This Wasn't Supposed To Happen

From exuberant escape velocity 'expansion' hopes and dreams in June, to 'slowing' in September, and 'drastic downward revisions' in early October, the Goldman Sachs Global Leading Indicator has had a very troubled recent past (as QE is just 4 POMOs away from coming to an end). But nothing could prepare the avid reader for what happened to the infamous Goldman "swirlogram" this month - an epic, total collapse. As Goldman 'politely' notes, "the October Advanced reading places the global cycle deeper in the ‘Slowdown’ phase, with momentum (barely) positive and declining."

And just as amazing: the world has gone from Expansion and Recovery, to Slowdown and borderlin Contraction in the span of just 3 months.

Goldman explains,

The October Advanced reading places the global cycle deeper in the ‘Slowdown’ phase, with momentum (barely) positive and declining.



This reading agrees with the September Final GLI that the global cycle is currently in the ‘slowdown’ phase. As the Advanced GLI ‘leans’ more on the US data, we will look to the October Final GLI for confirmation of this reading.



Components mixed, market-based components worsen

Five of the seven Advanced GLI filtered components have worsened in October so far. Notably, the S&P GSCI Industrial Metals Index® and AUD and CAD TWI aggregate components, two market-based gauges, declined from last month alongside the recent growth repricing and Dollar appreciation in markets. The Philadelphia Fed headline (the Advanced proxy for the Global PMI) and Philly Fed New Orders less Inventories components also continued to come in softer, while the volatile Baltic Dry Index also declined this month after last month’s improvement.

‘Slowdown’ deepens
The October Advanced GLI locates the global industrial cycle in the ‘Slowdown’ phase, which is characterised by positive but decreasing momentum. Last month’s Final GLI also placed us in ‘Slowdown’. The October Advanced GLI ‘Slowdown’ reading moves out of the recent stable and compressed growth range and near ‘Contraction’ territory.

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Which explains this...


And confirms concerns that this time is no different, as we noted previously,

For the past five years there has been a very clear and significant cycle to US macro data - a slight rise to start the year, notable weakness into the middle of the year, a rapid recovery into the fall, then generally flat to year-end. A year ago, we explained this cycle appears to be created by government agencies need to spend, spend, spend their budgets out ahead of fiscal year-end (Sept).



This year has been no different, aside from the knee-jerk higher in macro data - somewhat shocking in its magnitude to 'every' economist with 3, 4, and 5-sigma beats in many data - came a little earlier but to the same level of past year's exuberance (as perhaps Ex-Im concerns, Fed concerns, and election concerns sparked earlier-than-usual spend-down by agencies).

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Of course, if this plays out... it's 'perfect' for the Fed to extend dovish language and investors to pile on into stocks on the back of the bad news... or without QE, is Fed talk no longer enough?