Welcome to Thoughts on the market. I'm Andrew Sheets, Chief Cross Asset

Strategist from Morgan Stanley. Along with my colleagues bring you a variety of

perspectives, I'll be talking about trends across the global investment landscape and how we put those different ideas together.

It's Friday, October 4th at 2 p.m. in London.

As a strategist from Oregon Stanley, I spend a lot of my time trying to gauge the future direction of markets.

It's hard.

Financial markets tend to be anticipatory, moving ahead of underlying data for an economy or a company.

If the thing you're trying to estimate moves before anything else, how do you find something that moves before it does?

For all the more complex quantitative models that our team runs to try to answer that question,

three of our most powerful indicators are actually quite simple.

One of these currently looks bad, one is worrying, and one still looks fine, but is worth monitoring.

The first variable is the U.S. manufacturing purchasing managers index or PMI.

This index asks industrial companies if a variety of key variables for their business are getting better or worse,

and has been run by the Institute of Supply Management since 1948.

Such a consistent survey run over such a long period of time is unusual,

providing a long time horizon to test its forward-looking implications.

And at the moment, those implications are troubling.

U.S. manufacturing PMI has fallen sharply this year,

and its latest reading on Tuesday was below expectations.

The index suggests a weakening trend in U.S. manufacturing

activity which has historically suggested higher odds of a recession and lower

stock market returns over the next 12 months. The second variable is consumer

...