The so called "green shoots" seen this spring have emerged as "less bad" data show the economic decline has clearly slowed its descent. April saw the stock market move sideways, consolidating a 30% gain off the recent market lows, even as the 10-year and 30-year Treasury yields surged above 3% and 4% respectively. The equity market gains were made in the midst of oversold conditions, as sprigs of ivy climbed the wall of worry, but there is still some concern the shoots could die at the root. For the constructive tone in the markets to continue through the month of May, the economic data, corporate developments, and government activism must continue to cultivate the "green shoots," allowing them to grow and flourish.
Sowing More Seeds
Much of the leadership in the recent equity rally has been provided by the tech sector, and two tech giants have yet to report. Cisco Systems (reports 5/6) CEO Chambers recently forecast an economic recovery starting in the Dec 2009/Jan 2010 timeframe. His commentary on quarterly results and guidance will be monitored for any revisions to this forecast, which is a bit more conservative than that of most Fed governors. Hewlett-Packard had returned to favor last year, but stumbled last quarter. It will get a chance to redeem itself when it reports this month (5/19), possibly helping tech maintain its leadership position.
On the retail front, Wal-Mart (5/14) will give us a window on the health of discount retailers, while Kraft (5/5) will illustrate any continuing trend in consumers moving toward cheaper brands in their day to day shopping. The May 7th release of the April Same Store Sales data could also give a read on how fertile the economy's soil has become. The 2.2% growth in consumer spending reported in the otherwise downbeat US Q1 Advance GDP data has been pointed to as a "green shoot," and the same store sales data could illuminate who has been the beneficiary of this spending bump. A more detailed revision of Q1 GDP will be released on May 29. Another notable data point for consumer spending will be the US April Advance Retail Sales on May 13, which is expected to rebound from the prior month.
Digging in the Dirt
Industrial commodities like crude oil and copper have fared well in the past two months alongside the rebound in equities. The strong compliance with OPEC production cuts and demand for base metals out of China have helped these commodities find a floor in recent months, though this could be jeopardized as Chinese inventories grow if demand in other countries doesn't start to pick up. OPEC meets again on May 28, but current expectations are the cartel will continue to focus on fuller compliance rather than new production cuts.
Bamboo shoots
Other green shoots have sprouted up in Asia. South Korea's economy appears to be at the forefront of recovery in Asia, with positive signs emerging in consumer confidence, production, and trade balance data. Korea's economy surprisingly dodged a recession with a positive Q1 prelim GDP figure, but that is subject to revision on May 31 with Q1 Final GDP. Look for BOK to leave rates unchanged at 2.00% again on May 11th.
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