U.S., Europe, China, And Commodities Confirmed Global Economy Decelerating
Bloomberg Brief’s Rich Yamarone has some recent examples that may make this week’s GDP hopes look a little rich…
Just as people were starting to relax – feeling that the warnings had been too alarmist – the “sequester” news took a turn for the worse.
The consequences go beyond confirming that an already sluggish U.S. economy will now face a fiscal drag of ½% of GDP this year (the first year of the sequester), adding to the 1% of GDP drag in the end-of-year “fiscal cliff” deal. They also suggest that we may never get a full handle on the negative effects of Congress’s self-inflicted wound.
The sequester, or the automatic set of blunt spending cuts triggered by Congressional polarization and dysfunction, was all over the news in the first few weeks of the year. Warnings got louder as we got closer to the trigger date. Yet, in the immediate aftermath of the trigger, the vast majority of Americans felt no effects.
Many blamed the press for overhyping the issue. Some even pounced on the “false alarm” as confirmation that budget cuts, no matter how badly designed, could and should be pursued without hesitation. Just a few brave souls warned that it was only a matter of time until the adverse effects would become clearer.
I experienced a small reminder starting on Saturday evening. The airline I was flying the next morning sent me an automated e-mail warning me that “as a result of recent Federal Aviation Administration (FAA) sequestration budget cuts, your flight may experience delays.”
The 17-nation bloc slipped far deeper than expected into recession in the fourth quarter as economic giant Germany suffered its sharpest contraction since the height of the global financial crisis in 2009.
Euro area GDP fell 0.6pc in the last three months of 2012, marking the currency bloc’s first full year in which no quarter produced growth, extending back to 1995, according to figures from European statistical agency Eurostat.
The worse-than-expected decline – the deepest since the first quarter of 2009 – was driven by GDP slumps in the bloc’s major economies, including a shock 0.6pc contraction in Germany and a 0.3pc fall in French output in the fourth quarter.
Meanwhile in Italy, the next largest eurozone economy, fourth quarter GDP shrunk a more-than-expected 0.9pc.
In Germany, where preliminary data showed the economy still grew on the year, albeit at just 0.1pc, weak exports from the nation’s muscular manufacturing industry were blamed for the sharp fall in output.
The number is out and it’s a miss. More to come.
For March, Chinese Flash PMI has come out at 50.5.
That’s a whole point below expectations of 51.5.
Generally, fears have been growing that Chinese growth is flagging again (something confirmed by last months’ PMIs as well as Caterpillar’s earnings today.
This Flash PMI report will only confirm that.
Growth indicators going down the drain? Copper, CRB, CRX, Gold, Silver and the Shanghai Index all down over 30%+ in the past 18 months.
CLICK ON CHART TO ENLARGE
The above three assets are “very sensitive” when it comes to the growth/inflation story. Each of them have been making a series of lower highs since May of 2011! Now they are breaking support lines of rising wedges and pennant patterns.
CNBC wrote and article this week titled “Get ready to play the deflation trade!” (see article here)
I’m not sure this is new news, with these commodities….Copper, CRB, CRX, Gold, Silver and the Shanghai Index all down over 30%+ in the past 18 months. It does reflect that several assets that more often not tell the truth about growth or lack of are suggesting some type of slow down could be working its way into the global community in the months to come!
The key to the growth story is this….will these growth indicators which are down, stop falling? Keep a close eye on them because the stock market in time could be impacted by the message.