The latest round of OECD Composite Leading Indicators showed some interesting results country-by-country, but one view we use when looking at these indicators is to take a breadth and diffusion (as well as level) perspective to gauge changes in the global economic pulse. This provides useful context when thinking about global economic cycles, but it is also informative when thinking about global equity market cycles, as the charts show.
The first chart shows that the breadth indicator has topped out (% of CLIs above the 100 point mark). In the past this has often happened when a major top is forming in the MSCI ACWI (global equity benchmark). There are a couple of false signals, but it is something worth highlighting, particularly is the signal accentuates. The second chart shows a monthly diffusion index view, and you can see there appears to be a slowing of momentum in the global economic rebound, and it’s quite possible that the OECD +6NME CLI tops out in the coming months. This is something we will be looking at more closely in a note for clients later this week.
The global OECD CLI breadth indicator has stalled out after an impressive recovery.
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The monthly diffusion index has likewise lost momentum and points to a leveling out of the OECD +6NME (Brazil, China, India, Indonesia, Russia, South Africa) - which is basically the global index.
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Article by Callum Thomas, Top Down Charts
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