Equity markets predict future economic trends — that’s right isn’t it?

The six-month rally from March lows might be thought to have signalled the emergence of the “green shoots” that have been sprouting so plentifully.

So what is the recent correction telling us?

Maybe just the pause that refreshes.

Maybe that the recovery is more fragile than markets have suggested?

Henry’s popular Raff Report is updated today.

The Raff points out that over the past two weeks markets have hit some turbulence after six months of steady rises. Miners have taken a hammering and metal prices softened. The price of copper has fallen almost 4%, nickel is down 5%, aluminium has fallen 2.7% and zinc is relatively unchanged.

The markets raise fears that a bear market rally has come to an end. Markets have surely moved ahead of fundamentals and a pull-back has not surprised canny investors.

This sudden bearishness has taken hold following some positive economic data from the US, China and from Australia.

In the Chicago area factories are doing better and the Purchasing Managers Index (PMI) jumped from 43.4 in July to 50.0 in August — below 50 signals contraction and above 50, growth.

Of great importance was the fact that new orders jumped from 48.8 in July to 52.5 in August and production exhibited a sharper increase, from 43.3 to 53.3.

These trends are yet to be reflected in the employment numbers. This might be because productivity, which is measured in output per hour of all persons, rose strongly in the second quarter of 2009.

The Raff looks in detail at the price and stock data for all the major metals.

Henry’s reading is that China’s dramatic policy expansion has been slowed by its banks being told to scale back their lending.

If this is indeed the main influence at work, prepare for a more serious equity correction and in some places at least another leg down in the economy.