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Global Leading Indicators, March 2025 - The world before tariffs, and after

The March 2025 edition of the global LEI chartbook can be found here. Additional details on the methodology are available here. I’ve added a few new elements: a chart showing the G20 LEI and its three-year rolling Z-score; a comparison between headline LEI diffusion and global equities; and a chart of the first three principal components of the LEIs. Of these, the first component is the most significant—as I’ll explain below.

As the name suggests, leading indicators are designed to provide early signals on the business cycle, and by extension, on the cyclical component in financial markets and the most cyclical individual sectors. However, there are times when turning points or events disrupt the underlying conditions so abruptly that they effectively reset the clock. Trump’s tariff shock—and its implications for global goods and capital mobility—is one such event. But for the record: what did the global economy look like on the eve of this tariff shock? As it turns out, it was doing quite well.

Things to think about #11 -Black Monday, Old God's Time and The Point Magazine on Feminism

I was out for a run this weekend with a friend who also works in the financial industry. As we sat down afterward over a cup of tea, our conversation turned—unsurprisingly—to the risk of a Black Monday tomorrow. This, in case you’re wondering, is how investors are spending their weekend: nervously looking ahead to next week’s open. Accidents happen in financial markets, but it’s not often they’re triggered by policy errors as egregious as the one we saw last week from Donald Trump. Not to worry, though; Mr. Trump and his team have a habit of throwing mud at the wall to see what sticks. This one, clearly, is sliding down pretty quickly. So they’ll walk it back, right?

The soft landing lives, for now

It’s been a while since I ran through my favourite charts for the global economy. I am happy to report that nothing much seems to have changed since my last overview. Markets are still enjoying a soft landing, defined as a world in which inflation is drifting lower, even if still-sticky in key areas, the global economy and labour markets remain unencumbered, and monetary policy is on track to ease modestly. More immediately, a run of softish inflation data in the US, rising jobless claims—despite still solid non-farm payrolls—and the return of political uncertainty in Europe have driven a bond rally in the past few weeks, and raised questions about the strength of the US economy. As a result, markets are now pricing in slightly more aggressive near-term policy easing from the major central banks. In the US, SOFR futures imply 75bp worth of easing from the Fed this year, and similarly for the ECB, which includes the 25bp cut that the Bank delivered last month. Yields also have softened in the UK. The consensus expects a second rate cut from the ECB in September, at which point markets believe Frankfurt will be joined by the BOE—with many speculating on an August cut from Bailey et al—and the Fed. The first chart below plots the implied policy path for the Fed and ECB using SOFR and Euribor, respectively. This is a pleasant picture overall. Rates will remain higher than immediately before the twin-shock of Covid and an inflationary shift geopolitics, but they’re still on track to come down some 150bp from their highs.

Cruising for a Bruising

Financial market pundits are a bit like dogs chasing cars; they wouldn’t know what to do if they caught one. And so it is that after trying to figure out whether the economy and markets would achieve a soft landing in the wake of the post-Covid tightening cycle, no one quite knows what to think now that the soft landing appears to have arrived.

Let’s list the key requirements for a soft landing.

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