A NOSEDIVE IN THE CESI
Citigroup’s Economic Surprise Index has been very highly correlated with equity vs bond returns over the last 5 years and recent trends point to a continued negative outlook for equities and bullishness for bonds. Now, I would never put too much emphasis on any single indicator, but this one does bring many different aspects of the market together. I particularly like these sorts of indices that compare expectations to reality. It provides a real-time idea of whether investors are potentially flat footed and expecting too much out of the market….
Scotty Barber at Reuters provides a nice chart:
“Citigroup’s G10 economic surprise index has taken a nosedive in the last couple of weeks”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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4 Comments
I like comparing those 2. Often though equities take some time before catching up with Citigroup’s index, just like now.
The chart of the Shitigroup Surprise Index vs 10yr Treasury yields is also quite interesting. There was a very tight fit until the fall of 2011, at which time the two began to diverge sharply. The Surprise Index took off but yields did not. Most people at the time were saying that the bond market was wrong, but it looks like it may be proven right afterall.
Of course, one could also argue that the Treasury bond market is now being controlled by the Fed, so this chart is not that meaningful anymore.
Really handy chart. Definitely something to keep an eye on in the future.
I’m afraid ‘bond vigilantes’ are light years ahead of equity holders when it comes to sensing market conditions. Nothing new under the sun.
The surprise indicator seems to confirm ECRI’s call for a recession. As to the bond market, operation twist is in force until next month. I think it’s difficult to extrapolate from that as long as the FED is dominating the market.