Global Trade Bottomed?

Interesting question in light of the JP Morgan Global – and Markits – manufacturing statistics – released in Mid December.

Now please exercise care when looking at these charts – it may look like ‘roses’ but moi’ has taken off his rose  colored glasses.

The data contained in these graphs are extracted during a massive currency war – and I can see no indication that the individual country currencies have been properly adjusted to account for currency deflation.

 

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Looks good doesn’t it – a slight uptick at the end of 2016 – this is the Global GDP indicator – but a word of caution – calculation of the GDP utilized – a GDP ‘deflator’ calculation – usual method is to convert the value of GDP of each country into U.S. dollars and then compare them.

Conversion to dollars can be done either using market exchange rates – those that prevail in the foreign exchange market – or purchasing power parity (PPP) exchange rates.

The PPP exchange rate is the rate at which the currency of one country would have to be converted into that of another to purchase the same amount of goods and services in each country.

Combine this with currency deflations – due to the currency wars and then we have an entirely different picture emerging as to what these figures actually represent – yet the government’s and IMF place reliance on them.

My opinion is that these figures are inflated – due to the devalued currencies against the USD over the period – in particular China and Emerging Countries – whose actual cost to produce the GDP indicated would have increased markedly.

Me thinks flat – more in line with what is happening globally – that is to say bottomed and consolidating.

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Now this is interesting in that a 2016 uptick confirmed by the Developed Countries – with the Emerging Markets struggling.

Please note that PMI® reading above 50 percent indicates – that the manufacturing economy is generally expanding – whilst below 50 percent indicates that it is generally declining.

So the Developed Countries currencies themselves are indicative of an overall increase in Manufacturing output due to value – the ‘deflation calculator’ on various currencies has a fault as compared directly to USD.

Emerging markets were busy exporting deflation to trading partners – in particular China.

Note that everything Japan tried to do did not work thanks to the U.S. Federal Reserve holding interest rates at a low level.

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This is the Manufacturing business activity index for the major Developed market economies – on this note UK overexagerated due to impact of Brexit on the GBP – yes allowances made – but the devaluation enabled goods to be exported cheaper – but the replacement cost of raw materials would offset gains.

Still nice to see a general uptick – especially in Japan.

Question is whether the exports undertaken would result in overstocking the recipient countries – after all it is leading up to Christmas.

When looking at the PMI data –

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But then we come to the Emerging market economies who have a definite ‘drag’ to the gross global figures.

China data incorrect and adjustments confirmed in late December 2016 – that adjustment would wipe off the late uptick – further nothing done on the financial problems and the devaluations are continuing increasing costs for manufacturing on raw materials.

India is stuffed – shown as such – the Modi ‘banning cash’ decision will have a tremendous impact on the overall GDP – when this data was collected and in the coming months – India is in deep shit.

Brazil – well interesting to see the overall rise during the 2016 calendar year – but the question is whether this will flow through to 2017.

Me thinks not – at least until Brazil’s political situation is back on an even keel and the country does something about the corruption – um yeh – latter also applies to Russia.

The Inventories Index – ISM data – registered 47 percent in December 2016 – which is a decrease of 2 percentage points when compared to the 49 percent reported for November 2016.

This indicates that raw materials inventories are contracting in December 2016 for the 18th consecutive month.

An Inventories Index greater than 42.8 percent – over time – is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories – in ‘chained’ USD terms.

The ISM® Prices Index – registered 65.5 percent in December 2016 – this is an increase of 11 percentage points – when compared to the November 2016 reading of 54.5 percent.

This indicates an increase in raw materials prices for the 10th consecutive month.

This will put pressure on the bottom line!

In December 2016 – 38 percent of respondents reported paying higher prices – 7 percent reported paying lower prices – and 55 percent of supply executives reported paying the same prices as in November 2016.

A Prices Index above 52.4 percent – over time – is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Yes costs increasing.

So has Global Trade bottomed – yes – appears to have reached that point – at this time – and may well just bounce along the bottom until demand increases.

Caution though – in that the global debt situation has not been addressed – and should an increase in interest rates occur within the next three months – the ‘knock on’ effect will be disastrous for the manufacturing industry globally – in particular the Emerging economies.

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