International Trade — Alpha.Sources

Global Leading Indicators Feb 2025 - In the Pipe, for Now

It’s been a while since I’ve been writing about markets and the economy. The reason, as I touched on earlier this month, is that I’ve been working on some scripts—with the help of my now trusty and indispensable ChatGPT+ subscription—to automate chart generation for the indicators and data I use and look at regularly. The first of these, on the OECD’s suite of leading indicators, is now done in its beta version, so let’s get started.

The February 2025 version of the chartbook can be found here. It is updated with the February values for the OECD leading indicators in amplitude- and seasonally-adjusted format. The coincident indicator is based on CPB’s data, and is most recently updated for January.

Is global inflation (re)accelerating?

This is the question everyone wants an answer to after another week where bonds have been beaten to a pulp, a trend which is now starting to bleed into equities. More specifically, the real question is whether US inflation is accelerating? It is too soon to tell, and for the record, we don’t think so. But for now, markets are being fed with headline macro data signalling that the US economy is more resilient than previously anticipated, as well as vulnerable to upside inflation risks. As a result, investors have kept buying the dollar and selling treasuries at the start of 2024. The latter, in turn, has spilled over into indiscriminate selling of bonds in other jurisdictions.

Back to the (Macro) Basics

"Where are we in the business cycle?" is a question macroeconomists often are asked by investors. On the face of it, it is a reasonable question. The macroeconomic backdrop is an important input variable for key asset allocation decisions such as whether to be over- or underweight stocks relative to bonds, sector rotation, not to mention FX and credit positions. The question invites the idea that economic expansions are on the clock. They are in the sense that their average length is a question of a relatively simple empirical exercise. But a classic truism still remains. "Economic expansions don't die of old age, they're killed by economic policy", a phrase I have adapted from the U.S. version ending with the idea that economic expansions usually are killed by the Fed.

The Balance of Payments

The flow of goods and capital across borders and between nations has featured in human storytelling and economic relations since the beginning of time. The biblical protagonists traveled and traded with each other, and often fought over the dominion of resources. The protagonists in modern historical tales of trade and war since the turn of the millennium continue the habit in similar ways. You would be hard-pressed to find a better historical account of that than in Ronald Findlay and Kevin H. O’Rourke’s Power and Plenty. The book is as much about the wars that divided empires and nations as it is about the exchange of goods and capital that bound them together, though it is reasonable to say that these two perspectives are joined at the hip. Economics plays a specific role in the study of global trade and empire-building. The exchange of goods, capital, and services across borders gives rise to transactions as the ownership of resources shifts. Over time, these processes lead to the accumulation of wealth and debt on the part of nations and economic actors—assets and liabilities, in the jargon of modern finance. It is the economist’s job to trace, identify, and record the nature and value of these transactions.

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