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  • Writer's pictureJonathan Wilmot

Messy Momentum

COVID completely up-ended the normal relationship between global goods and services spending in the economy, which has made the global cycle in growth, earnings and risk appetite unusually messy. To that you can now add the stark contrast between new economy sectors, (AI, New Energy and Transport, parts of Health Care) and the old economy, especially the most interest rate sectors such as real estate. With the major economies still at different stages of the normalisation process, and leading in different parts of the transformation (The US in commercialising AI, China in driving down the cost of EVs, batteries and clean energy) relative growth rates in output and earnings have also been less correlated than usual. Even so, there is still a pattern of sorts, but with risk appetite and earning revisions tending to lead turnings points in the PMI reports and global industrial production to an unusual extent. And with earnings revisions in Europe and China

improving relative to the US.

As we show in the charts below, Global Risk Appetite bottomed out way back in the summer of 2022, but then turned down again from April 2023 to January 2024. The global PMI's troughed in December 2022 but had a mini-down cycle from August 2023 to March 2024. And global IP momentum bottomed in early 2023 but has had a more laboured recovery than usual, and briefly turned down again in late-2023 through March this year. Right now, risk appetite and global IP momentum are rebounding together but most likely hitting a short-term peak.

In level terms, Global IP looks less wavy: it's just growing rather slowly with AI and Clean Energy related sectors booming and anything real estate related struggling. In terms of the latest data published last week, US IP was flat in April, the eurozone up 0.6% in March (but ex Ireland down 0.5%) and China was up 1% in April.

Up till now, all the strength in China has been new economy driven, but policy efforts to mitigate the the property bust are finally taking a more convincing turn, which helps to explain why Chinese equities are up 30% since mid-January while the S&P 500 is up only 10%. Western tariffs will probably lead to a shift in the composition of growth - slightly slower growth in new economy sectors and better growth in real retail sales (which have fallen outright over the past three months) and a slight improvement in old economy production

In Europe, meanwhile, overall production is stabilising rather than rebounding with any vigour, and on the US side retail sales is likely to be slightly less robust but production should pick up slightly from here.

All a lot more messy than usual.

Note: Data for Eurozone goes up until March 2024, US and China until April 2024


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