The latest round of the OECD Composite Leading Indicators [CLI] showed on the surface a fairly rosy assessment of the global economic cycle. However a couple of unique indicators we track which look across countries suggest the global upturn that got underway in the middle of last year may be losing steam. Indeed, the charts below show a breadth indicator and a diffusion indicator for the global CLIs, both of which look to be in the early stages of patterns that we usually see when the global economic conditions start to falter - and as the first chart shows that could be bad news for global equities.
While the indicators do give occasional false signals, they warrant close monitoring due to their importance and ability to provide an early warning of a bear market. We will be paying careful attention to how the data unfolds in the coming weeks and months and keeping our clients and subscribers up to date. It's particularly important to keep on top of these indicators in the context of the short-term warning signs for global equities (valuation, breadth, and sentiment) that we identified in a recent edition of the Weekly Macro Themes report.
The OECD composite leading indicator [CLI] breadth measure (percentage of countries with CLIs above the 100 mark) while at strong levels, looks to have stalled and will be important to keep track of should it roll over completely.
Meanwhile the diffusion index (which measures the month-to-month changes across the 36 countries) has rolled over, suggesting the nascent upturn that got underway in the middle of last year is on shaky ground.
