The indicators followed here were giving a positive signal for equities and other risk assets in late summer 2012:

• Global real narrow money expansion was rising, suggesting an economic pick-up from late 2012 – see here.

• A global “double-lead” indicator calculated here from OECD country leading indicator data had turned up, supporting the monetary forecast – here.

• A large gap had opened up between global real money expansion and industrial output growth, implying “excess” liquidity available to flow into markets.

• Central banks were easing policies and signalling more to come

• Investors were unduly pessimistic about economic prospects and positioned defensively.

The current message from the same indicators is more ambiguous:

• Global real money growth has moderated since late 2012 though remains at a level historically consistent with solid economic expansion.

• The double-lead indicator has also declined – see below.

• Global real money expansion remains above output growth but the gap has narrowed, suggesting a less favourable – but not unfavourable – liquidity backdrop.

• Central banks are still easing but may scale back further stimulus in response to better economic news and market buoyancy.

• Many but not all investors are optimistic and constructively positioned.

The judgement here, therefore, is that a reduction in exposure to equities and other risk assets is warranted currently and a shift to defence should be considered if the real money / output growth gap closes.

The global double-lead indicator fell further in March and is starting to diverge negatively from real money expansion – see chart. Real money has led recent industrial cycle turning points by an average of six months; the indicator has led by five months. The forecasting approach here places greater weight on monetary trends but both measures suggest that the acceleration phase of the cycle – during which equities typically do best – is ending.