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Must be a Buy Signal…

Markit has released its global business confidence survey, and it makes for sobering reading. Due to sharp declines in business confidence in both the US and China, a new post crisis low has been reached in June. Only the UK was a notable exception, as business confidence there jumped. We would submit that this is no coincidence, as the pace of money supply growth is increasing sharply in the UK, while it is slowing down in both the US and China.

The culprit for the slowdown in money supply growth in the US is lending by commercial banks, which is decelerating sharply even as monetary pumping by the central bank continues at full blast.

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Global business activity, future expectations, via Markit. Data collected between June 12 and June 26

Markit's chief economist summarizes the findings as follows:

“The global economy is clearly in a soft-patch again, largely reflecting darker outlooks in the US and China."

“The deterioration in business optimism in the US suggests the pace of economic growth is slowing sharply compared to that seen earlier in the year and calls into question the ability of the economy to continue generating jobs at anything like the pace seen in recent months. Any thoughts of an imminent tapering of the Fed‟s stimulus are looking premature on this basis."

“The UK, on the other hand, is undergoing a period of solid and increasingly sustainable-looking economic growth. Expansion is being led by the service sector, where business optimism has surged to the highest since late-2006. Even manufacturing is seeing the brightest outlook for two years. Exporters are benefitting from sterling‟s depreciation, which is offsetting worries about slower growth in many key export markets."

“Business confidence meanwhile remains high in Japan, having pulled back only slightly since the wave of 'Abenomics'-fuelled optimism seen at the start of the year. Exporters, aided by the steep depreciation of the yen, are especially upbeat about future prospects."

“The eurozone remains a weak spot in the global picture, though far less so than late last year. However, while there are signs of rising optimism in the periphery, notably Spain and Ireland, the mood in France and Germany remains subdued compared to earlier in the recovery, which will restrain the overall pace of economic recovery for the region.”

The complete report can be downloaded here (pdf).

It is noteworthy that while China's stock market clearly reflects the somber mood among businessmen, the buyers of US stocks are evidently a lot more confident than the people running the businesses they are buying shares in.

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S&P 500 versus Shanghai A-Shares Index (green line). At least one of them seems to be in la-la-land.

Lastly, although not mentioned by Markit, crude oil has proceeded to become even more "overbought." It is now approaching a price region that will, in our opinion, begin to pose a problem for the economies of the largest consumers. Of course, crude has recently gone "vertical," very similar to what has occurred in many US stock indexes. This move is unlikely to be sustainable for long – a correction that may lead to a retest of the recent breakout can probably be expected to commence soon.

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WTI crude (spot), daily – going vertical.

Charts by Markit, StockCharts.

Source: Global Business Confidence Slips To Multi-Year Low