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On the Cusp of a Global Bond Hiccup?
The Netherlands CPB Bureau of Economic Policy Analysis just released its world-trade monitor for the month of May:
World trade volume
Based
on preliminary data, world trade volume increased by 1.8% in May from
the previous month, following anupwardly revised decrease of 1.1%
in April. Import volumes went up in the advanced economies as well as
emerging Asia and emerging Europe, whereas Latin America and Africa /
Middle East posted sizable declines. Import growth was extraordinarily
high in Japan. Export volume increased in all major regions with the
exception of emerging Europe. In May, world trade was 3% below the peak level reached in April 2008 and 23% above the trough reached in May 2009.
Monthly
trade figures are volatile and focus on ‘momentum’ is therefore
preferable. Momentum remains strongly positive. In the three months up
to May, world trade was up by 5.0% from the preceding three months.
Momentum was again highest in Latin America, while it declined somewhat
in emerging Asia. Momentum of Euro Area exports went up for a third
month in a row.World industrial production
On
the basis of preliminary data, world industrial production grew by an
impressive 1.0% in May 2010, following a downwardly revised 0.7%
increase in April. Production grew rapidly in all regions, with
the exceptions of Japan and Latin America, where production was (nearly)
flat. Growth was highest in the Euro Area and emerging Europe. In
April, industrial production was finally back at the previous peak
level reached in March 2008, which is 14% up from the March 2009 trough.
Yanick Desnoyers, Assistant Chief Economist at the National Bank of Canada commented on the trade report:
Global
trade flows continue to surge. According to the Dutch Bureau for
Economic Policy Analysis, the volume of world trade grew 1.8% in May,
the eighth increase in nine months. World trade volume is now only 3%
below its peak level reached early in 2008. As Today’s Hot Charts shows
(see above), trade flows are currently expanding at a 23% annual clip
on a year over year basis. On the flip side, this surge in trade flows
pushed global industrial production virtually back to its pre-recession
level. Despite the fact that IP is still down 9.8% in advanced
countries, production is already up a whopping 11.1% in emerging markets
since the pre-recession peak. After
today’s data on trade flows, we can now say that industrial production,
on a global basis, has left the stage of recovery and can now be
qualified as being in an expansion mode.
Surging global trade and the recovery in world industrial production are
key harbingers for gauging the health of the global economy. And as far
as industrial production in advanced countries, there are signs that
this too is gaining momentum.
Last Thursday, Mark Perry of Carpe Diem blog wrote an excellent comment, Rail Traffic Continues To Post Gains Vs. Last Year:
The Association of American Railroads released its weekly update
today on rail traffic through last week, reporting that rail activity
continues to show improvements compared to the same weeks last year.
Highlights include:1.
U.S. railroads originated 282,199 carloads for the week ending July
17, 2010, up 5.5% compared with the same week in 2009, but down 13.8%
from pre-recession levels in 2008.2.
Intermodal traffic totaled 227,661 trailers and containers, up 20.1%
from the same week a year ago and down only 2.5% compared with 2008.
Compared with the same week in 2009, container volume increased 22.1%
and trailer volume rose 10%. Compared with the same week in 2008,
container volume increased 5.6% and trailer volume dropped 32.5%.3.
For the first 28 weeks of 2010, U.S. railroads reported cumulative
volume of 7,874,125 carloads, up 7.3% from 2009, but down 13.2% from
2008, and 5,855,507 trailers or containers, up 13.1% from 2009, but down
6.4% from 2008.4.
Combined North American rail volume for the first 28 weeks of 2010 on
13 reporting U.S., Canadian and Mexican railroads totaled 10,278,759
carloads, up 10.3% from last year, and 7,319,184 trailers and
containers, up 13.8% from last year.MP:
Overall, this was a fairly positive report, despite the AAR's headline
"Weekly Rail Traffic Continues to Reflect Sluggish Economy." Compared
to the same week last year, both carload and intermodal volumes were
up, by 5.5% and 20.1% respectively. The graph above displays 4-week
moving average growth rates for both series (to smooth out the weekly
fluctuations), and shows ongoing weekly improvements in rail traffic
compared to last year, especially for intermodal shipping. Intermodal
traffic volume has registered year-to-year gains for 30 straight
weeks, starting late last December; and the last 20 weeks have all been
double-digit gains.
