Yeah so the Citi Economic Surprise Index has become the 800-pound gorilla in the room and it’s not hard to see why – especially when you look at it next to what rates seem to be saying about the economic outlook:
One thing to remember when you talk about the CESI is that Citi itself thinks you’re “kinda sketchy” for focusing on it. Recall this hilarious excerpt from a note out earlier this year:
We find the recent obsession around the US CESI to be fascinating [considering] there have been large dislocations between bond yields and alleged cyclical trends looking back 10 years, yet it is perceived as being important when there is a narrative that needs proof – even if that evidence is kind of sketchy when held under a bit of deeper scrutiny. But, investors almost seem to want to be misled.
That’s right. You’re “sketchy” and furthermore, you seem to have a masochistic tendency to seek out and buy into bullshit.
But since Citi penned those words the index has continued to plunge and now, the Fed has hiked into a deflationary impulse that looks to be gathering steam, creating this rather amusing juxtaposition:
Well, whatever you choose to believe about the validity of using the CESI to evaluate the prospects for markets, just know that if you pan out and annotate, we seem to be facing a make-or-break moment:
For Deutsche Bank, this is “where [the index] has outside of recessions tended to turn up.”
“Outside of recessions” being the key part there…