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Market Insights from Murray Gunn

by Murray Gunn
Updated: December 29, 2017

The following article has been excerpted from Murray Gunn's Dec. 28, 2017 "Interest Rates Insight" page, a section of Interest Rates Pro Services. Watch for more of Murray Gunn's commentary in Global Market Perspective, Interest Rates and Currency Pro Services, and on

Back in September, this column highlighted that U.S economic data was about to start beating expectations to the upside. We came to that conclusion by looking at a simple technical analysis gauge, the Relative Strength Index (RSI) on the Bloomberg ECO U.S Surprise Index -- a measurement of the extent to which economic data is beating, or falling short of, expectations. We noticed that, even though the ECO index itself was not near a low point, the RSI was, and that has historically meant a rally in the index.

Since then, the ECO index has moved sharply higher, the U.S stock market is up around 7%, the 10-year bond yield is higher by 20 basis points and the U.S dollar index is relatively unchanged. Most people would think that the economic data caused the stock market to rally. However, our take is that the positive mood since September, reflected in higher stock prices, is what more likely caused economic data to positively exceed expectations. Now, however, the situation is the other way around.

The ECO index is constructed in such a way that it fluctuates like an oscillator. The chart shows that the index has just recorded a record high, of 0.9914, beating the previous high of 0.9478 in March 2011. In January 2009, it reached a low of -0.9735.

Let's take a moment to reflect on that. Economic data is currently positively exceeding expectations, more than it was negatively disappointing expectations at a time when many people thought the entire U.S financial and economic system was about to implode!

Can it get any better than this? That would seem very unlikely. As we enter 2018, expect U.S. economic data to start to fall short of expectations.

Bloomberg ECO US Surprise Index

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