The Japanese Light-Switch To Growth

This impending currency war, dramatically leading up to the G20 in Russia this weekend, will ultimately become a shot of adrenalin for the global economy.  Global central banks (and their most vocal governments) are manipulating their currencies lower through expansionary policies in a bid to help their exports.  Japan already took the lead, as the BOJ moved its inflation target higher and increased its repurchase program, sending the Yen 17% lower over the past 3 months.  Europe, who competes with Japan on numerous exports, has some catching up to do, already debating inflation targets in Britain while Draghi has gone on the (verbal) offensive, with rate cuts possibly on the table.  This means more cash pouring into the economy from all sides; a flood of capital, pure adrenaline.

The impending tide of capital is exactly what equity markets need to push through their previous highs.  Most US markets are buttressed 1-2% beneath record levels, while the Russell 2000 & DJ Transports have already broken above.  From a technical –volume, volatility, and moving average– standpoint, this year’s rally shows no signs of stopping.  All is smooth sailing and a currency war look likes a nice gust of wind.

- FT 3/4/13

– FT 3/4/13

The Most Amazing Trade Deficit

December Trade Deficit: $38.5 billion.  The trade gap narrowed by 20.7% from November as petroleum imports fell to the lowest level since 2007.  That is huge news for politicians claiming energy independence.  And there is more gold in this report, including 4Q GDP revised higher to around .3% growth, a manufacturing uptick and best of all the energy independence could boost the nations long term growth rate (so says the WSJ).  America is on a great path, unfortunately this report will never sustain these results and next month’s will be back to more usual $45 billion readings.  But this could be a nice start for 2013.  Over the past year, exports are up 4.9% and imports are down 2%.

Exports: $186.4 billion          +$3.9 billion, +2.1%

Imports: $224.9 billion           -$6.2 billion,  -2.7%

Stage Set For Budget Battles In Developed World

Natixis February Update.  Forecasting 2% growth for the US, 1% for the UK and Japan, and nothing at all for Europe, Natixis disagrees that world trade will be able to invigorate economic activity in the second half of the year.  There are 3 main hurdles for the US economy in the first half: the sequester, Continuing Resolution and debt ceiling.  All 3 of these will be dealt with at the very last minute.  The Continuing Resolution and debt ceiling must be dealt with or the US economy could see another downgrade, while the sequester is already priced in (they use lower multiples on government funded companes like healthcare and defense for example).  The sequester will take 0.5% off GDP, but looking at the actual BEA GDP report, government spending already took off 67bps in 2011 and 34bps in 2012.

The key in their European outlooks revolves around fiscal tightening in a recession, if that has a disproportionate impact on growth, and if world trade can help spur demand in the region.  They believe that the steep austerity measures, particularly in France, will lead to a deeper recession, while world trade will do very little.

Northern Trust’s Million Charts

NT_Chart_Library_-_02052013  A fantastic presentation with charts on every aspect of the  global economy, from the breakdown of the CPI and dollar weighted index, central bank policy rate charts, US household & government spending, global GDP and inflation, China’s economy & growth, fixed income yield curves. spreads, option adjusted spreads, high yield metrics, default rates, global equities returns and fundamentals, commodities, demographics.

Northern forecasts an average rate of GDP of 1.85% for 2013, with just over 2% growth in the second half.  Slightly conservative compared to the street’s average 2.4% estimate.