Fed's Easing Efforts Having Less And Less Impact As Macro Seasonals Turn Negative

As we noted this morning, the hope trade seems to be morphing from 'we don't need no stinking QE' to 'good is good but bad is better' as 14 of the last 16 data points have missed expectations. With a relatively heavy calendar of data this week, we are sure there will be ups and downs and micro-trends to call for the all-in but as Jim Reid if Deutsche Bank notes, this is the start of the point in the year when seasonals have often led to data disappointments over the past decade. The data typically beats expectations between November and January but then disappoints for 8 of the next 9 months with the notable exception of May. Overall its certainly a relationship to have in mind, especially as we travel through a period, theoretically, post maximum liquidity for now. Adding to this concern is the fact that real economic activity has 'improved' less and less with each extreme easing action by the Fed - with 'Operation Twist' barely budging the needle on ECRI's growth index relative to QE1 or 2 - and with economic data missing expectations rather consistently already, history suggests negative returns for the S&P will be evident.

Monthly average US data surprises versus S&P 500 monthly average returns. These micro-cycles in the US data are very consistent over the past 10 years and whether it is a behavorial anchoring bias or a reflection of weather (or non-weather) impacts on the toughest season of the year is unclear.


As for the impact on equities the correlation isn't perfect but there is evidence that the data 'surprises' have influence.

And while the Citi Econ Surprise index basically tracks the mean-reverting nature of analyst/economist behavioral biases to extrapolate the current trends (i.e. performance vs expectations), the ECRI tracks actual data and cealry shows the lower and lower positive impacts of QE1, QE2, and then Twist...

Furthermore, it is clear that in recent weeks, US data has been disappointing rather consistently, which clearly has led to negative returns in the S&P 500 in the past...



The Deutsche Bank Macro Pulse Index (MPI) is calculated by DB’s FX research team as the average of the last 30 z-scores of data surprises relating to each currency. A reading above (below) zero indicates that the data flow has been better (worse) than expected.


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