EUR, USD and GBP eco surprises becoming less positive
As the chart shows since the beginning of September, economic data surprises have become negative/less positive with especially UK data surprising on the downside (most notably the GDP release last week). Furthermore, also EUR data on average has surprised negatively whereas US negative data surprises have been limited.
In turn, these data continue to support the picture of a less-pronounced-than-usual economic rebound into autum and I look for an ongoing tendency of seasonally adjusted economic data to undershoot expectations in the near-term. However, overall the expectations undershoot is not very pronounced so far.
Additionally, especially the UK GDP report also supports my cautious stance with respect to the economic outlook for the UK and the performance of UK-related assets, most notably GBP (for more details see for example UK: New data, same problem). I still do not see any reason to change my medium to longer term negative assesment of UK-related assets.
With respect to market behaviour, the slight downturn in economic data has not been sufficient to significantly alter market dynamics. Equity markets are trading almost exactly where they were when I left two weeks ago. However, commodities broke out of the sideways trading pattern which guided trading during the summer months which led me to close my tactical long duration positions (see Rates Strategy: Back to neutral) just ahead of the two-weeks break. Since then, both commodity indices and government bond yields have moved significantly higher.
Government bond yields continue to trade more with commodities than with equities