Global leading indicators were stabilizing midway through Q2, exposing the tension between macroeconomic forecasts—many of which still anticipate a significant slowdown in the second half of the year—and incoming data and market signals that suggest the trade wars, or at least the most deleterious effect of this threat, are a thing of the past. The White House will bluster, but is likely to avoid imposing growth- or market-damaging policies on a sustained basis. Underlying this assumption is the expectation that the U.S. administration will not jeopardize the privileges conferred by issuing the world’s dominant reserve currency and commanding the deepest and most liquid capital markets globally.
Read MoreThe March 2025 edition of the global LEI chartbook can be found here. Additional details on the methodology are available here. I’ve added a few new elements: a chart showing the G20 LEI and its three-year rolling Z-score; a comparison between headline LEI diffusion and global equities; and a chart of the first three principal components of the LEIs. Of these, the first component is the most significant—as I’ll explain below.
As the name suggests, leading indicators are designed to provide early signals on the business cycle, and by extension, on the cyclical component in financial markets and the most cyclical individual sectors. However, there are times when turning points or events disrupt the underlying conditions so abruptly that they effectively reset the clock. Trump’s tariff shock—and its implications for global goods and capital mobility—is one such event. But for the record: what did the global economy look like on the eve of this tariff shock? As it turns out, it was doing quite well.
Read MoreI was out for a run this weekend with a friend who also works in the financial industry. As we sat down afterward over a cup of tea, our conversation turned—unsurprisingly—to the risk of a Black Monday tomorrow. This, in case you’re wondering, is how investors are spending their weekend: nervously looking ahead to next week’s open. Accidents happen in financial markets, but it’s not often they’re triggered by policy errors as egregious as the one we saw last week from Donald Trump. Not to worry, though; Mr. Trump and his team have a habit of throwing mud at the wall to see what sticks. This one, clearly, is sliding down pretty quickly. So they’ll walk it back, right?
Read MoreIt’s been a while since I ran through my favourite charts for the global economy. I am happy to report that nothing much seems to have changed since my last overview. Markets are still enjoying a soft landing, defined as a world in which inflation is drifting lower, even if still-sticky in key areas, the global economy and labour markets remain unencumbered, and monetary policy is on track to ease modestly. More immediately, a run of softish inflation data in the US, rising jobless claims—despite still solid non-farm payrolls—and the return of political uncertainty in Europe have driven a bond rally in the past few weeks, and raised questions about the strength of the US economy. As a result, markets are now pricing in slightly more aggressive near-term policy easing from the major central banks. In the US, SOFR futures imply 75bp worth of easing from the Fed this year, and similarly for the ECB, which includes the 25bp cut that the Bank delivered last month. Yields also have softened in the UK. The consensus expects a second rate cut from the ECB in September, at which point markets believe Frankfurt will be joined by the BOE—with many speculating on an August cut from Bailey et al—and the Fed. The first chart below plots the implied policy path for the Fed and ECB using SOFR and Euribor, respectively. This is a pleasant picture overall. Rates will remain higher than immediately before the twin-shock of Covid and an inflationary shift geopolitics, but they’re still on track to come down some 150bp from their highs.
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