Year of the Ox

Light at the end of the tunnel? Things may be picking up for the Chinese six weeks into their new year, the Year of the Ox, which is historically a harbinger of prosperity. Minyanville's Prieur du Plessis points out that the Purchasing Managers' Index for China's manufacturers has strengthened over the past three months. In particular, the sub-index for new export orders jumped sharply in February. As the graph above shows, the PMI for new orders correlates closely with the Baltic Dry Index, which measures freight rates of iron ore and bulk goods. As goes the Baltic Dry Index, so goes the global economy.

Stock prices in China also reflect a renewed optimism, as the Shanghai Composite Index has risen 40% since the government announced a stimulus program in November. We should be cautious, however, about extrapolating expectations of economic growth in China to the Western economies. Eastern European nations are about to default on their sovereign debt, which will have a huge negative impact on the Eurozone banks investing heavily in that region. Meanwhile, back here in the good ol' U.S. of A., markets are reacting negatively to government stimulus plans. China, remember, is stimulating from a position of fiscal strength. The U.S. is not.