Looking back at the Shocks and Surprises of the last couple of weeks, there's what might be called a Broad Surprise: actually, the evidence from the world's industrial economy is, by and large, surprisingly good. The trade cycle continues to flow practically unabated: over the last two weeks we've had positive surprises from China's trade numbers, Taiwan's trade numbers, and this week Taiwan's export orders. Europe's trade numbers were pretty much as expected. The only negative trade shock has come from Singapore – which is too small to be truly representative. We've also had leading indicators rising in the US and also in China.
We've also had positive surprises from US industrial production, and capacity utilization. Perhaps it's in this context we should also note the positive surprises coming from US labour markets, UK wage settlements (?), and the surge in Japanese machinery orders.
Can we really dismiss all these as just lagging indicators in a world economy which is currently being mugged by a collapse in financial confidence and the vanities of Eurozone politicians? Should we ignore what we know of the structural foundations of this cycle: that pretty much everywhere outside China asset turns, labour productivity, and ROCs are rising, but that the resulting positive cyclical impulse is being moderated and governed by households bent on mending over-extended household balance sheets?
In the short to medium term, the answer to that question will turn largely on developments in credit markets. Will the stockmarket losses of the last fortnight scupper deposit growth in the months to come, as the ability to substitute one set of financial assets for another is lost? And if this source of M2 growth is lost, will banks' ability to create/buy financial assets collapse with it? And finally, even if the supply of credit is maintained, how long will today's presumed collapse in loan demand persist?
For the next few weeks, I daresay we'll see Shocks and Surprises enough from real economy readings. But the ones that will need close watching are the Shocks and Surprises from the world's monetary systems.