FedEx – the global shipping firm – just released their quarterly report. And it gives us a decent look at the global economy.
As expected – it wasn’t pretty.
In summary – management reported disappointing results over the last quarter. And provided a weak forward guidance for the upcoming quarter.
“Slowing international macroeconomic conditions. And weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue – said Alan B. Graf, Jr., FedEx Corp (NYSE:FDX). executive vice president and chief financial officer…”
Many know I’ve been bearish on global trade for the last 16 months. And I’ve also written about some of the problems in China and Hong Kong (read here – and here – if you haven’t yet).
But what’s really worrying is the sudden collapse in South Korean exports. . .
I wrote an article in early March highlighting how important South Korean exports are as a macro ‘leading-indicator’ (an economic factor that changes before the rest of the economy begins to go in a particular direction).
And in just the first ten days of March – South Korea’s exports dropped -19.1% from a year earlier.
Now – many may remember that I wrote about the accurate correlation between South Korean Export Growth (aka SKEG) and global corporate earnings.
But if you don’t remember – here’s what I wrote. . .
“It’s been historically accurate over the last 25 years [SKEG]. . . Thus – when the SKEG moves sharply – most usually global earnings (EPS) follows closely behind it. (Who would’ve guessed there’s a tight correlation between South Korean export growth and global earnings?)
For some perspective – over the last 25 years now, the direction of the SKEG has almost perfectly preceded global earnings within a 12-month lag. . .”
Putting it simply – if South Korean exports move up or down – global earnings follow right behind it.
I updated my SKEG chart (first published in early June 2018) to account for the drop in South Korean exports. And here’s what it looks like now:
If this correlation still holds (which I expect it will) – then look for a deep plunge in global corporate earnings over the next year. . .
This slowdown of South Korean exports tells us that the slowing in Asia – and the world economy – is getting worse.
I still maintain my global earnings recession late 2019.
Stay tuned.