Rebecca Wilder: Waiting on the Sidelines (June 5 – 12)

Monday, June 15th, 2009

This post is a guest contribution by Rebecca Wilder*, author of the of the News N Economics blog.

This week’s economic reports show a global economy hanging in the balance: signs of stabilization present, but the lagged economic reports still show no decided turning points. Exports are crashing - China and Canada, who depend on exports to fuel economic growth, are seeing export income fall at an increasing annual pace. Canada’s housing market is suffering, but it’s decline is not even comparable to its southern neighbor. Unemployment rates surge as resource utilization falls precipitously, and taking prices down to negative territory. However, the recent uptick in oil - uptick! more like a rocket-powered boost - will relieve the drag on headline prices.

Exports continue to disappoint in China, Canada and the US. Foreign demand for economic growth is out for the count. From the WSJ:

“Although recent economic data offer increasing evidence of a recovering Chinese economy, the external environment remains weak, spelling ever more dependence on domestic demand for growth,” Morgan Stanley economists said in a note after the data were issued Friday, predicting Beijing won’t shift its monetary policy stance in the near term”.

Canada’s housing market is taking a serious tumble. However, one cannot compare this housing market recessionary response to the meltdown in the U.S. The Canada Housing and Mortgage Corporation, a bottom may be forming:

Housing starts are expected to improve throughout 2009 and over the next several years to gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year.

And reality rears its ugly head as unemployment rates surge in the US, Canada, and Australia.

Inflation is (almost) negative across the board - Germany posts 0.0% annual inflation in May.

The weak global economy will keep inflation low, but the surge in oil - already over 15% since the May average - will relieve the drag on headline inflation!

Industrial production may have found its bottom in the UK, but not in Germany! Germany, the Eurozone’s biggest economy, helped to push the Eurozone’s industrial production down 21.6% in April.

Overall, signs of a bottom are certainly forming; however, we wait for a turning point to show up in most of the lagged reports (1-3 months).

Source: Rebecca Wilder, News N Economics, June 12, 2009.

* Rebecca Wilder is an economist in the financial industry. She was previously an assistant professor and holds a doctorate in economics.

Tags: Canada, Chinese Economy, Drag On, Economic Data, Economic Reports, Export Income, External Environment, Global Economy, Hanging In The Balance, Housing Market, Housing Starts, Monetary Policy Stance, Morgan Stanley, Mortgage Corporation, Negative Territory, oil, Resource Utilization, Southern Neighbor, Ugly Head, Unemployment Rates, Uptick, Wsj
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David Rosenberg: Green Shoot Era Over?

Monday, June 15th, 2009

In today’s Breakfast with Dave, David Rosenberg, Chief Economist at Gluskin Sheff (ex-Merrill Lynch) discusses the sell-off that has begun in global equity markets overnight. Here is the summary from today’s letter:

Equities are selling off with the global MSCI index off nearly 1.0% and the losses broadly based (Europe off 1.8%, Japan down 1.0%, Hong Kong losing 2.1%). Bonds are rallying 6 - 7 basis points here and across the pond. Commodities are facing a heavy round of profit-taking — gold down to a three-week low, copper slipping more than 3.0%, oil slipping 2.0%. The U.S. dollar is strengthening right across the board too — back below 1.40 on the Euro and the CAD is back above the 1.13 mark. The Asian FX complex and the commodity-based currencies are taking it on the chin.

There were no data releases today, so what has caused this reversal? More words, than deeds.
First, the G8 meeting ended with emphasis being placed on exit strategies that involve stimulus withdrawal. Investors have no clue how the global economy or the financial markets can operate on their own two feet, so investors are now voting with their pocketbooks. A future without a government subsidy doesn’t look so promising for all these once-successful beta trades.

Second, the Russian finance minister Alexei Kudrin went on the wires claiming that Russia sees the U.S. fundamentals as being solid and that there is no replacement for the dollar. Spasiba.

Third, the head of New Zealand’s Manufacturer’s and Exporter’s Association, John Wally, followed in Mark Carney’s footsteps and said overnight that “I don’t see any green shoots in our markets in New Zealand and the rest of the world.” That’s all this faith-based equity market rally needed to hear was that the green shoot era was over before the selling settled in.

Hans Heinrich, the President of Germany’s Chamber of Commerce, also had the temerity to tell the Telegraph that funding conditions for German business was actually tougher now than it was at the peak in credit spreads. Now who wants to hear that? We’re amazed that the comments were published.

Tags: Basis Points, Chief Economist, David Rosenberg, Exit Strategies, Finance Minister, Financial Markets, German Business, Global Economy, Global Equity Markets, Gluskin Sheff, Government Subsidy, John Wally, Mark Carney, Market Rally, Merrill Lynch, Msci Index, oil, Own Two Feet, Pocketbooks, President Of Germany, Temerity
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