Earnings revisions consistent with economic cycle turn

20th May 2014 by The Harried House Hunter

The forecast that global industrial momentum is reaching a short-term low around now and will rise over the summer implies that PMI new orders indices – a coincident to slightly leading indicator of the cycle – will move higher by mid-year. May flash PMIs are released later this week. The G7 PMI new orders index correlates with the developed markets earnings revisions ratio*, although the latter is more volatile. The ratio rose again this month**, suggesting a coming PMI increase – first chart. This reflected both more earnings upgrades and fewer downgrades.

A PMI*** / revisions ratio correlation is also evident in Chinese data and is similarly hopeful, consistent with recent stronger monetary trends – second chart and previous post.

*The net percentage of equity anaylsts’ company earnings forecasts raised over the last month.
**The ratio is calculated on a mid-month to mid-month basis.
***Official PMI new orders, re-seasonally adjusted.

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