Way Too Soon To Tell

As you've noticed, and I suspect expected, weekend events (Iraq voting to expel all foreign troops, Iran's abandoning what was left of the nuclear accord, numerous back and forth threats, and more) have piled more uncertainty onto the state of markets and the global economy. I'm seeing it in currency futures this afternoon -- stronger yen, for example -- although not yet to the degree I was expecting.

Of course it's way too soon to tell, and we'll only know in retrospect anyway, if the latest events will be judged as the catalyst(s) that brought this longest-ever expansion to its end, but, frankly, whether it’s the latest, some other comeuppance, or if the economy ultimately rolls over of its own accord, general conditions have been waning now for quite some time. Meaning, with or without heightened geopolitical risks, in our view the expansion's days are likely numbered regardless (of course [as we've experienced of late] the bull market in stocks could live on for some time on the prospects for continued stimulus). Beyond the data that we've been illustrating herein, we can view the simple fact that world central banks are running monetary policy as if we're already in the throes of recession as confirmation.

Our PWA Macro Index scored -3.49 this week, its 11th consecutive week in the red (albeit barely). The components that dipped week-over-week were the NY Fed's GDP Nowcast (dropped to 1.13%), high yield credit spreads (trending higher of late) and overall stock market breadth. The areas that showed improvement were, ironically, found in our financial markets subindex; the put/call ratio rose (a reaction to Friday's action) and the skew index fell.

As for foreign markets -- our scoring now covers 20 countries plus the Eurozone -- 14 exhibit macro scores in the red, 5 green and 2 yellow. South Korea looks encouraging, China looks too good (to trust, frankly) given the scores of the closely correlated countries (save perhaps for SK and Indonesia). As for the U.S. and its relationships, the stress we're seeing in Mexico and Canada, in particular, don't bode well.