We have good economic data today and the market is up. Now, one would think the market should be down, given the view of the breathless media that the market only cares about the central bank policies After all, good economic data means the US Fed will curtail its easing policies sooner rather than later, right?
As I wrote yesterday, forget about the Fed. The shiny object in front of you is just a metal lure. The real minnow is in the numbers. The market is all about the numbers, meaning a growing economy means more profit for companies. Really, it is as simple as that.
- Rising exports helped rouse the Canadian economy from a sluggish second half of 2012 to grow at an annualized rate of 2.5 percent in the first quarter of this year, the fastest pace in six quarters.
- The Institute for Supply Management-Chicago said its index of Midwest business activity rose in May to 58.7 from 49.0 in April. A Reuters survey of economists on average expected a median reading of 50.0 in May versus the April figure of 49.0.
Talk about busting the economists. The ISM data above is a huge leap and that speaks to what I wrote about last month when these same numbers came out – the now annual spring swoon will pass and the numbers will come back up.
- The Commerce Department said on Friday consumer spending fell 0.2 percent, the weakest reading since May last year, after edging up 0.1 percent in March. Economists had expected a 0.1 percent gain.
“Yeh, but consumer spending is down,” the bears say. “Doesn’t that undercut your argument?” they ask with a self-satisfied smile. Consumer spending going down is never good, but sometimes the headline data does not tell the whole story.
- Consumer spending was held down by weak demand for utilities and a drop in receipts at gasoline stations that comes on the back of a fall in gasoline prices at the pump.
You see, consumers are spending less on energy needs, which means they have more discretionary dollars in their pockets to spend. Oh, and don’t forget the Michigan Consumer Sentiment survey told us that consumers are happier than they have been in five, count them, five years. So, don’t read anything bad into those April spending numbers. Summer is coming and it promises to be a big spending summer, so start looking forward a bit for market opportunities …
I find myself writing more about Japan these days, much more than in years past. The reason is obvious – the economic powerhouse is coming alive. To slightly modify a famous phrase from Admiral Yamamoto on December 8, 1941, a sleeping tiger is awakening.
- Japanese industrial output rose 1.7% on month vs. +0.9% in March and consensus of +0.6%.
“Yeh, but deflation is still a huge problem in Japan,” the bears say. “Isn’t the tiger still fast asleep?” they ask with a self-assured smile.
- “The deflationary trend shows no signs of changing,” Meiji Yasuda Life Insurance chief economist Yuichi Kodama said in Tokyo.
Mr. Kodama and the bears are right, to a degree, but the environment is changing in Japan, on a number of fronts, and the reality of a lower yen is one driving force of that change.
- Apple Inc. hiked prices of iPads and iPods in Japan on Friday, becoming the latest and highest-profile brand to join a growing list of foreign firms asking Japanese consumers to pay more as a weakening yen squeezes income.
Core inflation is still below target, but as prices rise on imported goods, one of two things could happen. Either the Japanese consumer will turn to “Made in Japan” products, which will help boost Japanese manufacturing, or they will simply pay the higher price for American and other imported products. Either way, the market wins. Oh! A third thing could happen. Rising prices on imported goods could lead to a rise in inflation, as Japan is a country long known for importing energy and food products, and as those prices rise, core inflation will follow suit. Yes, I believe Abenomics is working.
To conclude today, a thought about a country not mentioned much anymore in the financial world – India. It seems we have forgotten this sleeping tiger as well. Like China and unlike Japan, India has a problem with high inflation, and it has been working to curb that. Like China, India has grown too fast for too long and the answer to stubbornly high inflation is slower growth. Like China, India has worked to bring both its rate of growth and inflation down, and, like China, it is working.
- The expansion in Indian GDP declined to its slowest in a decade in FY 2012 (ending in March 2013), coming in at 5%, while the growth in FQ4 was even lower at 4.8%.
Inflation in India has been on a downward trend, coming in at 4.9% so far for 2013. That is the lowest rate since 2009, when the rate hit bottom near zero, just before it rose above 10% in a matter of months.
It appears the world economy is coming together. Inflation, deflation, east and west, coming together to meet in a place of balanced, steady economic growth. Now, that is something the market will like.
Trade in the day; Invest in your life …
