Trumphoria Is All 'Soft' Data - RBC Warns "Now The Rubber Needs To Meet The Road"

RBC's head of US cross-asset strategy Charlie McElligott asks "Is US economic data beginning to ‘mean-revert’ lower?"

It’s an inherent property of economic surprise indices, as they reflect relative to expectations, which are in a constant state of “true up” to actuals. 

Yesterday’s and today’s US data from the headline level has sent various “economic surprise indices” for US lower, with Bloomberg’s index nearing YTD lows. In fact, Citi's index suffered its worst week since October...

 

The US data has been running at such a clip as a matter of fact it’s an increasingly (and massively rhetorical) popular question asked by clients: when do analyst / strategist expectations begin to overshoot?

Tied-into this, the Bloomberg “econ surprise” series gives an interesting breakout of the drivers of the directional data surprises, and it crystalizes one ‘area’ that Mark Orlsey and I have been paying a lot of attention to with regards to where the largest ‘beats’ are coming from.

The economic surveys and “animal spirits” indicators have been ‘en fuego’ (see Friday’s U Mich Confidence printing highs since 2003!), and the chart below captures just how much of the “surprise index” upside that surveys have been dictating - it’s visually stunning, and reiterates that “rubber needs to meet road” in coming-months.

“ANIMAL SPIRITS” ARE DRIVING MUCH OF THE U.S. DATA SURPRISES: Per the Bloomberg Economic Surprise Monitor.

 

Indeed, as the following chart shows, it has been a one-way street of hope in the surveys - a very different picture to the economic view painted by 'real' data...

 

In fact, the spike in 'soft' survey data is second only in history to the exuberance experienced in early 2011...

 

That did not end well for stocks...

 

And so, as RBC's McElligott explains, "the rubber needs to hit the road" shortly as 'soft' macro data mean-reverts and needs to be covered by a resurgence in real 'hard' data.