The U.S. Leading Economic Indicator: No Boom, No Bust

The US Conference Board’s Leading Economic Indicator (LEI) ticked up in March, and appears to have bottomed.

The LEI has been bouncing near current levels since mid-2006, consistent with slightly sub-par growth, yet no recession. The Fed wanted the economy to cool off for long enough to allow inflationary pressures to ease. The latter has occurred in fits and starts, but not decisively enough to convince the Fed to ease policy, especially in view of the ongoing tightness in the labour market. Without any assistance from the Fed, it will take an end to the headwinds from rising energy prices and/or sinking housing wealth before the economy gains momentum, and neither appears imminent. Bottom line: positive, but sluggish, growth is likely to persist for the foreseeable future.

Technical Analysis (normal caveats apply!) 

The Dow Jones Industrials Index (13089.89) cruised through the 13000 level yesterday, just six months after penetrating 12000 for the first time. The rally was driven by strong results from just a few constituents (don’t forget that the Dow is just 30 stocks, and that its value is derived from their share prices, not their market cap) and expectations that a soft landing might yet be achievable. 

As several commentators were eager to point out on Bloomberg and CNBC last night, this milestone is not particularly indicative of the current (or even near-term) state of the US economy - but investors don’t seem care for that view and, despite the fact that it has become fairly overbought on the shorter term oscillators, there is still scope for further gains.  

Of course, the S&P 500 (1495.42) also posted multi-year highs and is drawing ever nearer to all-time highs. It would not be surprising if those were tested before this current move runs out of steam.

FTSE-100 (6461.9) also had a pretty good day yesterday, rising 32 points in response to good figures from several of its constituents and further M&A activity. Today it has had time to respond to the powerful performance on Wall Street and with global equity markets continuing to power ahead it looks possible that it will just be a matter of time before the FTSE index is hitting new highs for the year again (the recent peak was 6516). The momentum oscillators are starting to turn higher again (after a period of consolidation) and the short-term outlook for the index is technically positive.

And finally.........

Prometheus from sources: ADM, Barclays Capital, Cazenove, Charles Stanley, HSBC, ING, SocGen, UBS.