Any major surprises in the US, Q1, to be to the side of relative vigor, not weakness.
Two primary anchors have been set for some time - consumer activity and jobs activity, meaning we could expect prints through expectations. We have experienced a bit of slippage with the consumer, but not much; that for employment has held very well.
Both will continue to hold into and through Q1. We will add Manufacturing for Q1. Here most economists will miss the boat because they will under-estimate export demand, thinking it to be completely dried up.
This then provides the landscape.
Naturally the E-Z and the Middle East are wild cards. This is why past many weeks we have recommended only a few trades, the most reasonable and conservative strategy, and entry only when odds of downside were far eclipsed by odds of upside. This worked very well on two occasions with the UK curve, once with the US curve, and earlier, the US 10 yr to the Bund. The last exercise on the US side however, reviewed yesterday, was not satisfactory as we did not recommend an exit after substantial progress, late October. We were caught flat-footed by E-Z events.
Robert Craven
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