Overnight Japan released its leading indicators for August, and they are down 8% compared to last year showing the worst momentum since the 2008 financial crisis. Japan’s leading indicators are telling investors that the third largest economy in the world is most likely entering a recession soon following Sweden and Germany. Global equities have remained bid all indicators suggesting the slowdown is worsening and that global profits will fall. As we have said before we believe there is a massive disconnect between macro reality and equities likely made worse by policy action forcing rates deep into negative territory.
Tomorrow, OECD releases their global leading indicators for August, and we expect another decline extending it to a 19-month straight decline and further evidence that the global economy is likely headed into a recession. There are some indications about a stabilization measured on the real-time GDP tracker on the Eurozone economy called the Eurocoin Growth Indicator, but the stabilization is fragile. Worse than expected earnings from the upcoming Q3 earnings season is all it takes for sentiment to crumble.