Manufacturing activity gauges remained soft in July, both in Europe and the US, despite Q2 GDP reports generally surprising on the upside. 

Another tepid manufacturing report from the Dallas Fed for July highlighted flatlining volumes, suggesting no significant boost in ISM Manufacturing expected later this week. 

Interestingly, future expectations are rising, with the spread between future and current business activity bouncing to levels exceeding 30 index points, a typical indicator of a cycle’s bottom. If we are indeed at the cycle’s bottom in terms of cyclical growth and inflation, it would be challenging for markets to sell off significantly. 

Equities usually hit their lowest before such a spread, but this has not been the case this time. Historically, seeing such a divergence between the present and the future in these growth gauges presents a tremendously strong risk/reward opportunity on the long side of risk asset bets.

Chart 1: Future expectations are rising fast versus a weak present