The Disconnect Remains; Contracting PMIs Imply Dramatic Q4 Losses For Global Stocks

Economic Surprise Indices have begun to drift back lower in recent days after a short-lived scurry into positive territory  as anticipation of Fed/ECB action supported equity valuations over the last few months in the face of deteriorating earnings. Critically though, as Deutsche's Jim Reid notes, headline PMIs (and the ISM) are still well behind levels that are consistent with current equity markets as the disconnect between rich equity prices and poor fundamentals remains very wide. Back around May/June they were broadly in line and since then liquidity has propelled markets but with the data at similar levels, and clearly the hope is that the current fundamental weakness corrects into year-end but at current levels the S&P faces a 9% correction, Europe 22%, and China 25% - hope is indeed a powerful thing.



Source: Deutsche Bank