The Week Ahead

A good deal of the US vigor we had identified earlier has now been priced in.  In anticipation of that event, and, as a way to trade the Fed forecasting error, we had recommended that clients look to own (L – S) the Euro strip and term structure (5-10, and 2-30).  Both worked well and we are finished with those.

In the most general sense clients are to look to own US strength, even now and to look to sell the E-Z, either outright or against the US; the E-Z is headed for the dumpster. We are modestly constructive on the UK.

The market view late last week for the US parallels that of early Q4 and early Q1. On both occasions, consensus was that the party was over (although each time for different reasons), that there is a reduced or no chance for further US economic progress. On both occasions we predicted just the reverse. Now these same observers, rolled twice, seem to be asking to get rolled again. Short of a spike in crude, reality will oblige them.

Thus, fade a weak confidence read on Tues and/or Friday.

Fade a weak Durables print on Wed. The revision to Q4 GDP on Thursday is ancient history and irrelevant.  The Claims print for unemployment insurance on Thursday may provide some entertainment. If the figure is bloated, it is a fluke and trade the number with that in mind.

The Chicago ISM (old NAPM) on Friday is important as the leading characteristics of this region are good for the US as a whole, especially the New Orders and Employment components. Both are very useful in sounding for the seascape just ahead, a tool we use regularly. Thus, any real weakness would be worrisome.  We would not recommend that any trade be set on such weakness as it might just be meaningful, and would require an honest reappraisal, our side. 

Also Friday we have Feb Personal Income and Outlays. Both personal and disposable income have risen modestly lately.  That will improve as we move ahead.

Finally, this week we will see key reads for the UK and Germany.  If there are major surprises for the UK, these will be to the side of relative vigor. The risk is that German releases will disappoint.

Robert Craven