As recently as a couple of weeks ago, it became clear a number of leading indicators were ticking upwards. Purchasing manager indices (PMIs) in, among other areas, the US, Germany and the Netherlands showed clear signs of improvement while better-than-expected Chinese exports suggested its economy may have bottomed out.

There were further signs of life in the US economy as the housing market and consumer spending started to turn.

Investors now have further tangible proof of an improvement in the global outlook as the UK economy moved out of recession in the third quarter, with GDP rising 1% year on year. This was partially boosted by the Olympics but that was not the whole picture – there were, for example, also improvements in private sector employment. More recently, there has been data showing UK consumer lending has risen at its fastest rate in four years.

Similarly, the US economy delivered President Obama a pre-election boost, with a year-on-year GDP rise of 2%. Consumer spending in particular has given reason for cheer. House price rises and wider credit availability have conspired to reignite the US consumer and figures appear to be on an upward trend. The fiscal cliff still looms but may be edging nearer a resolution.

Although markets have dipped over the past week or so, dampened by worries over Hurricane Sandy and weaker results from Apple, this bucks a significant resurgence in risk assets. Over the past three months, the Smaller Companies, Europe excluding UK and China/Greater China sectors are on top of the heap with gilts firmly at the bottom. Over one month, the trend is even starker – the average fund in the China/Greater China sector has beaten the average gilt fund by 5.9 percentage points.

Even so, in this re-embracing of risk, it pays to be discriminating. There are, after all, very real problems in certain parts of the globe. Most European PMI figures are still weak and the crisis is simply paused rather than resolved. Apple’s missed targets show the difficulties faced by even the most competitive companies.

Equally, as Gavyn Davies recently pointed out in the Financial Times, markets and economists have a tendency to read the best and worst into economic data. Just as commentators should not have been getting too gloomy about the UK’s ‘double-dip’ recession, they should now not get too excited about any resumption of growth. All the data is commensurate with an economy that is bumping along the bottom – little real momentum, but not a disaster either.

October 2012