Rudi's View | Apr 05 2010
By Rudi Filapek-Vandyck
The positive US labour market data from Friday might be getting most of the media attention, but to me, and I suspect to many economists across the globe, the highlight of all Easter weekend data releases were Thursday's manufacturing indices from around the world.
I had a suspicion the Easter weekend updates might surprise to the upside. Such would simply be in line with the trend of economic data releases generating positive surprises these past week. But Thursday started on a bleak note with the Australian manufacturing index revealing an unexpected retreat.
It turned out Australia was the only disappointment on the day. Thanks to JP Morgan, whose economists keep track about most Purchasing Managers Indices (PMIs) around the world, we now know that Australia is lagging behind the rest of the world. If it wasn't for troubled Greece, Australia would have been at the very bottom of global manufacturers' performances in March.
The bottom line is that Australia's performance doesn't matter much on a global scale, and neither does Greece's. What matters is that manufacturing PMIs positively surprised from China to the US and from the UK to India and Germany.
It wasn't only the US release that blew economists away on the day. Economists at JP Morgan reported over the Easter break their global PMI has equally reached its highest level for this economic recovery, reaching the highest index read since May 2004 and almost the highest level ever in the history of the global index (in existence since 1998).
The repercussions of this will be positive for global risk appetite and for risk assets in April. Some economists will now increase their growth projections for Q1 and for Q2. Others might stay the course but will adapt a so-called “positive bias”.
I even suspect some bearish commentators might now consider switching to a more positive outlook.
Base materials, especially those closely linked to global economic growth (oil, copper), will benefit too. I wouldn't be surprised if they will turn out the next ones to beat all expectations.
If the trend is an investor's best friend, than it is difficult to argue otherwise than that the present trend is one for better-than-expected economic health, across the world. Australia's sub-par performance is no doubt linked to much better growth last year and to the strong Aussie dollar.
Sure, doubts, dangers and implausibilities remain, and they will continue to hang over the share market this year, but unless the momentum from economic data evaporates, I can see no reason why share markets should head south. And even then, and as I have stated repeatedly, as long as FY11 forecasts stand, there will be sufficient support to prevent any significant sell-offs from happening.
So watch the US dollar, and keep a close eye on the US bond market, but in the meantime don't lose out of sight that the underlying trend for equities and for commodities is upwards, at least until we see positive support from rising growth expectations disappearing.
The chances of this happening in April seem slimmer by the day.
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