Originally published by AxiTrader
The reversal in the global data flow which was such an important part in fueling the rally in risk assets attributed to the election of Donald Trump and expectations he'll fundamentally shift the outlook for the US economy with his tax and infrastructure plans continued to reverse last week.
That is both the Citibank G10 and US economic surprise indexes fell last week.
In particular the US surprise index collapsed from above 38 the previous week to just 2.8 on Friday as US data undershot expectations.
Now it's worth noting that the European and Chinese economic surprise indexes actually rose last week. But the relationship between the dataflow, US stocks, US rates, the US dollar, and risk assets more broadly suggests that a weakening data flow threatens not only the US stock market's rally but risks assets more broadly.
So far though will bond rates and the US dollar have reacted to the deterioration in the data stocks have not.
In no small measure that is because traders actually do believe that president Trump can still fundamentally shift the outlook for the US economy with his tax and infrastructure programs. And even though stocks in the US were a little lower on Friday president Trump is trying to feed that expectation.
So the fact that US stocks are hanging in suggests that if the president does follow up with a tax plan this week we could see a rekindling of the stocks and other risk asset rally. That's particularly the case if there has been no surprise in the French presidential election with the run-off election between Macron and Le Pen confirmed by the weekend vote.
That's likely to ignite a risk on rally in stocks and other risk assets as we open the week.
But as I have been noting lately, it's worth keeping an eye on the data flow because it no longer supports the rally in US stocks.
Have a great day's trading.