The advisor’s guide to key metrics in today’s environment

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There are certain indicators investors can watch help make sense of the current economic environment.

However, while these indicators can help inform tactical decisions, they have little long-term consequence.According to Kristina Hooper, Chief Global Market Strategist, Invescoand over the longer term, maintaining diversified portfolios across and within the three main asset classes is essential to help achieve investment objectives.

Chinese economic indicators

China’s manufacturing Purchasing Managers’ Index (PMI) for March came in at 49.5 – technically contracting territory, according to Hooper – from 50.2 in February as the economy slowed. recently been under pressure following the COVID lockdowns.

Closely tracking the PMIs, including the sub-indexes, can provide additional color on economic activity, as well as economic data.

European economic data

The Eurozone Economic Sentiment Indicator indicates that the Eurozone economy is at heightened risk of recession. It fell 5.4 points in March, mainly due to a substantial decline in consumer confidence.

“We will want to watch European economic data, particularly consumer spending as this appears to be an area of ​​real weakness,” Hooper wrote.

Furthermore, the Economic Uncertainty Indicator rose sharply in March (+10.7 points to 25.8). According to Hooper, generally when economic uncertainty increases, capital spending decreases. And so, we will want to closely monitor these sentiment indicators and business investment.

Geopolitical developments related to energy production

Oil and natural gas prices are on the minds of economists and strategists right now because they have such an impact on the global economy.

“One way to increase supply is through geopolitical negotiations, so we will want to follow these developments closely,” Hooper wrote. “While geopolitical developments could drive up energy prices – for example, if the European Union (EU) makes the decision to no longer buy Russian energy or if Russia refuses to sell to the EU – they can also bring them down by increasing the supply.”

Supply chain disruptions

The New York Fed recently created a Global Supply Chain Pressure Index. Its most recent reading, for February, shows an easing of pressures on the global supply chain since December 2021. However, Hooper wrote that it expects the March reading to show a worsening of the situation, reflecting Ukraine invasion and COVID-related lockdowns.

According to Hooper, this is a useful measure to get an idea of ​​the extent of disruptions in supply chains, which of course has implications for inflation.

Shipping container prices

In addition to supply chain disruptions, it is important to pay close attention to shipping container prices.

“They reflect a variety of factors, including labor costs (and labor shortages) as well as oil prices. And they can play an important role in inflationary pressures because higher transportation costs can often be added to the prices consumers pay for goods,” Hooper wrote.

U.S. consumer sentiment on terms of buying a “big ticket item”

The University of Michigan polls consumers monthly on whether they think now is a good or bad time to buy major household goods and vehicles (two separate questions).

In recent months, the index has plummeted, with a growing number of consumers saying now is not the time to buy such items.

“This could be positive in terms of reducing inflationary pressures; it means households are postponing major purchases unless necessary,” Hooper said.

Inflation expectations in the United States.

Hooper recommends following inflation expectations from the New York Fed Consumer Survey and the University of Michigan Consumer Survey, especially longer-term expectations. Right now, Michigan consumers’ expectations for inflation over the next five years remain elevated but seem relatively entrenched, but that could change over time and inflation remains high.

The US Treasury Yield Curve.

The 2-year/10-year US Treasury yield curve inverted last week, which could be an indicator that the markets expect the US economy to deteriorate. However, other parts of the yield curve look healthy.

Hooper recommends paying close attention to the 3-month/10-year U.S. Treasury yield curve, as historically some economists have relied on this measure to predict recessions.

US employment situation

Any significant weakness in jobs could be a reason for the Fed to slow down its plans to continue raising rates later in the year, so Hooper advised paying close attention to see if the strength we’ve seen in mars persists or reverses.

“Conversely, if wages were to continue to rise at a rapid pace, the Fed could worry about the potential for a wage-price spiral, which could cause it to become even more aggressive in tightening,” Hooper wrote. .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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