Data Diary

Which leading indicator is leading the Australian market?

Posted on 27 January 2010

One of the objectives of this site is to develop a set of tools that will help us understand how the market will respond to economic developments. The thing is that the Australian market suffers from a bipolar disorder that can make this a little hard in practice. Consider the following chart tracking the OECD’s composite leading indicator against the All Ordinaries:

The correlation between the two appears weak at best.  And there’s the rub – the All Ordinaries is both an index for global demand for commodities and for Australian centric consumer demand.

So what then to make of the OECD’s leading indicator? On reflection, it may then have more application to those sectors of the market that are reliant on domestic economic conditions. In this context, consider the following charts of the ASX200 Consumer Discretionary and the ASX200 Industrials indexes mapped against the OECD’s CLI:

On the face of it, the OECD”s leading indicator has a tighter correlation to these sectors.  This makes the following charts pretty interesting then:

Seems like turns in the OECD’s CLI have a irregular habit of smoking out moves in these domestically focussed indices.  More on this later as we delve deeper into the bowels of the Australian economy…