13th April 2012
The last 24 hours have given us updates on what are the two key economic signals for the world at this time. Firstly we found out a little more about US unemployment and then we received an update on Chinese economic data including its economic growth. As equity markets surged ahead you might easily assume that the news was good as a rally of 181 points in the Dow Jones Industrial Average to 12,986 indicated. In fact at the American close only the unemployment figures were known with markets clinging to a rumour that Chinese economic growth would be 9% in the first quarter of 2012.
Such rumours are fascinating and I often wonder if they come ex ante or ex post! Do they get invented to explain something or did they come first? I suspect the former although this particular rumour was always rather unlikely, and it is true that such rumours are often unlikely which in a perversion of logic seems to reinforce them.
US initial jobless claims
Regular readers will be aware that in 2012 we had been on a consistently improving trend for this number until the last couple of weeks or so. The habit of the Department of Labor Statistics of nearly always having a later upwards revision to the numbers had added to the unease for those who bother to check back. This week we received this.
"In the week ending April 7, the advance figure for seasonally adjusted initial claims was 380,000, an increase of 13,000 from the previous week's revised figure of 367,000. The 4-week moving average was 368,500, an increase of 4,250 from the previous week's revised average of 364,250."
So we have now moved away from the 350k level which had seemed to be stable for a while. We see this confirmed by the four-week average which is rising too. We also see that last weeks figure has been revised higher by some 10,000 as it was originally reported as 357k. Accordingly there are genuine worries as to what this weeks number might be revised up to. Also we see that the number for the 5th of April which was announced as a decrease was in fact an increase which does tend to raise a doubt over the initial release which sadly is virtually always in the same direction.
You may be wondering about the virtually world-wide rally now. Well these numbers if repeated would make more easing from the US Federal Reserve or what has already been named QE3 more likely and markets advanced on that basis.
One equity market which missed out was Portugal where the PSI20 index fell by 1% to 5257 and it looks ever more like it is repeating the performance of Greece's stock market. The main driver here was a rights issue from Banco Espirito Santo which accordingly reached point three in my time line for a bank collapse. It's share price was 3 Euros a year ago and is 1.03 Euros now, so shareholders had already seen plenty of pain.
China's economic growth
This did not turn out as hoped either. From the Chinese Bureau of Statistics
"According to the preliminary estimation, the gross domestic product (GDP) of China in the first quarter of this year was 10,799.5 billion yuan, a year-on-year increase of 8.1 per cent"
So not the 9% of the rumour and slightly lower than more sober estimates. Actually we also see a sign of further slowing if we look at the numbers in a more western style of analysis rather than the year on year system.
"The quarter-on-quarter growth of GDP in each quarter of 2011 and in the first quarter of 2012 was 2.2 percent, 2.3 percent, 2.4 percent, 1.9 percent and 1.8 percent respectively."
So if we take the latest quarter and annualise it using the American system we would see 7.4% economic growth reported, so a further dip. Using the last half-year of 1.9% and then 1.8% gives us just more like 7.6%.
So if we take current economic growth of 7.4% (American annualised style compounded) and add the latest consumer price inflation numbers of 3.6% for March we are seeing signs of a general slow down. Indeed Consumer Price Inflation has fallen from a peak of 6.5% last July and is below the 4% target. What will it do next? Well we get something of a clue from my old friend the CRB (Commodities Research Bureau) Index.
CRB Spot Index
The issue of commodity prices and China's influence on them and vice versa is one of the topics of our times. However today I am interested in the vice versa as commodity prices are a signal of upcoming Chinese inflation. If we look back we see falls in the CRB index from 580 in early April 2011 to 474 in mid-December which seems to have been a forerunner to falling Chinese consumer inflation numbers. We then saw a rally in the CRB to the 505 region in early/mid March which coincides with the uptick in Chinese consumer inflation to 3.6%.
However since then the CRB has drifted lower to 491.42 which should have an influence on Chinese inflation going forwards. So with lower economic growth and possible lower inflationary pressure China should continue to ease I believe. As ever the risk is the oil price but even it has stabilised and even drifted a little lower recently to US $121 for a barrel of Brent Crude Oil.
There have been echoes of this in Chinese producer prices which have done this.
"In the first quarter, the producer prices for industrial products went up by 0.1 percent, which was 5.9 percentage points lower than that in 2011, or 7.0 percentage points lower than that in the same period of last year."
As ever not everything is clear-cut
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