The economic news remains gloomy but the FTSE doesn't seem to care.
Those who claim that markets are a vote on the state of the economy might like to explain the following paradox.
On Tuesday, shock figures showed the UK's trade gap with the rest of the world widened in January to £3.8 billion, as exports suffered their largest drop for more than three years. The pound collapsed (again), as did hopes of an export-led recovery. If a 25% currency devaluation doesn't help us close the trade gap, what on earth will?
Yet on Wednesday, the benchmark FTSE 100 index hit its highest level for almost two years, closing at 5,640. So as fresh evidence emerges that the UK economy is tanking, investors gleefully pile in. If they are voting on the state of the economy, which economy are they voting on? It certainly doesn't look like ours.
Taking the world's temperature
And to a large degree, they aren't voting on our economy. As Motley Fool's media starlet David Kuo argued in January, the FTSE isn't a barometer of Britain's economy, but a barometer of the world. A massive 80%+ of FTSE company profits are generated outside the UK.
Kuo says you can bet on the FTSE for a global recovery, which makes life a lot simpler for those who don't want to stray too deeply into overseas markets.
So this is just as much a vote on the US or European economies, or even Chile, South Africa or Kazakhstan, because so many of their companies are listed on the FTSE 100 to raise funds.
The view from China
And some of those global economies are doing pretty decently right now.
China's exports jumped by 46% in February compared to a year ago, beating analysts' expectations. That's one in the eye for people like, er, me, who claim the China miracle is based on an asset bubble and the newly-sinophile Anthony Bolton should have quit while he was ahead. Its imports leapt by nearly 45%, so the China revival is helping mop up a chunk of the rest of the world's spare capacity.
Seen from the Far East, maybe it isn't quite so crazy that stock markets are rising.
Austerity Britain
If you're investing outside the globally-skewed FTSE 100, the state of the UK economy still matters.
Say you want to invest in Quintain Estates (LSE: QED), recently hailed as a property bargain by Steve Scott. With two major regeneration projects in London, one in Wembley and one on the Greenwich Peninsula, Quintain certainly cares what happens in Blighty.
If we are heading for a period of austerity, and can't export our way out of trouble, companies will find the going tough. So are things as bad as they look?
The wrong kind of snow
Few Britons are feeling optimistic right now. It's been a long, cold winter. The snow may have gone, but Gordon Brown is still here (and the way David Cameron is tumbling in the polls, he could be here a lot longer).
The UK is being called the new Greece, and they're not talking about the weather. A hung Parliament beckons. Tuesday's export slump put the cap on the misery.
But the UK isn't the only snowbound European country whose exports careered the down an icy slope hill in January. German exports also slid unexpectedly, down 6.3% compared with December, which Commerzbank called "a disaster".
Both countries are hoping the snow was to blame, because firms struggled to shift their goods from factories to ports. So perhaps it is a blip, and recent surveys do show manufacturing activity picking up in the UK. All eyes are now on February's figures, in both countries. Let's hope they look a bit sunnier.
How high can it go?
Plenty of people are still panicking about a double dip recession in the UK, and I'm one of them. We still have to face the full force of the recession, which has been postponed by the government stimulus programme, effectively the greatest pre-election giveaway in the history of this country. Without all that stimulus, plus £200 billion of quantitative easing, Cameron would be a shoo-in.
We can't live on the never-never forever. After the election, UK companies will have to negotiate a fragile recovery, a rise in the cost of capital, and nervy consumers, as taxes are hiked and public spending slashed in a dash to tackle the deficit.
So the UK economy will continue to creak and groan for the rest of the year, and no doubt beyond. Even with the snow gone, it could still take an ice cold bath. But given the decoupling between the FTSE 100 and our own economy, that doesn't have to be totally bad news for investors.
Would you bet against the index hitting 6,000 at some point this year?
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