Two of the best global leading indicators tools we have are VP’s Business Cycle Financing Index (BCFI) – which tracks financial conditions, eg are central banks easing or hiking, credit spreads widening or tightening (first chart) –  and the global yield curve, one of the best leading indicators for global growth (second chart).


img2Source: Bloomberg and Variant Perception

At present these two leading indicators are diverging dramatically.  Financial conditions remain loose as central banks around the world continue to practice very easy monetary policy, while credit spreads have been tightening over the past 3 months.  This has caused the BCFI to recover (top chart).  However, this is contradicted by flattening yield curves signalling weaker growth (bottom chart).  The overall message from our indicators is that despite central bank easing, growth will likely remain weak, which should be conducive to a rise in excess liquidity over the next 12 months.  We will be tracking this closely, as any rise in excess liquidity would provide a cushion for asset prices despite weak economic growth.