This should be a testing week for Australian stock prices, not for any technical levels of support and resistance (that we know of...although we leave that stuff to Murray). But because two of Australia's large Asian trading partners - China and Japan - are showing weak trade activity. This activity is so weak that it may prompt calls for more government intervention (stimulus). But will that intervention convince investors to keep buying stocks?

The first cab off the rank for weak trade data is China. China's February trade deficit was its largest since 1989. That proves Europe's debt woes do matter to China. January exports fell for the first time in two years, according to Bloomberg. These are all signs that China has well and truly reached the end of its export-led manufacturing growth phase.

On that last claim there are two bits of conflicting data. The official manufacturing activity index published by the Chinese government showed an expansion. The Purchasing Managers Index, published by the National Bureau of Statistics, read 53.1 in March. Anything above 50 means growth. Below 50 means contraction. So growth it is!

Or is it? Another gauge of manufacturing activity produced by HSBC shows manufacturing is contracting and exports are falling. So which is it? Is China growing (albeit slower) or shrinking?

The only way to be sure would be go to China and have a look. Measuring an economy as large as China's by surveys and statistics seems like a dubious idea. And these days, government statistics of any sort, be they Chinese, American, or Australian, should be taken with a grain of salt. But in the absence of credible proof, let's ask the doctor.

No, not Diggers and Drillers editor Alex Cowie, although we're sure he has a view on the matter. We're talking copper, or "Dr. Copper" - as he's often called for his ability to diagnose the underlying trend in the economy. Growing economies build things. Buildings need electricity and plumbing, and both use a lot of copper. Not-growing economies don't use as much as copper.

The continuous spot price of copper is shown below. If we had to hazard an interpretation, we'd say the Long Term Refinancing Operations (LTROs) in Europe have been kind to copper. Mario Draghi's trillion euro liquidity gift to the European banking system helped copper make a double bottom late last year. But what now?

Source: StockCharts


Since February, the price action in copper has been decidedly indecisive. We may ask Murray to have a look at it later this week. It's a short period of time on which to base any long-term forecast. But we'd say this copper chart reflects the confusion investors have right now: is the worst of the financial crisis behind us or ahead of us?

We won't try to answer that question today. You can probably guess what we think anyway.

Regards,

Dan Denning
for The Daily Reckoning Australia