US Update

For a trail map through the thicket of key releases and events this week, N America, the UK and E-Z and the best advised route for survival and profit, see the Hades Weekly nearby.

In that piece clients were reminded that observers have now come a long way to catching on to US resilience, a resilience we highlighted in October while most were looking in the other direction.

Now the view among most economists is that, ok, we undershot a bit, but certainly now the US must be in for a pause; these types site last week’s Claims and Sales prints as evidence of that, combined with what they (incorrectly) understand to be more-than-moderate contagion from the E-Z.

Instead, course of least resistance is that the US real sector will continue to deliver, on the whole, more growth than expected for Q1.

Thus, the preferred route for us this week in approaching the US release stream is to let vigor go and to exploit weakness as such “weakness” will not be trend.

As was illustrated in the Weekly, assume a disappointing Dec Starts release, Jan/19. For the first time in over a year, all eyes are on housing; there is great hope for a linchpin recovery - housing as the propellant. If the number is strong, fine.  Let it go (clients should still be positioned for surprising US vigor anyway, because we have not released our anchors). If that number, or tomorrow’s Dec Production number for example come in far south of expectations, let the market adjust, then strike given the adjustment is enough to make it worth your time.  That is, if the Mar - Mar Euro calender spread comes in by 10 ticks or more to perhaps even; if the curve flattens, say 5 - 10 to 98 or so, then perhaps a strike is in order. Or, perhaps even sample, if at depressed levels, an equity index if such a move is linked to a general view on the US real sector.

This then should represent the general posture of the desk.  Given the E-Z wild card don’t be in much of a hurry to do anything, simply striking at the margin from time to time.


Robert Craven