Equity earnings revisions ratios for November offer further evidence of a tentative recovery in global economic momentum, albeit one at significant risk from the escalating Eurozone crisis and premature US fiscal tightening – the failure to agree a longer-term deficit reduction plan has lowered the probability of payroll tax cuts and jobless benefits being extended beyond end-2011.

The revisions ratio expresses the net number of upgrades to company earnings forecasts as a proportion of the total number of analyst estimates. It correlates closely with business survey information – in particular, the new orders component of the manufacturing purchasing managers’ survey – but is available earlier and at higher frequency (i.e. weekly as well as monthly).

The world revisions ratio remained negative in November (i.e. more downgrades than upgrades) but rebounded from a depressed October reading, reaching its highest level since July. This confirms a small rise in the G7 PMI new orders index in October and suggests a further increase to above the break-even 50 level this month.

The regional breakdown shows, unsurprisingly, relative weakness in the Eurozone and strength in the US, where the revisions ratio turned positive for the first time since May – consistent with recent better-than-expected US economic data discussed in yesterday’s post. Even the Eurozone ratio recovered significantly, however, suggesting a less downbeat new orders reading in tomorrow’s “flash” PMI report for November.