Global Leading Indicators, October 2025 - In the Pipe, Five by Five
The October 2025 edition of the global LEI chartbook can be found here. Additional details on the methodology are available here.
Equities have wobbled a bit recently, without any obvious catalyst, aside from the most apparent one: they’re expensive by nearly all historical valuation measures. Many investors now appear concerned that the end of the U.S. government shutdown will trigger a deluge of data, potentially revealing that the economy is weaker than expected. That fear, however, doesn’t quite align with the sell-off in the December 2025 SOFR contract, which is casting doubt on what had once seemed a near-certain Fed rate cut in December, following Jerome Powell’s comments last month that such a move is not set in stone.
In the UK, sentiment is shifting by the day. Just a week ago, consensus held that the government would unveil a disinflationary and fiscally tight budget, bolstering a bullish reversal in Gilts and reinforcing expectations of 50 basis points of additional BOE easing by Q1. Then, last week, Chancellor Rachel Reeves appeared to change course, announcing she no longer plans to raise income taxes, contrary to earlier widespread expectations. Ostensibly, this shift is due to falling bond yields ahead of the OBR’s forecast cut-off date, which slightly narrowed the fiscal gap she must address. Yet the irony is clear: yields had declined precisely because Ms. Reeves had pledged to raise taxes. And so the cycle continues—presumably right up until November 26.
I recently had the pleasure of speaking with one of London’s most prominent fund managers, who noted that markets are especially riddled with inefficiencies and opportunities at this time of year. As investors turn their attention to year-end PnLs, Christmas party plans, and—more imminently in the U.S.—sourcing the right-sized turkey for Thanksgiving, market signals get a little murkier. I agree, though my conviction about where we go next remains low.
Sixteen out of twenty leading indicators were trending upward in October, improving from 14 in September and 12 in August. Revisions present a clearer picture of the past six months: a sharp but brief deterioration in global leading indicators followed the Liberation Day chaos, after which an accelerating upturn has taken hold. Global LEIs now sit at a cyclical high on my diffusion index, measured in the period from the rebound which began in late 2022. Judging by early Q4 LEI data, global growth is broadening and strengthening as 2025 draws to a close.
Coincident indicators have settled into a solid expansion, consistent with the upturn in leading indicators. Growth in global industrial production and trade slowed to 3.4% year-over-year in August, down from 4.3% in July. The trend since April has hovered around 4%, and with LEIs now pointing to upside risks, the outlook for late 2025 and into 2026 is increasingly positive.
The three-year rolling Z-score of the global LEI—often a reliable early signal for turning points in the global cycle—improved further in early Q4, breaking out of the sideways drift seen in early summer. At 1.5, the Z-score remains well below previous major cyclical peaks but continues to rise.
Equity markets have rebounded strongly from the Liberation Day lows, in line with the improving trajectory of leading indicators. As noted in previous analyses, however, the rally has become increasingly narrow and concentrated, with technology stocks continuing to lead. While the tech rally has recently lost momentum, the broader uptrend remains intact.
The first principal component (PC1) of global LEIs remained in a clear and strengthening downtrend in October. PC1 captures common cyclical patterns across countries and typically peaks during synchronized global downturns. Its current weakness suggests growing divergence between economies and may reflect resilience in parts of the global system.
Country-level data indicate a broad and robust upturn in global economic activity in early Q4. China and Brazil remain notable weak spots, with China contributing to relatively sluggish momentum in Asia’s LEI. However, once China transitions from the lower-left to the lower-right quadrant of the chart above, historical patterns suggest a tradable opportunity in Chinese assets will emerge. On the positive side, leading indicators in the UK, Canada, Mexico, continental Europe (to a lesser extent), Indonesia, and South Korea are showing strong underlying macro momentum.