Markets are driven by macro data, specifically, the macro data surprises. If the data surprises to the upside there will be a corresponding positive reaction by markets. Similarly, if there is surprise negative news, the markets will decline. These surprise events have been embedded in surprise indices developed by banks and Bloomberg.
Unfortunately, the creation of these indices often mixes different types of data, so it is hard to link the surprise index with market behavior. The above chart suggest that the survey and business cycle indicators are showing a marked negative bias. I would place more stock in survey data given its timeliness and close link with consumer and business behavior. Generally, after a strong showing post the election, the surprise index has turned negative and suggest that any euphoria embedded in the new media should be taken cautiously.
As a coincident indicator especially for bonds, the surprise index should be watched especially when there is a switch from positive to negative and at extremes. This current data suggests that the move toward higher long-term bonds may be coming to a peak.
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