- The proportion of global economic data undershooting market expectations sits at the highest level since the GFC.
- It suggests most market professionals weren’t anticipating just how fast the global economy has come off the boil in recent months.
- Asset prices have already adjusted to the new global outlook. Whether the move has been large enough remains an open question.
If you’ve been surprised about just how fast the global economy has come off the boil in recent months, don’t worry, you’re not alone.
Economic surprises, especially to the downside, have been plentiful.
This chart posted on Twitter by Richard Franulovich, Westpac Bank’s New York-based Head of FGX Strategy, shows just how surprised we, the collective markets, have been.
It’s Westpac’s global economic data surprise index, an aggregate measure of how releases have fared compared to market expectations.
As things currently stand, the level of data misses currently sits at the highest level since the GFC, sitting more than two standard deviations below the normal level.
Clearly, even among market professionals, few expected just how fast the global data has softened.
With data now consistently undershooting, the proportion of downside surprises will naturally decline as the outlook for the economy resets, unless there’s a further deterioration in the data, of course.
With markets being forward-looking in nature, we’ve already seen that asset prices have adjusted to the diminishing in prospects for the global economy this year.
However, for those banking on a sustainable recovery in cyclical assets, one suspects that we’ll need to see a prolonged period of upside data surprises in the not too distant future.
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