Macro Wrap – BRICs are bricks

by Enis March 13, 2013 7:38 am • Commentary

The BRIC countries (Brazil, Russia, India, and China) were the leaders of the 2002-2007 equity bull market, both in terms of economic growth and stock price appreciation.  They were the new growth frontiers, the wild west for entrepreneurial business pioneers.  The concept still holds sway among business leaders.  Bob Iger, Chairman and CEO of Disney, was on CNBC’s Closing Bell yesterday referencing the BRICs multiple times when talking about growth opportunities for Disney going forward.  But since the 2008 financial crisis, the global rock star status of the BRICs countries has been put into question.  And so far in 2013, they’ve been bricks, with all four equity markets actually down on the year!

I discussed the weakness in Global Manufacturing data in my CMI trade post from yesterday, and the BRIC markets are especially reliant on mining, manufacturing, and industrial production in the global supply chain.  The Macro Man blog had a good post this morning with more details on the recent Chinese weakness:

TMM have also noted that more high frequency data on power production from has also shown very weak power demand growth which is generally associated with weaker steel, cement and metals output.

Now, while much of this is more the concerns of Australia, China and mining companies, it should be remembered that a lot of S+P earnings come out of China – enough so that comments like this from the March Beige Book gave us pause: “A contact that supplies material for filtration says the global picture is difficult to pin down because Chinese New Year and the seasonal Christmas shutdowns in Europe made year-on-year comparison particularly difficult in recent months. Finally, several respondents expressed uncertainty regarding China, with one saying that some of his Chinese customers reported dramatic reductions in sales, inconsistent with government statistics.”

The BRIC weakness overall should not be ignored, even for purely American market participants.  Copper’s continued weakness is another signal among a growing batch of data points indicating real slowing in the world’s previous economic leaders.

Markets overnight:

  • Asia was mostly lower, led by the Hang Seng down 1.5%, now negative on the year.  Chinese inflation data has become a concern, indicating potential monetary tightening to come.  Real estate and construction stocks led to the downside.  
  • European equity markets opened in the red and are near the lows of the day, down 0.5%, led by Italy down 1.5%.  European industrial production missed.
  • SPX futures are down 0.25%, the dollar and Treasury bonds are higher, and commodities are mostly flat.
  • Advance Retail Sales data at 8:30 am will be closely watched.