Recap

Main Items:

  • "We will continue with monetary easing until consumer inflation of 1 percent is in sight." BOJ Governor Shirakawa
  • Late last night, Autodata reported that vehicle sales rose to 15.1mn (saar) in February from 14.1mn in January, according to Autodata, well above consensus (14.0mn). This was the strongest since March 2008

Overseas:

  • EU PPI declined to 3.7% YoY in Jan vs 3.5% exp and 4.3% prev
  • South Korea HSBC Mfg PMI improved to 50.7 in Feb vs 49.2 prev
  • Japan CPI was unchanged at -0.1% YoY vs -0.2% exp
  • Japan Monetary Base growth declined to 11.3% YoY vs 15.0% prev

Upcoming Data:

  • EU HoSG summit, Global PMI’s, RBA, BoC

Commentary:

Yesterday’s ISM miss further supports the view that the period of sharp positive data surprises may be over. The Citi US economic surprise index has fallen below 50 for the first time since last November:

While consensus growth estimates remain reasonable, current pricing leaves the S&P 500 looking fairly rich relative to recent history. As a result, the market is likely to settle into a slower, choppier drift higher – potentially driven by better earnings expectations rather than macroeconomic data surprises. The implied 1y forward S&P 500 earnings estimates is up just 1% over the past 3 months, which leaves some room for re-rating. One other potential source of upside, barring a shock, is a further tightening in credit spreads. The US 30 year BBB credit spread has retraced less than half of the widening from 3Q last year. While the overhang of EU dissolution risk probably means spreads won’t tighten all the way back to 150bps, current levels of 200bps still appears high given the non-recessionary outlook.

Finally, the copper vs SPX analog broke down a bit over the past 6 months, but if the relationship reasserts itself, the equity rally could continue through the spring:

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