Global leading indicators stabilised over the summer, albeit at a weak level, so far dispelling fears that the downturn which began in Q2 marked the start of an accelerated decline in the headline LEI diffusion index into outright negative territory.
The deterioration in global LEIs since March—coinciding with the shock to global energy markets from the US-Iran war—has unfolded against an increasingly stark divergence across financial markets. Equities remain relatively calm, with the rotational tape continuing, while bond markets are closer to panic as a combination of inflation concerns—shifting the outlook for monetary policy—and fears over persistently large fiscal deficits in developed economies pushes yields higher.
The key question is whether this repricing in global bonds ultimately spills over into equities, tightening financial conditions through lower equity prices and, by extension, delivering a further hit to leading indicators. For now, that transmission is not happening. One explanation is that equity markets view rising yields as a natural counterpart to the AI boom: stronger investment is supporting growth while raising expectations for future productivity gains. Add to this the crowding-out of government bonds by surging private-credit issuance to fund the AI build-out, and the coexistence of rising yields and robust equity markets looks less anomalous, for now.
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