These Two Charts Show How Global Growth Looks Poised to Shoot Up
And now, for some good news.
The great rotation out of defensive stocks and bonds in favor of growth-sensitive assets that's been inspired by Donald Trump's electoral victory finds support in a bevy of recent data, from China's manufacturing purchasing managers index, to U.S. consumer sentiment, to industrial output in the euro area.
Step back and a big picture emerges. Global trade volumes are staging an expansion while positive economic surprises in developed markets are on a tear, in a boon for global output.
Underscoring those shifts are Morgan Stanley's high-frequency trade data, which suggest import-export volumes will prove to have staged a sharp acceleration in the fourth quarter of the year. The bank's proprietary trade index — the Global Trade Leading Indicator (MSGTLI) — surged in November, driven principally by a rise in the Baltic Dry Index, which measures commodity shipping costs. It jumped to a two-year high in the wake of Trump's victory, at the same time that there was an uptick in U.S. manufacturing output.
"This suggests global trade accelerated sharply in the fourth quarter and is also indicative of a strengthening in global growth momentum in late 2016," analysts at the U.S. bank, led by Elga Bartsch, wrote in a report on Tuesday.
The November rise in the MSGTLI follows sharp consecutive improvements in October and September, which the analysts say presage an increase in the official reading, as measured by CPB World Trade Monitor, which typically reports merchandise trade data with a two-month lag. The Morgan Stanley analysts estimate that global trade, based on the latter measure, could stage a quarterly rise of 3.5 percentage points in the fourth quarter, the strongest gain since the second-quarter of 2010, when the aftershocks of the global crisis began to recede.
The Morgan Stanley index weighs a flurry of indicators — including Brent crude oil prices, commodity futures, the dollar's nominal value, the Baltic Dry Index, U.S. ISM manufacturing data and Ifo Business expectations for the next six months — to derive a timely picture on the global trading landscape.
"Whilst the outlook for global trade remains a key uncertainty, particularly given the upcoming change in the U.S. administration, the sharp improvement in MSGTLI suggests that the cyclical improvement we had been expecting may now be occurring," the analysts conclude. "This should provide a boost to productivity growth."
Not only is the global data coming in strong; readings from pretty much everywhere in the world have also been better than expected.
The below chart shows the Citi Economic Surprise Indexes, which attempt to gauge how well economic data is coming in relative to expectations, for the U.S., U.K., the euro area, Japan, China and emerging markets. Since Nov. 5 all of these indexes have been above zero, which is marked as the horizontal red line, indicating that data from around the globe has for more than a month been better than economists were forecasting.
All of which means that while there's a lot of focus on geopolitics and politics, there's also plenty of economic good news to enjoy too.