The March update of the global LEI chartbook confirms that a broad-based upturn in global cyclical activity has been underway since the end of the third quarter of last year. However, the data show hints of weakness at the end of Q1, with the number of positive LEIs sitting at 14 out of 20—unchanged from a downwardly revised level in February and below the average of 16 recorded between September and January. This deterioration comes before leading indicators have had to contend with the chaos wrought by the war in Iran and disruptions to energy and commodity flows through the Strait of Hormuz and, more broadly, across the Middle East.
Read MoreThe February update of the global LEI chartbook confirms that a broad-based upturn in global cyclical activity has been underway since the end of the third quarter last year. Granted, the number of LEIs currently in expansion—16—is slightly lower than at previous cyclical peaks. However, the February update and revisions point to a stabilising expansion at this rate, which remains robust overall.
The big question now is whether the upturn will falter in the face of the energy price shock ignited by the war in Iran.
Time will tell.
Read MoreInvestors currently seem perturbed by two trends. Firstly, they are watching the crash in oil prices with part glee, part amazement, if not outright horror, depending on how much skin they have in the game. The second is that almost everyone seems sceptical about the sustainability, I even dare say “fairness”, of the rally in equities. I have little insight into the oil market, but something or someone is about to break. Demand isn’t coming back until the start of Q3, at the earliest, and while I get the supply-side dynamics of a broken OPEC oligopoly, I struggle to see that this Last Man Standing™ price war serves the purpose of any of the interlocutors. In any case, I’ll stick to the tape for this one, watching the price like everyone else. It’ll be a blast! On equities, it’s important to step back a bit and accept that Q1 was an outlier. The MSCI World fell 8.5% on the month in February, and then went on to crater nearly 14% in March, a denouement which includes a 32% round-trip from the highs in Mid-February to the lows in March. That’s record-busting pain, and no matter what type of bear market we’re in—and I do think we’re in just that—a rebound was coming, eventually. As I type, the MSCI World is up nearly 7% on the month in April, which doesn’t seem outlandish to me.
Read MoreEquities have wobbled a bit at the start of the month, but unless they lose the plot in coming weeks, it is fair to say that Q1 will be everything that Q4 wasn’t; decent and calm. Indeed, the finer details reveal an even more striking dichotomy with the calamity that culminated in the rout at the end of last year. Between June—when the PE multiple peaked at just under 21—and the low for the S&P 500 in the final weak of December, EPS rose by 13%, but the index fell by 10%. In other words, the multiple crashed, a story which was repeated across almost all key DM and EM indices. By contrast, the story so far in Q1 is the exact opposite. By my calculation, trailing EPS for the S&P 500 and MSCI World are down 0.5% and 2.1% year-to-date, respectively, but both indices have rallied smartly. This can only mean one thing; multiples have expanded, and they have indeed, by about 14% in both cases since the end of December. I am confident that the tug-of-war between multiple expansion and deteriorating earnings will determine the fate of many equity investors in 2019.
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