Happy Wednesday, and welcome back to our weekly edition of 5 Things We Watch, where we take you through the 5 things that we are keeping an eye on in the global macro landscape currently.

We are in the middle of our services week, where we address what will happen in asset markets if services keep weakening, and if manufacturing rebounds simultaneously. Follow along to get a sneak peak of what we are doing in the services week, as well as the other things that are going on in global macro currently

This week we are watching out for the following 5 topics within global macro: 

1. ISM Spread
2. Energy
3. German Manufacturing
4. US Labor Market
5. Global Rates

1) Our Fed sentiment tracker vs ISM 

We have built a sentiment tracker that uses FOMC minutes and speeches of Fed members as data and assigns positive and negative scores to adjectives in order to gauge what the Fed’s sentiment on the economy is. We urge you to check out the Central Bank Sentiment Tracker. If we compare the Fed sentiment tracker with the ISM Manufacturing/Services ratio we note an interesting divergence in the two sentiments.      

Either the Fed is too positive or purchasing managers are too negative – And before you note that businesses always know better than the suits at the Fed, let’s just recall the yuge divergence between soft and hard data from last fall. Given our general inclination towards manufacturing outpacing services we lean towards the camp that the Fed may be right about the current economy. 

Plenty of arguments against the Fed being too optimistic outside the realm of ISM numbers though. USD wrecking ball, signs of labor market weakness and then of course oil prices. 

Chart 1: Fed and ISM sentiment pointing in opposite directions