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Data from China and the U.S., along with investor behavior suggests that perhaps the global economy is groping for some improvement.
The Federal Reserve, in its most recent Beige Book noted: "Reports from the Federal Reserve Banks indicate that overall economic activity contracted further or remained weak. However, five of the twelve Districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level." And while China's Gross Domestic Product grew at an anemic 6.1% annual rate, other data suggests that improvement maybe on the way. According to The Wall Street Journal: "Fixed-asset investment in urban areas, China's benchmark measure of capital spending, rose 30.3% in March from a year earlier, picking up from 26.5% growth in the first two months of this year – an indication that stimulus projects are coming online. And industrial production, the key driver of China's manufacturing-heavy economy, grew by 8.3% in March from a year earlier, accelerating from the 3.8% gain in January and February."
To be sure, the Federal Reserve was less than ecstatic adding a dour and sobering second paragraph to its Beige Book summary. The central bank noted: "Manufacturing activity weakened across a broad range of industries in most Districts, with only a few exceptions. Nonfinancial service activity continued to contract across Districts. Retail spending remained sluggish, although some Districts noted a slight improvement in sales compared with the previous reporting period. Residential real estate markets continued to be weak. Home prices and construction were still falling in most areas, but better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts. Nonresidential real estate conditions continued to deteriorate. Difficulty obtaining commercial real estate financing was constraining construction and investment activity. Spending on business travel declined as corporations cut back. Reports on tourism were mixed. Bankers reported tight credit conditions, rising delinquencies, and some deterioration of loan quality."
Yet, the financial markets seem to have bottomed. And key commodity prices, such as copper (COPPER, below) have been in rally mode for a few months, as investors begin to build positions ahead of a rise in demand as the global economy presumably picks up at some point in the future.
Chart Courtesy of StockCharts.com
The stock market, as measured by the S & P 500 (SPX, below) is also well off of its bottom and seems to be entering a consolidation pattern as it digests its recent gains.
Chart Courtesy of StockCharts.com
And while the U.S. is still relatively weak, China, the world's other growth engine is a bit more positive, as goverment stimulus "has been supported by consumer spending that has been surprisingly resilient during the global downturn. Car sales hit a monthly record in March, and home purchases and air travel both have been rising this year after sharp falls last year. In March, retail sales rose 14.7% from a year earlier, down only slightly from a 15.2% rise in January and February."
Yet, the key remains what happens to jobs. According to The Fed's Beige Book: "labor markets weakened in all Districts, and many contacts continued to report job cuts and wage and hiring freezes. Employment continued to decline across a range of industries, with only scattered reports of hiring."
In China, according to the Journal: "concerns about deflation and excess capacity in manufacturing persist as prices continue to fall. China's consumer price index for March fell 1.2% from a year earlier, the statistics agency said, after a drop of 1.6% in February and a 1.0% gain in January."
Conclusion
China and the U.S. are clearly the two countries that wag the world's economic tail. And although signs of a recovery in both nations are still sparse and somewhat feeble, they seem to be emerging.
The fact that the commodity markets and the stock seem to have put in a bottom is also a source of some comfort.
At this point, it's more about whether this emerging trend can survive than anything else. If there are any signs in the next few weeks that things are worsening, we could lose all the gains in the market, and possible make lower lows.
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