The Double Dip Countdown ticks down as the ECRI leading indicators have dipped even lower into negative territory, falling from -3.7 last week to -5.7. This is only the second negative reading and it will take a sustained drop to signal a recession, but the previously dismissive tone of the director of ECRI, Lakshman Achuthan, is showing heightened concern: "We're definitely rolling over." The -10 level is considered conclusive of a coming recession.
Global industrial production is up but continues to roll over. China (yellow line) is flat, Japan (red line) soared from a deep drop but is now clearly turning down, the Eurozone (dark line) still looks like it is improving, and the US (blue line) is rolling over and approaching zero to negative growth. Production is still positive, but a few more ticks and the US will be negative.
China is saying it will allow the RMB to float a bit, which might spark a stock move early this week - futures are up strongly on the announcement - but then they announced no change as of Monday. This might just be a bit of posturing before the G20 meeting, but it is interpreted as a vote of confidence in the global recovery despite the warning signs of a turn down coming. In any event, Chinese increase in exchange rates coming on top of labor unrest and higher wages further confirms my post of several weeks ago that the era of cheap labor is ending in China. The Chinese are likely to move slowly, but looking beyond any vote of confidence, this will put another damper on global production.
A good discussion of the implications of this move is here. Marginal exporters may suffer or go under - as I have discussed previously, many of them run on 2% margins, extremely tight - but a stronger RMB makes imports cheaper. Watch the AUD tomorrow - it might pop due to expectations of increased raw ,material exports to China.