Signs are pointing to a looming slowdown in global trade growth,according to Morgan Stanley.

Each component of the bank's proprietary global trade leadingindicator — except the U.S. dollar — declined in April to markback-to-back drops for the index, which is used to forecast realactivity with a one-month lead.

“Business sentiment, crude oil, commodity prices and Baltic DryIndex shipping rates all pulled the index lower,” said a team ledby economist Elga Bartsch. “If [the] Morgan Stanley global tradeleading indicator declines three times in a row, we will likelyhave established a new downtrend in global merchandise tradedynamics.”

Morgan Stanley anticipates a short divergence between itsleading indicator and global trade volumes (measured by the CPBWorld Trade Monitor), estimating that the latter will still rise atabout a 10% pace year-over-year for May. Going forward, however,negative base effects are likely to amplify the headwinds of “lessfavorable trends in commodity prices, the U.S. dollar and shippingrates.”

In an ironic twist, Donald Trump's election victory — followinga campaign with clear protectionist overtones amid a retreat inshipping activity worldwide — coincided with a sharp accelerationin global trade that carried through to the first quarter of 2017and beyond.

“As the strong trade data from Q1 rolls in think now clear'deglobalization' of last 2 ys a function of China's slowdown andcommodity shock,” Council on Foreign Relations senior fellow BradSetser said on Twitter.

Now not only trade, but another key tenet of the globalreflation thesis is poised to fade.

“Global growth has moved from boiling to merely simmering,”Credit Suisse Group AG analysts led by James Sweeney wrote in a May2 note. “We estimate that global industrial production momentum(3m/3m annualized growth rate) has fallen from a 5% January peak tounder 4% in April.”

Credit Suisse expects industrial production momentum to continueto wane, with the growth rate falling to 3% this summer.

Bloomberg News

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