The world's macro data is pointing a significant slowdown, and yet - as we noted here - stocks remain sanguine; buoyed by the promises of central planners everywhere that no harm will come to them. Deutchse Bank's Jim Reid, like us, is a little skeptical that this chasm of un-reality can remain for long. His perspective is from the correlation of PMIs and YoY changes in equities (based on data back to the 1990s). The current implied results for the US, UK, and the big 4 in Europe is more than a little worrying - with the French in most trouble.
US 10Y Yield vs The Dow vs ISM Manufacturing PMI
But Deutsche Bank does a little more work and regresses the factors over a longer period - based on changes in equity prices and changes in PMIs...
Via Deutsche Bank,
As we always stress this is a simple model but one that has over time proven to be a reliable guide to market performance. Rarely do the two variables stay out of line for long, something normally gives. At the moment the US equity market is 7% above where the ISM suggests it should be (was fair value last month before Monday's disappointment), with the UK, Spanish, German, Italian and French markets 13%, 13%, 14%, 19% and 33% above where their respective PMIs suggest they should be.
Source: Deutsche Bank