Talk of China's demise has been greatly exaggerated although there is still more than a scent of a power struggle that could upend the economy (see sidebar). If the market continues to rebound by the end of the week many will credit that surprisingly strong earnings report from Aluminum Company of America (AA), but that would only be partially correct. Within that earnings report, which came in with results well above consensus estimates, were strong numbers out of China. While I don't doubt China does manipulate its numbers, perhaps just as much as our government data has more fingerprints from bureaucrats than accountants, but when companies in the United States and Australia corroborate the results, the sentiment is hard to ignore.
And so I think this is what powered the market higher yesterday, more good news on China, dispelling scuttlebutt of some kind of crash landing (Just think if we could get our economy to budge 8% or more).
Last week the stock market stumbled off the gate over worries about the jump in initial jobless claims and a hot core PPI reading. It looked like anxiety that slowed the rally on Wednesday would anchor the action but then all of a sudden stocks took off like a rocket. Interestingly, it took a while before anyone talked about the news out of China and instead the initial reaction to the bounce was a second response to the trade numbers. The numbers were hopeful but were out when the market opened under pressure. Maybe as the street sifted through the data, there was a great sense of relief as several firms revised first quarter GDP estimates higher. Those moves took investors back to the mindset that the US economy is ready to rock and roll.
Making the day even sweeter were comments from two Fed officials that suggest the Fed is going to stick to its word and stay accommodative into 2014. Their confirmation was needed as voting member Kocherlakota is becoming a growling hawk. It's probably a good thing nobody can pronounce his name as his push to hike rates gets less play on the local news.
These things were great, make no mistake, they are the one-two punch that is at the heart of the rally but always lingering this year has been the possibility that China could implode and knock the stuffing out of our economy and stock market. China has been the straw that's been stirring the global economic drink, and it's critical it continues to play a role. Yesterday's report on March lending was significantly better than expected. Chinese Yuan loans leaped to 1.01 trillion Yuan ($160.1 billion) from 711 billion Yuan in February. The consensus estimate was 798 billion.
China's first quarter GDP came in at 8.1%, the street was looking for 8.4%, not a disaster.
Westinghouse is a great American story, but these days the company would be accused of shipping jobs offshore and maybe told they are too greedy. With unions representing less than 30% of its workers, it seems management will be able to continue to grow the company without it getting tripped up in strikes and money-grabs.
The best thing we can do in this country is to position or allow our businesses to position themselves to make money from the determination that the entire planet has to get what we just might voluntarily give way.