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By New_Deal_democrat March 28, 2018 10:28 am
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Update on 2018 forecast, stock and bond movements
In this relatively slow news week, let me update a couple of subjects on which I've recently posted here.
 
A few days ago Lakshman Achuthan of ECRI revealed a change in their longer term forecast:  
 
 

"The growth rates of our long leading indicators have turned down," he said. "That tells us that the synchronized global growth upturn that we've all been enjoying last year is drawing to a close and in fact may already be over. 

....

"We don't have a recession forecast here. We have a growth rate cycle downturn, a deceleration in growth."
 
ECRI hasn't posted a graph of the Long Leading Index in eight years, but older discussions indicate that it historically consisted of the same four components that Prof. Geoffrey Moore identified in his work, and that I make use of in my long term forecasts (although, as a side note, at one point I spent a lot of time trying to duplicate their numerical index, and I concluded that they gave an awful lot of weight to real M2, which led them astray as to the strength of the economic recovery eight years ago).
 
So it's nice to see them making the same forecast I made year a couple of months ago:
 
 
"My sense is that later 2018 will be weaker than 2017, as the housing market stagnation of Q2 and Q3 2017 feeds through into the coincident indicators. On the other hand, the clear majority of long leading indicators remain positive. Left to its own devices, I do not see any recession for the economy at any point in 2018."
 
Secondly, last month I wrote several pieces suggesting that the economic "season" may be changing.
 
 
One relationship I discussed was that between bond yields and stock prices. From 1982 through 1998, bond yields stock prices generally moved in opposite directions. Since then, they have generally moved in the same direction at least one a day over day or w/w basis.
 
So it was noteworthy that the stock market correction at the end of January coincided with a spike *upward* in bond yields.
 
How have they moved in the month since I wrote that piece?  Here's the updated graph:
 
 
Overall, since the early February market bottom, the two have reverted to moving in the same general direction, but with the notable exceptions of the last week of February (stocks up, yields down) and the third week of March (stocks down, yields up).  So the jury is still very much out on whether the recent volatility marks a change in the relationship between bond yields and stock prices.
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