Resolving the Global Growth Story

Peter Mintz | First Light | Getty Images

How is the global growth story going to be resolved? We're again near new highs, but so far in March it's the defensive names that have advanced, like Coca-Cola and Procter & Gamble. The market leaders earlier in the year were largely global commodity and industrial companies such as Caterpillar, but now those names have either moved sideways or declined in March over concerns on global growth.

There’s a lot of debate over how much China is slowing down, and how severe the recession in Europe will be.

There are several indications that the global economy is improving this morning:

1) China: Soft or hard landing? Deutsche Bank and Nomura raised estimates for Chinese gross domestic product. Nomura raised its 2012 GDP estimates to 8.2 percent, from 7.9 percent, and said it expects the Chinese to continue to cut bank reserve ratios to stimulate lending.

Deutsche Bank boosted its estimates even more — to 8.6 percent, from 8.3 percent.

Bottom line: Relatively low inflation rates will allow Chinese authorities to focus on growth. They will make more money available for loans. Will loan demand follow? With China, the history suggests it will.

China's Shanghai Composite index was up 0.86 percent, volume was unusually heavy.

2) The Bank of Japan (BOJ) seems to believe the global economy is improving as well: The central bank did not raise rates and did not announce new quantitative easing programs. At one point the Nikkei 225 index was up 1.5 percent, but sold off on the news of no quantitative easing. The BOJ cited improvement in the U.S. economy and signs that Europe had stopped deteriorating.

3) Another data point: German confidence numbers were strong, up a fourth month in a row to the highest levels since mid-2010.

What to watch? One index to pay attention to is a venerable one — the Morgan Stanley Cyclical Index (CYC), a basket of international industrial and commodity stocks (and an outlier: Citigroup). It topped out in February and has been mostly sideways since then — the historic high in May 2011 corresponded with the highs of last year, but global concerns, particularly Europe, have made it an underperformer in the last year.

If the markets are going to really break out, the CYC will have to break out.

Elsewhere:

1) Urban Outfitters shares fall 4.2 percent pre-open after the retailer missed fourth-quarter estimates on the top-line and bottom-line. The retailer posted fourth-quarter profit of $0.27, compared to analysts’ $0.29 expectation. The company's gross margin slipped 9.55 percentage points on steeper markdowns to clear women’s apparel inventory. The Philadelphia-based company said full-price selling in the first quarter has improved, but it expects discounting to remain higher in the current quarter.

2) GNC Holdings rises 5.3 percent after the health and wellness product retailer raised its first quarter guidance to above $0.49, which is the level analysts expect and outlook the company forecasted nearly a month ago. GNC said domestic same-store sales in the first two months of the year show a mid-teens percentage increase, running ahead of the company’s expectation of between 8 percent and 9 percent same-store sales growth for the first quarter.

3) Midas surges 27.3 percent pre-market after the muffler maker said it would be taken private by TBC Corp. for $11.50 a share in a deal that is expected to close by the end of the second quarter. The deal is valued at $310 million, which includes the assumption of about $137 million in debt and liabilities. TBC’s offer represents a 28 percent premium over Midas’ closing price Monday.

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