Conclusion: Our models and interpretation of the high-frequency data suggests that: a) Asian economic growth is slowing at a slower rate; and b) the bottom is not completely priced in – yet.
In refreshing our country-specific predictive tracking algorithms (PTAs), we’re seeing a consistent pattern emerge as it relates to the slope of economic growth – specifically that economic growth is likely to bottom in 1Q12 for a host of key countries and economic blocs.
On the margin, being closer to the bottom is a bullish factor for global beta insomuch that having a shortened delta between current rates of economic growth and where those rates are likely to end up in the current global economic cycle is a variant setup to the one we had in JAN ’11 when we made an explicit call for Slowing Global Growth.
Make no mistake about it – global growth is still slowing. What we are trying to say is that: a) the bottom is in sight for a few key countries; and b) slowing at a slower rate can be a bullish factor in that it is a leading indicator for the turn. This is a key upside risk to consider in the context of depressed consensus sentiment surrounding the 2012 economic outlook as well as the positive effect on real-adjusted rates of growth stemming from further strength in King Dollar and a further Deflating of the Inflation in the commodity complex:
Of course, the latter point continues to hinge on the Bernanke/Dudley/Evans trio remaining on the sidelines and out of the way of the U.S./global economy. Refer to this morning's Early Look for further details.
Turning specifically to Asia, we’re seeing some supportive DEC PMI readings out of Asia, headlined by sequential gains in Chinese, Japanese, and Indian manufacturing to 50.3, 50.2, and 54.2, respectively. These coincident-to-leading figures are supportive of the aforementioned top-down takeaways from our PTA readings. This is in contrast to some important, but lagging, indicators such as Singapore’s recent 4Q11 real GDP release: +3.6% YoY vs. +5.9% prior; -4.9% QoQ SAAR vs. +1.5% prior.
Moreover, while the sample is not fully robust (we’re still waiting for Hong Kong manufacturing, India services, Singapore manufacturing, and Australia services to be released in the next 24-48 hours), the initial read-through from the first batch of DEC PMI data is that Asian economic growth in DEC was better, on the margin, than in NOV.
On the heels of this data and ahead of further key data points throughout the week, we’re seeing a few key Asian equity markets break out on our immediate-term TRADE duration – namely China, Hong Kong, and South Korea. We would expect Japan to follow suit, having been closed since 12/30. India remains an outlier, still bearish TRADE and bearish TREND. As the charts below suggest, none of these key Asian equity markets are bullish on our TREND duration, suggesting to us that we’re not out of the woods yet from an intermediate-term downside risk perspective. Keep those lines front and center in your notebooks to gauge for any consequential follow-through in Asia from today’s very green start to the New Year in U.S. equities.
All told, our models and interpretation of the high-frequency data suggests that: a) Asian economic growth is slowing at a slower rate; and b) the bottom is not completely priced in – yet. Stay tuned for any breakouts and/or failures at [nearby] consequential levels as determined by our quantitative models. Having enough patience the resist the Old Wall St. urge to identify oneself as bullish or bearish for the year in JAN is likely to prove to be the winning strategy going forward.