Beginning a new quarter seems to bring us cheer. We were a majority of about one when we isolated US vigor ahead, early Q4, the analytical horde then seeing only zeros, and some, a double dip. Then early Q1, when disbelievers said, “Ok, but no more,” we could tell our clients that, yes, there would be a good deal more and in which sectors. This has been a very satisfactory experience. But then, it is also history.
What now? We can repeat from an earlier post - In the most general sense clients are to look set trades to capture “surprising” US strength. That is, even now it is not all priced in.
Earlier, we recommended translating our view either through an equity index, or, FI spreads set to capture an expanding term structure, or, spreading the US note (S) to Germany. The equity side delivered better as world-wide flight to sanctuary bloated bond prices (and to a large extent, still does).
Our task is a simple one. To provide a map of the economic landscape just ahead; we’re certainly not perfect but if we can maintain roughly a 70% hit rate, it will do. Clients can take it from there.
Now we begin a new quarter. Observers sense a pause. Thus, this same bunch, rolled twice, seem to be asking to get rolled again. Short of a sustained spike in crude, reality will oblige them.
The US release stream this week is fairly deep, with Mar ISM Manufacturing and Non-Manufacturing surveys, Mar Vehicle Sales, Mar Chain Sales and of course, Mar NFP, Friday. Other releases, such as Factory Orders, Construction Spending and Consumer Credit, although perhaps important to analysts, carry little market-moving horsepower at the moment.
And when the week is over? We will see that business activity continues to accelerate, that the expansion continues in most sectors. Not a barn burner; in fact, there may be a little slowing in the pace of expansion, manufacturing.
As it was for February, so too job creation for Mar will be strong. But this time we will also see hours and earnings improve; indeed, so far “surprising” job creation has not been freighted with more income nor a much longer workweek. On a year to year basis, earnings have grown only modestly. As private sector hiring increases even more, which it will, earnings will follow along. One needs only to attend a campus career fair to see all the smiling faces, with 20 to 30% more companies in attendance.
We will visit offshore credits tomorrow, but for now, it is heartening to see that others are coming rapidly to agree with earlier client updates – the E-Z is going nowhere, and quickly. Credit creation will remain impaired until E-Z banks shore up tier I capital. Indeed, the ECB recently noted that the flow of credit to businesses slowed in February. ECB generosity was needed as a life preserver; it will have little impact now that the imperiled have made it to shore.
Robert Craven
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