With Korean missile launches, Trump’s tweets, Hurricane Harvey, NAFTA negotiations and Brexit battles, journalists have plenty to keep themselves busy.
Of course, some of today’s headline-grabbing events might bring profound and unexpected change with lasting impact on global financial markets. But then again, they may not: devastating local events such as Hurricane Katrina (2005) or the Fukushima tsunami and nuclear disaster (2011) had only temporary consequences, for example. As for political risk, it is always hard for markets to assess probability and significance. Nevertheless, it is something which has always been present and which cannot be avoided even if outcomes are hard to predict. In any case, prospective surprises tend to lie in unforeseen events rather than those already at the centre of attention.
Quietly, away from the headlines, often mundane economic data releases take the pulse of global economic activity. Outside of times of crisis or dramatic surprises, these reports rarely make front page news. However, cumulatively these statistics, along with results reported by companies, provide a reading on the slowly evolving global economy. Ultimately, it is the evolution of economic performance and corporate profits which determine investor outcomes over time, and typically not whatever constitutes today’s headline news.
One fascinating data point, which didn’t dominate the headlines this week, was found within the report on US Consumer Confidence released by the Conference Bureau. The survey reported that US households believe their present economic situation, as reflected by their views on business and employment conditions, is improving and has rarely been surpassed in the past 50 years.
This data certainly doesn’t chime with the popular, one-sided view of disaffected American voters, rising up in desperation against trade, technology and inequality (not to dismiss these important issues). Rather, it lends weight to the idea that US consumer spending is well supported in the aggregate, a view supported by an unemployment rate rarely bettered in 50 years.
Revisions to consensus forecasts for global growth point in a similar direction. The chart below shows the average expectation for growth amongst a sample of professional economists and market participants. For example, the start of the purple line shows that in early 2015, the average expectation for nominal global growth in 2016 was 6.3%. As 2015 and 2016 progressed this was gradually revised down, with growth ultimately coming in at 5%.
The chart shows that after serial disappointments to growth expectations, we are now seeing upward revisions.
This tells us nothing about whether asset prices are attractive; one can always pay too much even when fundamentals. However, these strong fundamental developments seem to run contrary to the prevailing narrative.
The world is never free of problems, but on balance macro data from the world’s major economies has been pointing in a positive direction.