Thursday, February 3, 2011

The canaries in the coal mine of global growth

While Americans and American investors will be keeping a close eye out for the Non-Farm Payroll release this Friday and the Super Bowl this weekend, I'll be watching commodity prices in the next couple of weeks for a clue on the intermediate term trend of the market. Commodity prices are important as they are the canaries in the coal mine of global growth.

China has been the marginal buyer of commodities in the current environment, but the Chinese authorities have taken a variety of steps to try to slow their overheating economy.

As the Year of the Rabbit dawns on February 3, sources tell me that many Chinese state owned enterprises have virtually shut down ahead of the new year due to the fact that they have spent their budget for the year. We should therefore be watching commodity prices closely as a quick-and-dirty barometer how Chinese growth might pick up once the new year begins.

Despite all of the hand wringing over China's administrative measures to slow their economy, commodity prices, as represented by the CRB Index below, remain in a well-defined uptrend. Moreover, they staged an upside breakout this week.

Watch this space! It's going to be a lot more important than indicators like the very noisy NFP release Friday.

1 comment:

piefarmer said...

I agree commodities are more important than payrolls in the weeks ahead, but I explain their uptrend more by dollar devaluation than global growth.

Joe Calhoun has some pretty strong evidence of this here:

IF true, slowing global growth won't show in the CRB as you expect.