The evidence clearly
indicates that fundamentals are much stronger than what is reflected in
mainstream media. Global trade, global industrial production and US rail
traffic are all reflecting an expanding global economy.
Finally, I had a nice lunch with Francois Soto of EMphase Finance
today. Francois passed his CFA level II and was ecstatic, so I wanted
to treat him to lunch to celebrate. He is only 27 years old, extremely bright and has
tremendous potential. I enjoyed our discussion, felt his passion for
finance and markets as we discussed several proprietary indicators he
developed.
In fact, he just updated his "Rough Times" indicator shown below:
And he explains:
Basically
the index needs to reach a level of 5 to trigger a US Recession. So
far, the model reached 3 and two sub-indicators more are required. One
of these is ISM Manufacturing below 50 while the other is proprietary. I
am not saying a recession is impossible. It is quite possible but so
far it would only point for a very short-lived recession. That's all we
can infer for now.
Given the evidence presented
above, I don't see rough times ahead. In fact, the stimulus might be
working a lot better than we think, and if this is the case, global
growth will surely surprise to the upside in the second half of the
year. With global economic activity picking up steam, and global equity
markets humming along, the only question I have is how long before we
see a significant backup in global bond yields? More importantly, are
pensions and other institutional investors prepared for a big bond
hiccup? We'll find out soon enough.
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Is there anyone in retail who knows what the % drop has been in merchandise levels in retail stores?
My anecdotal evidence at retail stores shows ample browsing space between racks of clothing(there was a time you could not get a cart through), and inventory levels of health and beauty products that are about 10-15 % of what they could actually have if the shelves were full.
So we could hear about refilling the distribution channels for a long time without an increase in sales.
The biggest indicator: One cashier (or less if you hit the HD), or 2 of 30 checkouts open at Target. All of this equates to low sales volume at the very least.
The rail traffic info cited I posted last week and it does not support bullishness for the U.S.. Read it. I can't disagree with your global predictions because I am focused on what is going on in the US. But one of the markets is wrong: bonds, priced for deflation, or US equities, priced for god knows what. Bonds are a much bigger market so I'll guess they've got it right, since it takes massive QE to even budge them, whereas equities, well, the PPT takes care of that. I can't buy that endless tsunamis of liquidity end the structural problems in the US- mask, yes, but fix? No. Real estate is still in big trouble here, and that is a large chunk of the financial picture.
Would Buffet ever work with others to simulate a recovery in rail traffic to convince others that something positive was happening?
Would a restaurant owner have friends park their cars outside sto simulate a busy restaurant to attract business?
Governments can always stimulate an economy out of a recession, providing investors (i.e. the Fed) keep buying their bonds. The question is whether the recovery can be self-sustaining or whether the stimulus cannot be stopped and eventually leads to a hyper inflationary collapse.
except in the liquidity trap, that is. - Ned
Leo, do you look for this crap that serves as a self fulfilling prophecy for your personal beliefs or does it find you on it's own?
Get a fucking life.
did you mean 'bullish predisposition' ?
..besides, all this activity is priced in with bells. Whereas 'deflation, inflation, defaults, unemployment, -none of these feature so much. Realistically, how can one trade for a rosy future when there's such lstrong noise of a single tone being generated?
Well this is good for stocking inventories and stuffing the retail channel but you still need a consumer...
Y/Y comps can be very very misleading after large shocks....
Why not show their relative performance for similar periods? Data set too small?
How about adding some perspective by including absolute change and it's relative performance across all periods & history?
Debt is an ugly thing, even for fiat systems....