Who could have seen this coming?

We have noted the stark divergence between still robust expectations/ surveys/ confidence (soft data) and relatively weak final sales/ production/ spending (hard data) numerous times in the past few months.

But note how the recent collapse in “soft” upside surprises has totally eliminated this gap.

This is relatively straight forward to explain in context. Both the underlying macro data change and consensus indices for soft data were running at post GFC highs at the end of March/early April.

Real bond yields (below) were tracking the hard data Citi economic surprise index and equities the soft numbers (above).

Soft data strength relative to hard has been concentrated in a few main areas… and all are rolling over.

As we have indicated previously, consumer confidence strength does not make us confident that personal spending will reaccelerate


As the soft ESI reverts, it may be less influential for markets from here and the focus will likely shift to the underlying macro data indices more. This seems to leave equity prices more vulnerable than bonds now though earnings remain a key driver…