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Globicus LEI Signals US Economic Recovery

Tue, Mar 10 2009, 01:40 GMT
by Hans Nilsson

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Globicus LEI Signals US Economic Recovery

• The dollar gained on safe-haven bids on Monday. Investors worried over the current state of the world economy as the World Bank reported the global economy is likely to contract for the first time since WWII. US equities fell today, pressured by technology stocks. Legendary investor Warren Buffett said the US economy “has fallen off a cliff.” That is certainly true; however, our Globicus/qEcon Research LEI shows a US economic recovery is in sight and stocks are likely to turn higher. The euro declined modestly. Sterling fell to a 6-week low, pressured by concerns over the UK financial sector and whether the Bank of England’s quantitative easing would prove to be the catalyst for a recovery or pressure the pound further. Testing important support, the Canadian dollar dropped as housing starts fell more than expected. The Australian dollar declined to important support.


• The USD/JPY rose as Japan posted its first current-account deficit since 1996. The pair’s previous safe-haven status was further eroded today as stocks fell but the pair rose. The USD/JPY is in a well-defined trading channel. The relative strength index shows the pair is overbought and may need some consolidation. There may be a test of the support from the lower trading band before moving through the 100-area resistance. Support exists in the 97-area.

Financial and Economic News and Comments

US & Canada

• The Globicus/qEcon Research US leading economic index rose from its -8.5 low in December to -5.2 in February, pointing to a US economic recovery in H2 2009, possibly as early as July. It also indicates that equities may be bottoming out as they always rally before an actual economic turnaround. During its 60-year history, our LEI never failed to correctly call an upturn in the US economy. However, the fragile financial system and debt deflation make this recession more like pre-WWII recessions for which monthly data have been unavailable. Thus, the recovery call is somewhat tentative, depending on many factors, especially whether the government could solve the banks’ bad-asset problem. The coincident indicator fell from -5.4 in December to -7.4 in January, indicating the economy contracted at a 7.4% annualized rate. The current recession will likely be as severe and long as the 1973-75 recession and possibly the longest and most severe recession of the post-WWII period.

• The Conference Board US employment trends index declined 3.2% m/m to 91.0 in February, the lowest level since 1994, from a revised 94.0 in January, the Conference Board reported. The index fell 22.0% y/y, the largest year-on-year decline in its 35-year history. The data indicate further deterioration in the US labor market.


• Canada’s housing starts posted a sixth consecutive decline in February, falling a more-than-expected 12.3% to a seasonally-adjusted annual rate of 134,600, the lowest level in more than eight years, compared with 153,500 in January, according to Canada Mortgage and Housing Corp.

Europe

• Amid a deepening eurozone recession, euro-area investor confidence fell further in March, dropping to -42.7, its lowest level in at least six years, from February’s -36.1, Sentix reported. The current situations index weakened to -59.75 in March from -52.25 in February, while the economic sentiment index decreased to -23.5 from -18.25. “This is hardly a spring revival,” Sentix said. “It is critical for future economic prospects that investors see an end to further deterioration of the current situation.”

• Switzerland’s seasonally adjusted unemployment rate in February increased to 3.1% from January’s upwardly revised 3.0%, the Swiss Federal Statistical Office reported.


• European Central Bank President Jean-Claude Trichet said the global economy may be approaching a turning point and that measures taken by central banks and governments should stimulate economic growth.

Asia-Pacific

• Japan posted a current-account deficit of ¥172.8 billion ($1.8 billion) in January, its first current-account deficit since 1996 and the largest shortfall ever recorded since January 1985, after posting a ¥125.4 billion surplus in December, the Ministry of Finance said.


• According to the Japanese Economic and Social Research Institute’s economy watchers survey, optimism on the current state of the Japanese economy improved in February, with the current conditions index increasing to 19.4 from January’s 17.1. Optimism on the outlook for the economy also improved, with the future conditions index rising to 26.5 in February from 22.1 in January.

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Published on  Tue, Mar 10 2009, 01:53 GMT

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