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As we fixate on the implications of the US election, it is important that we do not lose sight of other fundamentals that affect financial markets. For the last few months, we have been talking about an improvement in momentum in the US economy which was supporting out-performance of the US equity market. This was evident from the Economic Surprise Index for the US; it started to move back into positive territory (i.e. US economy performing better than forecast) since September.
If we look at the chart below, we can see that this has started to spread out with both the euro area and Chinese economic surprise indices moving into positive territory. After six months of under-performance, the chart is indicating that both the euro area and Chinese economies are now performing better than forecast. This should help equity markets in these regions. One cannot get too excited as they are outperforming a lower forecast level and do face the challenge of changes in US trade policy but at least they are showing better momentum going into those challenges.
