Decoupled by Crisis: Macro Signals in Lebanese Bonds and Stocks

Will financial markets rise or fall from here? That is the billion‑dollar question. To approach an answer, analysts track indicators such as economic growth and inflation. For growth, the Purchasing Managers’ Index (PMI) often proves more useful than GDP: it is published monthly, making it timelier, and it is not subject to revisions. Constructed as a diffusion index scaled from 0 to 100—where readings above 50 signal monthly expansion and those below indicate contraction—the index offers a clear benchmark for real-economy conditions.

This paper evaluates the BLOM Lebanon PMI alongside its forward-looking Future Output subindex—a metric that explicitly tracks whether business activity levels will be higher, the same, or lower in 12 months’ time—to test its reliability for investors in Lebanese financial markets. Given the severe geopolitical and macroeconomic uncertainty surrounding the economy, this forward-looking sentiment indicator is particularly relevant. Specifically, we examine its contemporaneous link to defaulted Eurobonds while explaining why Lebanese equities, unlike global markets, display little sensitivity to real-economy signals.

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