Each month, we produce a report which we call our Leading Indicator Watch. In it we update all our main leading indicators that give us leads on global growth, liquidity, commodities, US growth, US consumption, US manufacturing, corporate profits, volatility and credit, and more.  We also cover the main developed and emerging countries.

Below, is a page from our latest report, where we highlighted the downturn in our Polish Leading Indicator.  If you are interested and would like to find out more, please click on this link:

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Polish Leading Indicators are falling while equity valuations remain elevated

Our Poland LEI continues to fall, driven by slowing real M1 growth, falling consumer expectations relative to present conditions and stock/bond ratios rolling over.  Poland has experienced a mini-economic boom this year, however building-permit growth has now peaked (second chart).

Source: Bloomberg, Macrobond and Variant Perception

We would not be as worried about Polish growth peaking and slowing if it were not for the surge in Polish equity valuations this year. Forecasted equity market returns have now turned negative (left chart).  The price-to-book ratio (right chart) has risen this year, which when inverted tends to lead equity market returns lower with a 6 months lead. The cyclically-adjusted 10-year price-to-earnings ratio (CAPE) is also now back up to levels last seen in 2006.

Source: Bloomberg, Macrobond and Variant Perception

Polish political risks still remain. The ruling Law & Justice Party has been trying to meddle with the Polish judicial system by introducing legislation to fire the Supreme Court justices and revamp the Judicial Council (which makes key personnel decisions). As a result Poland remains under investigation by the EU, which has the potential to spook foreign investors next year, especially if economic data start rolling over, as our LEI expects.