Stop the panic! Global growth is back…….move along everyone…nothing to see here.
Well maybe that’s egging it up just a touch, but at least there is some fundamentally good news out there beyond markets bouncing, which can be a rather transitory experience.
At the end of July we highlighted that World Trade figures had been falling for several months (here), which had gone largely (and rather remarkably) unreported. This tied in with a larger global slowdown, of which the Chinese malaise is just one (if a very big one) element. In particular we highlighted the problem of the slowdown across Emerging Markets, which is troubling following their key role in driving post crisis global GDP. These concerns were amplified by the weak leading indicators (PMI figures) reported in early August (here).
Nobody who has been paying attention to the bigger picture of troubled commodity, stock and bond markets over recent months and, more importantly, the narrative behind them should be surprised by the Chinese slowdown stories we are seeing at the moment, although interestingly the turmoil is allowing many high profile investors to shed their shyness and point out how really, really difficult the outlook actually is (on which topic we will be writing more soon).
However despite the emotional swings of investors the world is rarely as black and white as human moods and so it is now with the release of the latest global trade figures which slow a slight pick-up in June after the disappointing May (which just shows up on the following chart):
Source: CPD Click/Tap to enlarge
Figures that are backed up by global industrial production figures which highlight that it is the Emerging Markets again where strength is to be found:
Source: CPD Click/Tap to enlarge
Now these figures are to the end of June so how they feed into July and August will be interesting, to say the least, but as usual the raw facts and figures are a useful balance to febrile market conditions.
There is also positive news closer to home, where the German IFO business confidence survey has produced some reasonable figures (which I’m sure will be of comfort to their fellow Eurocitizens in Greece) indicating that business growth continues, despite the problems of China:
Perhaps part of the explanation for this solidity is that despite issues with Chinese trade a weak Euro looks to be helping exports to the US, which continues to expand, if slowly.
Do these positive data points mean we should all relax and use current market weakness to buy the dip. Hmmm!
China is facing massive issues and, as a client who can truly be called a China expert (having done significant business there) remarked, “Anyone who says anything about China with certainty has no idea what they are talking about”. He believes that the more you learn about China, the less clear the picture is as never before has a government had to juggle so many balls so effectively all at once and the only thing he is confident of is that growing volatility is likely as some balls will likely be dropped.
Something we can be reasonably sure about is that the headwinds are building and that the route map forward far from clear, to us at least, while the increasing weakness in commodity, shipping and other trade indicators still tell a very, very troubling story.
As we have repeatedly warned the corrosive equilibrium that has held the world together over recent years, hiding ever growing and unresolved issues, has dissolved and the future will remain volatile at best. However the world is neither coming to an end, nor entering a new golden age, just moving rapidly through a changing landscape, while most of those in charge have as little clue as the rest of us.
In such circumstance caution remains warranted.