From Macro Tourist, April 20:
Lately there has been all sorts of chatter about the collapse of Chinese Iron Ore prices. There can be no denying, the chart looks like death.
A move from 95 to 65 is more than 30%. Given it happened in a little over a month, the decline has been horrific.
What does this mean?
Without checking any of my charts, I expected most global industrial commodities to at least be trending lower along with iron ore. Combined with the recent soft economic releases in the United States, it was easy to envision a scenario where the CRB Spot Raw Industrial Index was down 10-20% from the highs.
Much to my surprise, the chart for US Spot Raw Industrial commodities was nothing as I expected.
After a big Autumn run, the CRB Spot Raw Industrials has barely declined. It is still within spitting distance of recent highs.
Why does this matter?
Recently the Trump reflation trade has tipped from exuberance to disillusionment. A few months ago investors were all bulled up on the prospects of deregulation and tax cuts. As the difficulties for the new President to pass his agenda has become obvious, the market has abandoned this theme quicker than Lindsay Lohan ducks out of her court ordered mandatory AA meetings.
Have a look at this chart from BofA Merrill Lynch that shows the degree to which global fund managers are overweight US equities....
...Putting it all together.
The CRB Raw Industrial Index is not subject to the day to day whims of the legions of hedge funds jerking around financial asset prices. In this day and age of overly sensitive economic indicators, it is comforting to have something to watch that might give some hints about the true state of the global economy.
When we combine the CRB Spot Raw Industrial Index with the weekly unemployment claims and an economic confidence stat, we get what Yardeni calls his “fundamental stock market” indicator. (I wrote about it here in a piece titled Obi-Ed’s Magical Indicator).
Interestingly, even while investors are becoming increasingly bearish, Yardeni’s indicator has showed no signs of switching....
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MUCH MORE
