Tuesday, February 11, 2014

Global Leading Indicators Upbeat on Balance (excerpt)

I am a fan of the OECD’s monthly leading indicators. The only problem is that their release is delayed by the time necessary to collect and compile the data. So here we are in the second week of February with the leading indicators released for December just yesterday. However, leading indicators are supposed to lead by three to six months, so they are still relevant, in our opinion.

Then again, they may be less relevant given the emerging markets crisis that emerged during January. Over the past couple of weeks, we’ve analyzed the magnitude of the problem and concluded that the crisis is likely to be contained to the Fragile Five, and shouldn’t morph into a global contagion. If so, then the solid forward momentum signaled by the latest OECD leading indicators suggests that the global economy should absorb the latest shock relatively well. Let’s review the latest data:

(1) Advanced economies advancing. Most encouraging is that the composite leading indicator for all of the 34 members of the OECD rose to 100.9, the highest level since February 2011. That confirms the upbeat readings of the more volatile JP Morgan Global Composite Output PMI, which remained upbeat during January at 53.9. Over the past year, there have been steady monthly gains in the indexes for the US, Europe, and Japan. The same can be said about all the major economies of Europe and the peripheral ones too.

(2) Emerging economies submerging. The OECD also compiles leading indicators for the BRICs. They remained depressed during December, with India falling to a record low.

Today's Morning Briefing: Uptrends. (1) Barring recession, earnings heading to new record highs. (2) Earnings have a history of 7% growth. (3) Spread between earnings yield and bond yield drives buybacks. (4) Earnings growth solid in Q4, but looking weak for Q1. (5) Revenues growth was weak during Q4. (6) Is there enough forward momentum in OECD leading indicators to overcome EM crisis? (7) Focus on overweight-rated S&P 500 Transportation. (More for subscribers.)

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