Look for China’s first quarter GDP numbers tomorrow–here are my suggestions on how to figure out what they mean for growth in 2012

I think we can call this “restrained easing.”

Economists surveyed by Caixin estimate that China’s commercial banks lent 790 billion yuan ($115 billion) in March. That would be an increase from the 710 billion yuan lent by banks in February. The same group of economists estimates that money supply, as measured by M2, grew at an annual rate of 12.8% in March. That would be a slight drop from money supply growth in February.

Why are these estimates important right now? Because after inflation moved up to 3.6% in March from 3.2% in February, New York, Hong Kong and Shanghai got to fretting that, maybe, the higher inflation rate would constrain moves by the People’s Bank of China to expand the money supply to boost economic growth in China.

And we keep getting data that suggests the Chinese economy could use some stimulus. For example, export/import numbers out yesterday showed exports grew at an annual 8.9% in March—decent strength—but imports increased at just a 5.3% annual rate. That’s worrying since the usual reason for a slowing in China’s import growth is a decision by China’s manufacturers to cut back on their imports of raw materials because they see slower economic growth.

China reports first quarter GDP numbers tomorrow and economists are expecting to see the annual growth rate slow to 8.4% from 8.9% in the fourth quarter.

Until this weeks inflation-induced worries, the thinking was that a slowing growth rate like that would produce one or two cuts to bank reserve requirements—beginning in the next month or so–that would give China’s banks more money to lend.

The seasonal pattern is for manufacturing activity to rise in April in China. That would increase the need for capital—as well as add to demand for loans from China’s businesses.

Watch the new bank loans figure for April to see if that surge in lending materializes. It would be a sign that growth is either picking up or at least slowing less quickly as we approach the midpoint of the year. Optimists on China—and that includes your truly—think that China’s growth rate will bottom sometime around the middle of the year.

When I bought Potash of Saskatchewan (POT) for Jubak’s Picks on April 4 http://jubakpicks.com/2012/04/04/buy-potash-of-saskatchewan-pot-in-my-jubaks-picks-portfolio/ , I said I’d buy it now even though I didn’t like most cyclical stocks in the current market environment. My preference for Potash of Saskatchewan isn’t just over other cyclical stocks, however. I also prefer the stock to that of other fertilizer producers. The fundamentals for potash producers such as Potash of Saskatchewan look substantially better than those for producers of nitrogen and phosphate fertilizers.

Which is why I’m going to take the opportunity of an up market today to trim my fertilizer exposure today by selling shares of Yara International (YARIY) out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ .

All parts of the fertilizer industry are adding capacity, which has a tendency to depress prices when demand isn’t growing like corn in Iowa in July. But the potash market is effectively controlled by the two global cartels, Canpotex of Canada and Belarussian Potash, that together account for 70% of global supply. In most years the two cartels work to match production with demand so that the potash industry avoids huge price swings and long-term gluts.

The nitrogen and phosphate markets don’t have anything like that discipline. Phosphate, which is mined as potash is, is looking at big increases in capacity from mines in the Middle East: Saudi Arabia, Iraq, Jordan, and Israel. Big additions to supply scheduled to come on line in 2012 and 2013 as countries in the region, especially Saudi Arabia, invest to build up their domestic exporting industries. In nitrogen fertilizers, where the main constraining factor is the price of natural gas, the huge global glut of gas that has led to 11 new plants, adding up to 10 million metric tons of new capacity, schedule to go into production by mid-2013. The nitrogen market is likely to be seriously oversupplied by 2013/2014, Credit Suisse concluded in an April 3 report.

Under these circumstances I’d much prefer to own potash producers such as Agrium (AGU), Mosaic (MOS), and Potash than companies over weighted to phosphate and nitrogen fertilizers.

That’s apparently a preference shared byYara International (YARIY in New York and YAR.NO in Oslo), the world’s biggest producer of nitrate (a nitrogen fertilizer) fertilizers. Read more

Alcoa reports big earnings beat for first quarter and confirms 7% projection for aluminum demand growth in 2012

After the close today in New York, Alcoa announced first quarter earnings of 13 cents a share, well above the analyst consensus forecast of a 3 cents a share loss for the period.

More importantly for a stock market worried about global growth, Alcoa confirmed its estimate of 7% growth in aluminum demand for 2012 from the company’s fourth quarter 2011 earnings announcement. (Aluminum demand rose by 10% in 2011.) Alcoa also stuck by its earlier estimates for 3-7% growth in automotive demand for aluminum, 1-5% in commercial transportation, 2-3% in building and construction, and 2-3% in  packaging. Alcoa did raise its forecast for global demand for aluminum in the aerospace market by 3 percentage points to a 13% to 14% range. The aluminum industry faces a supply deficit in 2012, the company said, echoing its end of 2011 forecast.

At 9 cents a share (of $94 million) Alcoa still reported a 66% drop in earnings from the 27 cents a share ($308 million) reported in the first quarter of 2011.

But there is no doubt that this first report of the earnings season is good news for a market that really didn’t want to hear more bad news today on global economic growth.

Like so much market turmoil since 2010, today’s sell off is rooted in Europe–and it’s hard for me to see a quick reversal of the current downward trend

If the world’s strongest economies—China, Germany, and the United States–are slowing (and that’s the worry now), then the world’s weaker economies—Spain, Italy and the rest of the “austerity” economies of the EuroZone—will feel the most pain.

That the logic this morning in what I’d call the second shoe dropping sell-off after yesterday’s decline in U.S. stocks on Friday’s weaker than expected jobs numbers.

In Europe the German DAX index is down 2.5%, the Spanish IBEX 35 down 3%, the French CAC 40 down 3.1%, and the Italian (Milan) FTSE MIB is down almost 5%.

But the worst damage actually didn’t take place in EuroZone stock markets today. Read more

Everybody “knows” that first quarter earnings growth for U.S. stocks will be anemic this year. The projection for year-to-year earnings growth on the Standard & Poor’s 500 stocks is just 0.93%, according to Standard & Poor’s Capital IQ. That compares to 19.68% earnings growth in the first quarter of 2011.

Logically this means stocks are headed for a correction as companies report their first quarter results beginning with Alcoa (AA).

“Logically,” that is, for most realms outside the stock market. In the logic of the stock market, however, the result is by no means so certain. What everyone knows is frequently discounted in share prices. But sometimes what everyone knows in his or her head isn’t really believed by investors. Intellectually, investors may know that projections for first quarter earnings growth are extremely low, but in their heart—and in their investment actions–they may remain much more optimistic. And, anyway, the earnings results of last quarter are history. For stock prices going forward, the important numbers are companies’ projections—guidance–for the second quarter and the rest of 2012. It’s expectations for future growth that make investors buy or sell.

So what will it be—Up? or Down?—for the market this earnings season?

And what strategy do I recommend? Read more