We learned this week that at least Australia and Canada know how to generate jobs, even if the US is struggling, with surprisingly strong employment growth in both countries (Canada's at almost four times expectations and Australia approaching effective full employment) and both currencies finding a bid again after selling off sharply since April on sliding commodity prices fuelled by global recovery fears. Meantime, Asian central banks showed confidence by hiking rates in Malaysia and Korea as a move toward normalizing policy, while the IMF went all in on its emerging economies bet for sustained growth. The Chinese economy is clearly slowing down from its first-quarter boom, with a broad-based decline in leading indicators that are consistent with continued expansion but a material reduction in the economy’s momentum. New export orders declined in June, as did the purchasing managers’ indices for sectors targeted by the government’s restrictive policies in real estate, steel, coal, and cement. The slowdown was signaled by the OECD’s composite leading indicator, which peaked in November 2009 and by April of this year had fallen back to the July 2009 level.

 As can be seen in the chart below, imports of iron ore and copper peaked back in March (and lower shipment volumes have driven the slump in the Baltic Dry shipping index, although container rates have held up so far).  China consumes up to 50% of the world’s steel, with some 60% of that steel used in construction & infrastructure as detailed in the second chart. Global lead indicators have peaked and are falling, and the market is now looking for a second derivative 'inflection point' i.e. indicators hinting that they might be close to bottoming in things like the Chinese PMI, US ISM & the OECD lead indicator. Some positive newsflow from Europe regarding credit and the banking system would certainly support a sustained pickup in risk appetite. The stress test to be announced in July could be a key catalyst as could some definitive newsflow on Spain's ongoing credit risk in particular.