and tend to increase in line with demand during economic expansion and tend to drop during economic contraction. Abnormal situations such as in 2008, when commodity prices skyrocked while the economy slowed, never last long. If the ISM drops below 50, do not expect a bull run in Commodities.


(Via Societe Generale, Multi Asset Snapshot, Alain Bokobza, 24 October 2010)