So what’s the deal? Is the global economy growing fast enough to justify the rebound in commodity prices? Or are speculators doing what they do best?
I believe that the rebound in commodity prices reflects a bounce-back from a grossly oversold situation early this year when there were widespread fears of another 2008-style financial crisis.
Ironically, it was the plunge in commodity prices that stoked fears of another global recession and a financial calamity. They bounced back on data showing that the global economy was weak but still growing.
Also helping to revive commodity prices was lots of central bank intervention, with the BOJ adopting negative interest rates at the end of January and the ECB expanding its QE program in early March and again last week.
In addition, Chinese bank loans rose at a record $714 billion during the first three months of the year. Despite all that, secular stagnation continues to be the best way to describe global economic activity, which could soon flatten out commodity prices.
Here is a brief rundown of the latest key global economic indicators:
(1) US durable goods orders.
As Debbie reports below, yesterday’s US durable goods orders report was uninspiring. Nondefense capital goods orders excluding aircraft has been hovering between $800 billion and $900 billion (saar) since 2012. So it has been in record-high territory for quite a while, but without any growth. It was flat in March. The average of the composite orders indexes for the four available April regional business surveys remained above zero for the second month in a row, though it was down slightly from March.
(2) German Ifo business survey.
Also going nowhere since 2012, but remaining around previous cyclical highs, has been Germany’s Ifo business confidence index (Fig. 10). It edged up slightly in March.
(3) Eurozone retail sales.
The volume of retail sales excluding motor vehicles rose 2.3% y/y in the Eurozone during February to match the previous record high during February 2008. Passenger car registrations in the European Union rose to 13.0 million units over the 12 months through March, the highest pace since August 2010.
(4) Japanese exports.
Despite the 30% decline in the yen since late 2012, Japan’s exports (in yen) fell 9.7% y/y during March, edging up just 0.1% m/m.
(5) Asian indicators.
If China is rebounding, it isn’t showing up in Japanese exports and other Asian economic indicators. Singapore’s industrial production declined 0.5% y/y in March. Output has dropped in 13 of the past 14 months.
South Korea’s real GDP slowed sharply during Q1 to 0.4% (q/q) following 0.7% the prior quarter, as sluggish exports continued to weigh on growth. The latest customs data for the first part of April show that Korea’s exports are likely to fall again for the whole month, following a 15th straight monthly drop in March as weak global demand, especially from China, depresses exports. China, Korea’s biggest overseas market, takes in around a quarter of the country’s shipments abroad.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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