Overview
For the first time since February 2017, our Fidelity Leading Indicator suggests that global activity is heading for some (modest) acceleration. Improvement on the sector level has been reasonably broad. However, this was before President Trump’s latest tweet on trade.
Admittedly, the FLI still points to subdued growth. And given that much of this improvement has been driven by a bounce in the components that reached near-catastrophic levels in early 2019, straight-line gains in the next couple of months may not materialise.
Source: Fidelity International, April 2019
That said, the key growth drivers - namely China’s surprisingly large first-quarter fiscal and credit stimulus combined with a softer Fed - should remain supportive, albeit with lags that would indicate this doesn’t transmit to the real economy until late this year.
Meanwhile, in America
Conversely, fading US fiscal stimulus, combined with falling business confidence, increased corporate leverage, and a less mature downcycle should continue to drive a modest slowdown in America, even as the rest of the world picks up. The latest reading of the FLI suggests global growth should improve meaningfully, albeit from the very weak trough seen around the turn of the year.
Positive signals, for now
The current improvement means that the FLI’s ‘quantitative signal’ has turned modestly positive, pointing to positioning that is short duration and long risky assets. The former perhaps feels more comfortable, given the strong run in equities of late.
But with near-perfect comic timing, just as this FLI update was being finalised and all finally appeared well with the world, Twitter informed us that more tariffs on China might be coming. Fundamentally, the impact of tariffs should prove manageable in the medium-term for both China and the US. However, there are more important drivers at play: the near-term disruption and hits to sentiment and markets could easily delay the nascent global recovery.
