Second-Derivative Optimism; Plus, Euro Climbs a Wall of Worry

In our Currency Strategist newsletter last week I discussed a growing obsession with the second derivative as it pertains to economics.

I guess the easiest way to define the second derivative is to say that it’s the speed at which an increase or decrease is increasing or decreasing.

You probably realize it: it’s become commonplace lately to characterize GDP contraction and various data points as declining at a slower pace.

Hope springs eternal

Japan reported its first annual trade deficit in 28 years. But today’s Bloomberg headline regarding the release of recent exports numbers from Japan gave us this:

Japan Exports Slide Slows in Sign Recession May Ease

So you read the story to see how much improvement, and you get this [our emphasis]:

Aussie Deflation?

The Aussie is getting hammered this morning on news producer prices unexpectedly fell 0.4% last quarter; consensus estimates were a 0.6% gain.

It may be too early to forecast deflation is settling over the Australian economy. Analysts cite the relative decline in Aussie from its perch near US dollar parity back in July of last year, and suspect this may keep import costs inflated. But once again, we continue to believe it all comes back to China.

China lifting emerging markets…

Increasingly it appears China is defying the skeptics (and we have been major skeptics). There is evidence (some may say flimsy but no matter) China’s stimulus is working. Some countries are indicating their exports to China are falling less. The emerging stock markets are sure acting as though China is back in the game: