Global economic momentum is struggling, mostly because of global trade-related uncertainties. Yet, investors don’t seem that worried, with equity prices still near-record highs.
An important factor here are macro surprises, which – as today’s chart shows – have become less negative in recent weeks. This is likely because both economists and investors have lowered their expectations after a stretch of soft incoming macro data.
In the short-term, improvements in macro surprises often resonate well with equity markets. Long-term, however, markets struggle if surprise indices only move higher because of lower expectations. A noticeable improvement in economic momentum is required in the latter stages of this year to keep things going.