BNP Paribas: Second Derivative Case ...

I am closely following the ECRI WLI, latest post here. Sell-side analysts have used the rebound in some leading indicators as a case for economic recovery, with a very early example here, and that should happen quite soon...

BNP Paribas analysts, while commenting the economic data from US on Monday, nailed it hard in their daily "Credit Objective" today:

On the real economy side, the Empire manufacturing index came in significantly weaker than expected, with new orders registering a spectacular collapse. With the equity rally as a backdrop, the bulls have started to make a case that the second derivative of leading indicators have started turning the corner and so a vigorous recovery will follow in a quarter or two. This is a fictitious argument because we have not yet seen any deceleration in house price declines, which would stabilise bank balance sheets and consumer net worth, key ingredients to get a recovery going. Secondly, just because the rate of decline of a variable may have slowed, it does not imply that expansion will follow; it simply implies that the rate of contraction has slowed but the contraction continues. The latest reading of capacity utilisation, at 70.9%, its lowest ever, only goes to show that the output gap continues to widen and deflationary forces remain fully entrenched.

And for more aggressive species, do not forget Nouriel Roubini, with his view on second derivatives ...