German Orders: Big Surprise Comes in Small Package

German orders are FLAT in April: what’s so good about that? German orders have been decimated over the past year with only two month-to-month gains in the past twelve months against a slew of huge month-to-month declines. This month’s flat performance, however, leaves German orders RISING early in 2009-Q2. Surprise! While February brought a huge decline of 3.1% in orders, March took order back up by an outsized 3.7%. The FLAT performance in April extends the March level into 2009-Q2 imposing on Q2 a gain above the average level of orders in 2009-Q1. Optimism is born!

German orders are still decimated being off by 33% Yr/Yr. Foreign order are of by 35% Yr/Yr while domestic orders are off by 29% Yr/Yr. Foreign orders are building upward momentum again being up at an 8% pace over six months and up at an annual rate pace of 17% over three months. Really!

Suddenly the bottom is not falling out any more...and there is forward momentum to boot- at last somewhere. And for Germany foreign orders are a very important ‘somewhere.’

The OECD LEIs also are giving some hint of support as they are showing some resiliency for some OECD members. The OECD’s cyclically adjusted leading indicator for the U.S. rose to 90.9 in April from 90.7 in March, while for Japan the index rose by the thinnest of margins to 89.5 from 89.4 in March; the leading indicator for Germany also ticked up a to 90.3 from March's 90.2. Among the large developing economies, China once again showed the clearest signs of revival, with its leading indicator rising to 94.3 from 93.4. The leading indicator for India rose in April to 93.9 from 93.5 in the previous month. Indicators for Brazil and Russia continued to fall, which is interesting since each of these countries is also experiencing sharp surges in their respective equity markets. "Major non-OECD economies still face deteriorating conditions, with the exception of China and India, where tentative signs of a trough have also emerged," the OECD said. Still there are lots of hints of good news in the countries that are most likely to be leading the global business cycle. And there are even some good market trends in countries with poor economic trends as the Brazil and Russian stock markets show.

On balance combined with the good order results from Germany, and stronger ‘shoots’ being seen in the US, the ‘global tea leaves’ increasingly point to some sort of global resurgence. That is not too surprising given the floor under oil and its new rising trend. (Although we should by now have learned to be at least somewhat skeptical of what oil’s signal is really worth.) Still, along with sharply improved global equity market trends that feature rising ‘high beta’ stocks, firmer commodity price trends, and improved economic reports, we have bond yields on the rise. For every silver lining there is also a cloud. In the US at least attention has begun to be directed to the prospect that rates might switch to an increasing trend even before year end. To many this is a shock.

To be sure rising treasury rates that might boost US mortgage rates raise questions about the sustainability of the incipient US expansion as well. But these are the issues visited in each and every economy that switches from recession to recovery. Beware that the agenda in markets is changing and the US is usually a bellwether Look for shifts in the policy discussion overseas as well once chatter over the European elections dies down.

Things change. Sometimes they change for the better…as they are now. And changes have consequences.