What Global Markets Are Telling Us About The US Economy
As the world’s economies grow more interdependent, it is becoming
increasingly important that investors, who are focused on the US markets,
monitor the performance of global markets in order to confirm whether or not an
economic recovery is underway. Commodity and emerging market stock markets are,
perhaps, the two most sensitive markets to US economic cycles and both are
currently confirming that the economic picture is looking brighter…
Commodity prices
Since the US is the largest purchaser of commodities, their price appreciates
markedly when America’s economy picks up. This is especially the case with
industrial metals, which are used to produce electronics, machinery, houses,
building, cars, etc.Â
As can been seen in the chart below, The Journal Of Commerce Industrial Metal
Price Index (JOC index) is currently near its 2 year high. Meanwhile, industrial
production has been picking up along with orders for new goods. This is also
having a positive effect on the job market, as demand for new workers to produce
more goods increases. This week, the number of jobless claims filed by Americans
fell to the lowest level since right before the Iraq war began. The four week
moving average–which smoothes out distortions–of this data series also fell to
394,000–numbers below 400K are typically associated with job growth.
Emerging markets
Typically, as demand for commodities increases, emerging market economies
tend to benefit, as do their stock markets. The reason is two-fold: First, these
countries are the primary producers of commodities. And second, as global
investors become more comfortable with the overall fundamental picture, they
become more willing to make risky investments, such as in emerging market stock
markets. As can be seen in the chart below, emerging market stock markets have
been performing quite well as of late–even better than the S&P 500,
suggesting that risk appetite continues to improve along with demand for raw
materials . Â
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