The decoupling theory takes another blow today from Canada, the Eurozone, India, and Japan. Let’s take a look.

Recoupling Canadian Style

Canada Economy Reels as U.S. Slowdown Cuts Factory Orders, Jobs

The impact of the U.S. housing slump is spreading in western Quebec’s sparsely populated Antoine-Labelle county, where 17 plants have closed since residential construction began to plummet two years ago. The region has lost more than 10 percent of its 18,000 jobs, prompting Kanenda’s former workers to buy the bankrupt facility and try to reopen it.

“We’re now at a really critical juncture.” said Yvon Cormier, head of a development agency for the region. “When something goes wrong with the U.S. market, we feel it immediately.”

Only three months ago, the Bank of Canada’s Senior Deputy Governor Paul Jenkins told a New York audience that growing demand from China and India for commodities meant the U.S. and Canadian economies “respond in different ways to certain shocks.” Canada was benefiting from rising prices for its oil, metals, fertilizer and nickel. Some factories were coping with a weakening U.S. dollar by buying new equipment and cutting costs.

In December, Canada lost 33,200 factory jobs, and there’s no evidence the losses have stopped. Canfor Corp., the largest producer of Canadian softwood lumber, said Jan. 18 it would shut two more mills, the latest in a series of closures that has erased almost 6,000 industry jobs since October.

Montreal-based AbitibiBowater Inc., North America’s largest newsprint producer, on Jan. 31 announced an eight-week layoff of 115 mill workers in western Quebec and 325 elsewhere.

Exports of lumber and sawmill products fell 21 percent in the first 11 months of 2007, dragged down by the U.S. housing slump. In December, U.S. house prices marked the first annual decline since the Great Depression.

Babcock & Wilcox Canada, an Ontario maker of power- generation equipment and subsidiary of Houston, Texas,-based McDermott International Inc., is cutting about 75 workers as orders from its parent slow.

Recoupling Japanese Style

Japan stocks fall, exporters hit by recession fear

Japanese stocks slipped on Tuesday, with exporters such as Honda Motor Co Ltd coming under pressure after downgrades of U.S. credit card firms fuelled recession fears.

Investors dumped shares of companies issuing disappointing earnings results. Olympus Corp tumbled nearly 14 percent to its daily limit after cutting its outlook due to a stronger yen and falling camera prices.

“Ordinary investors can’t wipe out the image that if the U.S. economy slows, Japanese exporters will be hit,” said Fujio Ando, a senior managing director at Chibagin Asset Management.

But he added that demand in Europe and Asia will likely make up for such a fall.

Europe will make up for it? Try again

Recoupling EuroZone Style

Euro May Fall as Trichet Signals He’s Open to Cutting Rates

The euro may decline for a fourth straight day against the dollar after European Central Bank President Jean-Claude Trichet signaled yesterday he’s open to cutting interest rates as economic growth slows.

The euro yesterday erased its gain versus the dollar this year on speculation the ECB’s decision to leave interest rates unchanged at 4 percent may limit expansion in Europe’s economy.

A government report yesterday showed German manufacturing orders fell the most in five months during December, adding to evidence the economy is losing momentum. The ECB on Dec. 6 projected economic growth of 2 percent this year after 2.6 percent in 2007.

“The euro-zone is not immune to the U.S. economic and financial shocks,” said David Mozina, a senior currency strategist at Lehman Brothers Holdings Inc. in New York. “We were aggressive buyers of euro-dollar. Now we are neutral, and may be looking for selling opportunities.”

Recoupling India Style

India’s GDP Growth May Slow for First Time in 3 Years

India’s government expects economic growth to slow for the first time in three years, as higher interest rates cool consumer demand for homes, motorcycles and electric appliances.

The pace of expansion will still be the quickest after China among the world’s major economies. And it may remain so even if the U.S. suffers a recession as India’s growth is being driven by the spending of a middle class of about 50 million people, equal to the combined population of Singapore, Hong Kong, Malaysia and Australia.

“This is not a collapse,” said Sonal Varma, Mumbai-based- economist at Lehman Brothers Inc. “Growth is slowing because of higher real interest rates. U.S. recession or not, the structural drivers of India’s rising potential growth remain intact.”

Perhaps the expansion in India continues but how much expansion is the Indian equities markets expecting? Global decoupling is now looking more like recoupling in reverse.

Mike “Mish” Shedlock
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