Data Galore, Switching Sentiment

While hotter topics hogged headlines, many data-focused news stories more pertinent to the global economy and bull market were quietly published this week. We can sum the reactions in a word: “Meh.” Most releases were second or third-page news at best. Those who did bother reporting pointed out positives and negatives near-equally, but neither angle dominated. Maybe folks were too distracted by the high frequency hysteria drumbeat to care. Or maybe they just think the data need to thaw from the polar vortex a bit further to indicate much. But fundamentally, these data show expansion continues. That the widespread take didn’t involve much handwringing or celebrating indicates investor sentiment’s slow switch from skepticism to optimism continues.

Over the last few days, governments and other global sources have dumped data galore—we rounded them up for your enjoyment: In the US, February trade data showed falling exports (-1.1% m/m; +1.9% y/y) and rising imports (+0.4% m/m; +1.1% y/y). US factory orders rose +1.6% m/m in February on aircraft and auto demand after two months of decline. Bank lending improved, rising +2.5% in Q1 (through the third week of March). Under the hood, lending rose from +2.0% m/m in January to +2.5% in February to a relatively hot +3.4% growth in most of March, with business lending up +9.7% y/y in 2014’s first 12 weeks. March’s Purchasing Managers Indexes (PMI) were strong: Manufacturing read 53.7 and services 53.1 (readings over 50 indicate growth). Both saw rising new orders (55.1 and 53.4) and healthy production (55.9 and 53.5). Across the pond, UK PMIs all showed slower but still-steady growth, reading 57.6 (services), 62.5 (construction) and 55.3 (manufacturing). The eurozone’s composite PMIs slowed slightly, too (53.1), but underlying data were broadly positive with services hitting 52.2 and manufacturing 53.0. Manufacturing output (55.6) and new orders (54.3) remained quite strong—all countries but Greece showed growth. In services, all but Italy grew, as new business and business activity increased.

On balance, the data were good—just what we’d expect in a maturing global bull. No expansion brings consistent acceleration. More interesting, though: There was little accompanying hyperbole, positive or negative. Any “it’s good!” or “watch out!” sentiment was offset with an explanation or a counterpoint.

Take the matter-of-fact commentary on US trade: “Trade was one of the key drivers of economic growth during the last three months of last year, a trend that is unlikely to be repeated in the first quarter.” Factory orders had a similar tone: “[They] rose in February after two months of declines,” and though “a critical category that signals business investment plans fell,” it was explained away by “severe winter, which caused businesses to postpone plans to expand or modernize their operations.” US “loan growth seen in the first quarter isn't yet strong enough to suggest banks are anywhere near out of the woods,” but “it does provide some reason to hope the lending environment is improving.” There is “still some catching up to do” in US manufacturing, but “it is heading in the right direction." And US services were “a positive sign the economy is rebounding after an unusually cold winter.” In the UK, “while March saw growth slow across the services, manufacturing and construction sectors, all three continue to expand at very strong rates.” “Eurozone businesses logged their busiest quarter in three years at the start of 2014, but did so by slashing prices.” Still, “[Eurozone PMI] surveys showed that the recovery in manufacturing became more balanced in March.”

Skepticism is retreating and budding optimism only just beginning to show—hence the muted reactions. However, if data stay as strong—or strengthen—investors likely start letting it win them over. Optimism will appear. Today, that seems a ways off—skepticism is hard to leave behind. With nearly any small fearful headline, skepticism perks. Data may not put investors into doldrums anymore, but they’re still easily spooked. China hard-landing fears, geopolitics in Eastern Europe, interest rate hike fears—all have brought out investors’ inner skeptics in recent days and weeks. All that goes to show today’s budding optimists might be tomorrow’s irrationally exuberant, but they aren’t for now.