The following is a summary of our recent interview with Kurt Kallaus, which can be listened to on our site here or on iTunes here.
With the outcome of the election now clear, and the anticipated selloff on president-elect Donald Trump’s victory not materializing, Kurt Kallaus, author of ExecSpec, says to watch the commodities complex as an important leading indicator for global markets.
Massive Copper Breakout
We’ve seen PMI numbers rise sharply in October in both Europe and the U.S., and there’s been growth in industrial orders and materials prices. Because of this, some analysts believe that we may be seeing a turning point in the global economy.
One commodity that may be signaling such a turn is copper, sometimes referred to as "Doctor Copper," which, as Investopedia puts it is "Market lingo for the base metal that is reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy."
“It is impressive that copper has rebounded so much,” Kallaus said. “In fact, I think the surprise was that copper was restrained as much as it was.”
It’s important to look at some of the minor metals too, including zinc, tin, lead and aluminum, Kallaus said. These have already broken out of lengthy downtrends, he added.
The commodity markets have a more sensitive, fast response, said Kallaus, and their behavior is indicative of a possible cyclical upturn in the global economy.
“There are some positive signs, but it’s too early to say that Dr. Copper is correct and that we are surging forward here,” he noted. “I think we’ll have to wait a few more quarters to verify that outcome.”
Economic Indicators Signal Upturn
It’s important to keep a watchful eye on a number of indicators, including PMIs (Purchasing Manager Indexes), Services Indexes, the Senior Fed Loan Survey, jobless claims, and others.
Collectively, Kallaus says, the message coming from many of these indicators is still positive and even showing signs of recent improvement.
Regarding jobs, he noted that quit rates are back at pre-recession peak levels in 2006 and 2007, which is a relatively healthy sign that people have job mobility.
“People need to keep in mind that we’ve been a slow-growth period for quite a long time, for the last 6 to 8 years,” he said. “The consumer growth rate and the economic growth rate have been roughly half of their prior norms during expansion periods.”
He expects growth to improve again into next year as we get some of these slow quarters behind us, he said. With new orders growing, we just aren’t seeing markers for any deterioration, and expansion appears to be more likely. He expects corporate earnings will bounce back, as well, he added.
“It’s hard to say if we have 1, 2, 3 or 4 years to go,” Kallaus said. “Ideally, we have a bit of an expansion here that goes for a couple years before cyclical pressures start coming to bear in 2018, 2019 or 2020, that might retard growth once again, and cause the Fed to ease.”
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