QUICK TAKE:

Our ClearENGINE signals are telling us that the short term (0-6 months) outlook for the UK economy is weak, but that central bank communication is slightly dovish. With that in mind we suggest UK equity investors to be underweight their benchmark in the short term.

At ClearMacro we take financial and market data, and transform it into forward looking investment signals.

This week we want to take a look at the U.K. There are a lot of news headlines, articles, and research reports surrounding the U.K. economy. However, we put all that to the side, and look at what the underlying data and signals are actually telling us. This way we can quickly gain a non-biased view of what is actually happening in the economy.

  • The first signal below (Nowcasting Activity) shows that the estimate of current quarter GDP is weak; it has a very bearish reading of 2.35.
  • The second signal below (Data Surprise) shows that economic data has been surprising to the downside (weaker than analysts’ expectations).
  • However, the third signal (Communication Impulse) is slightly bullish, showing that the communication from the Bank of England is slightly dovish.

In summary, our ClearENGINE signals are telling us that the short term (0-6 months) outlook for the UK economy is weak, but that central bank communication is slightly dovish. With that in mind we suggest UK equity investors to be underweight their benchmark in the short term.

Signal 1: Measures the strength of Now-casting GDP estimates – designed to provide an accurate estimate of current quarter GDP.

Signal 2: Measures the degree to which economic analysts under- or over-estimate the economic outlook. Higher scores reflect stronger surprises and are inferred to be good for risk assets/currency and bad for bonds.

Signal 3: Reflects the degree of hawkish/dovish bias in central bank communications relative to the 12 month trend. A low score reflects a hawkish bias, and a high score a dovish bias.