leading-indicators

Methodology inspired by publicly taught trading frameworks; all text is an original paraphrase.

Defaults

Parameter	Default Value	Rationale
lookback_quarters	4	Standard window for leading-indicators
gdp_forecast_lag	6 months	S&P 500 leads GDP with maximum statistical significance at the 6-month horizon (10-year rolling correlation avg: 0.56, 1960–2020)
indicator_frequency	weekly	Money-market and survey indicators are tracked weekly; GDP is quarterly
portfolio_bias	long / neutral / short	Macro view resolves to one of three biases governing portfolio construction

Preflight

Run canonical pre-flight per contracts/preflight.md. Propagate X-Agentii-Trace per contracts/x-agentii-trace-header.md.

Data Source Priority

1. Leading indicators framework — references/leading-indicators-framework.md (bundled methodology)
2. Knowledge entries — query search_knowledge_entries for supplementary L1 frameworks
3. Historical analogues — query search_by_analogue(market_regime, event_type)
4. Real-time data — FRED (real rates, yield curve, money supply, credit spreads), ISM PMI, UMCSI, jobless claims, building permits, commodity prices, DXY

Methodology

Retrieval Scope

structured_only

Retrieval Strategy

This skill follows Branch (d) Simple Lookup from contracts/retrieval.md: query knowledge entries for L1 macro and leading-indicator frameworks; query search_by_analogue for historical regime analogues resolved from the indicator panel. No unstructured document retrieval.

Temporal Scope

See frontmatter temporal_scope block.

Tool Allowlist

See frontmatter allowed_tools.

Protocol

The Pro-Trader Systematic macroeconomic framework: predict GDP → predict stock-market returns. S&P 500 leads GDP by 6 months (10-year rolling correlation avg 0.56). Two analytical axes: Growth drives earnings (E); Liquidity drives price (P). Detailed indicator methodology, thresholds, and decision rules are in references/leading-indicators-framework.md.

1. GDP Baseline: Quadrinomial method (S&P 500 quarterly returns 6-month lagged vs real GDP). Four outcomes: 0-0 (both down, 8.2%), 1-1 (both up, 60.9%), 0-1 (profit-taking, 25.6%), 1-0 (unpredictable, 5.3%). 10-year rolling correlation check. Apply to EuroStoxx 600 vs Eurozone GDP. Skip China Shenzhen (unreliable correlation ~0.05).

2. Money Market Indicators (earliest and most reliable):

   • Real interest rates: Nominal rate − CPI. Classify accommodative (< 0.5%), neutral (0.5–2%), restrictive (> 2%). Direction: falling = bullish; rising = bearish.
   • Yield curve (2s10s): Normal/steep = expansionary. Flattening = transition. Inverted = recession (6–18 month lead). Steepening from inversion = recovery. Monitor TED spread (3m LIBOR vs 3m Treasury) for global dollar stress.
   • Credit spreads: Hierarchy AA (ICE BofA, FRED) → BBB → CCC (junk moves first). Widening = contractionary → sell. Tightening = expansionary → buy. CCC blowout 400+ bps with AA calm = stress concentration.
   • M2 Money Supply: Accessory only. Accelerating + falling real rates = confirm expansion. Decelerating + rising real rates = confirm contraction. Divergence = flag regime ambiguity.

3. Survey Indicators:

   • ISM Manufacturing PMI: > 50 expansion, < 50 contraction. Prioritize New Orders sub-component. PMI < 45 = strong contraction.
   • UMCSI Consumer Sentiment: < 70 recession warning, > 90 confident. Sharp MoM drops > 5 points often precede equity corrections.

4. Commodity Prices: Copper (pervasive industrial demand proxy — compare LME vs Shanghai). Brent crude (rising with copper = demand-driven, bullish; rising without copper = supply shock, bearish).

5. Market & Forex: S&P 500 as ultimate daily leading indicator. DXY strengthening = tightening global conditions; weakening = loosening. Cross-reference DXY direction against credit spread direction.

6. Coincident & Lagging Cross-Check: CPI, PPI, NFP (coincident); GDP, earnings, unemployment (lagging). Never trade on lagging indicators alone.

7. International: European ESI, China PMI (Official vs Caixin — Caixin often leads), Japan Tankan + JGB, UK Gilts + PMI, Germany Bund + Ifo, Italy BTP-Bund spread. Apply local CPI for real rates.

8. Dashboard & Bias Resolution: Score 11 indicator categories (high-weight: real rates, yield curve, credit spreads, ISM PMI, S&P 500). ≥ 60% expansionary → net long. ≥ 60% contractionary → net short. Mixed → neutral.

9. Analogue Retrieval: Query search_by_analogue with market_regime and event_type matching current configuration. Cite via /v/.

10. Regime Classification: Expansion / Contraction / Stagflation / Recovery with Bear/Base/Bull probability weights and transition catalysts.

Output File

{ticker}/{YYYY-MM-DD_HHMM}_leading-indicators_{affix}.md

Output Structure

1. Executive Summary — GDP forecast (6-month forward), portfolio bias (long / neutral / short), regime classification with probability weights, top 3 signals in 2–3 sentences
2. GDP Baseline — quadrinomial quadrant assignment, rolling correlation trend (S&P 500 vs GDP, 6-month lag), international comparison (Eurozone, China)
3. Money Market Indicators — real interest rates (current level + direction), yield curve 2s10s (shape + direction), credit spreads (AA / BBB / CCC spreads over 10Y, direction + magnitude), M2 money supply growth (trend)
4. Survey Indicators — ISM Manufacturing PMI (headline + new orders), UMCSI consumer sentiment (headline + expectations)
5. Commodity & Market Signals — copper, Brent crude, S&P 500 quarterly direction, DXY trend
6. International Context — European ESI, China PMI (official vs Caixin), other major economy indicators
7. Leading Indicator Dashboard — weighted scorecard table with expansionary/contractionary signal count
8. Regime Classification — regime type (Expansion / Contraction / Stagflation / Recovery), probability weights (Bear / Base / Bull), transition catalysts
9. Portfolio Bias Recommendation — net long / net short / neutral with supporting evidence
10. Historical Analogues — matched cases from search_by_analogue with /v/ citations
11. Risk Assessment & Caveats — Fed intervention risk, signal divergence flags, data limitations
12. Coverage Gaps — indicators with stale / missing data; degraded-mode annotations

Error Handling

Error	Fallback
No L1 frameworks found	Proceed with the standard 10-indicator panel described in Protocol; flag degraded
search_by_analogue empty	Note "no relevant historical analogues found" — do not fabricate
Real-time data unavailable	Use last-known values with staleness flag; indicate date of last observation
Credit spread data missing for one tier	Use available tiers (AA/BBB) and note the gap; CCC data is most volatile and optional
Yield curve data flat / 2Y missing	Use 3m10y or Fed funds vs 10Y as alternative curve; note substitution
International indicator missing	Proceed with US-only dashboard; flag international gap

Memory Load

See contracts/memory-load.md.

Snapshot

See contracts/snapshot-synthesis.md.

Final Summary (TUI)

Include ### Key Citations block with 0-10 clickable /v/ URLs.

References

• references/leading-indicators-framework.md
• contracts/citation-and-memory.md
• contracts/output-frontmatter-schema.md
• contracts/memory-load.md
• contracts/snapshot-synthesis.md
• contracts/preflight.md
• contracts/retrieval.md