8/10/2012
By Carlos Guillen, Research Analyst

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During Friday's trading session, equity markets continued to slip for a second consecutive day as rather discouraging data from Asia continued to corroborate the notion of slowing growth around the world.

A day after economic data from China showed that industrial production came in much less than expected, we now see that Chinese export growth collapsed as well, and imports and new yuan loans trailed estimates in July. As it stands, exports increased 1 percent from a year earlier, after an 11.3 percent rise in June. This is an alarming deceleration, particularly given that China's growth has been mainly fueled by its strong export capability. The repercussions of the European debt crisis are spreading all over the world and hitting China from all angles. It was also reported that new local-currency lending was 540.1 billion yuan ($85 billion), lower than economists' estimate, compared with 919.8 billion yuan in June. Ironically, while Chinese data is adding to signs that the global economy is weakening, it is also raising the odds that Chinese economic leaders will step up measures to support expansion, which is sure to prop up stocks in the near term.

In Japan it is estimated that its economy grew last quarter at close to half the pace of the previous three months, a slowdown many predict is deepening as Europe's debt crisis and the yen's gains erode exports. According to economists' estimates, gross domestic product expanded an annualized 2.3 percent in the three months through June, compared with 4.7 percent in the first quarter.

Here at home, import prices last month fell much more than expected for the fourth consecutive month as costs declined for imported oil, industrial supplies, as well as many consumer goods, serving to remove inflation pressures. According to the Labor Department, overall import prices dropped 0.6 percent in July, well under the Street's consensus calling for a rise of 0.1 percent. Perhaps the silver lining behind the result is that it may give the U.S. Federal Reserve an additional reason to ease monetary policy if policymakers think the economy needs it. The drop in priced occurred in most of America's major trading partners including China, Mexico, and the European Union, and is serving to add to the mounting evidence of a worldwide slowdown in economic growth.

While stocks traded sharply lower at the start of the trading session, they struggled to make a comeback and were able to end the session in winning territory, with the Dow Jones Industrial Average finishing the session up 39 points. Next week should be a much more interesting week data wise than it was this week, with leading indicators such as building permits and Michigan Sentiment giving up more indications of where our economy is heading.

Carlos Guillen
Wall Street Strategies