Remember the good ol’ days of the synchronised global economic upswing, led by a resurgent Eurozone?
It wasn’t all that long ago. Just a few months, in fact.
Suddenly, there’s a few signs emerging that suggest the global economic upswing may have already reached its crescendo.
Soft and hard economic indicators such as trade flows, exports orders and PMI reports have started to soften, coinciding with a lift in financial market volatility, especially at the riskier end of the asset spectrum.
Unsurprisingly, downside economic data surprises are on the increase, especially in Europe.
Just take a look at the chart below from Macquarie Bank as evidence.
After surprising nearly entirely to the upside just three months ago, there’s now far more downside economic surprises being seen around the world.
It’s little wonder why risk assets have been a bit jittery of late, at least compared to recent years.
Clearly, many analysts were extrapolating the economic performance seen last year into expectations for the year ahead, providing a gentle reminder that past performance is not indicative of future returns, be it for market returns or economic data.
Now that the data has started to sputter, it will likely lead to a reset of expectations.
Optimism will cool and forecasts will almost inevitably be lowered, pointing to the likelihood that data surprises will begin to revert in the opposite direction.
That, from a broad sense, could help to support sentiment in financial markets and asset prices.
However, should the data continue to disappoint even with lowered expectations, that could present a larger challenge to current asset valuations.
One to keep an eye on in the near-term.
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