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Analysts at Nordea Markets point out that the US outperformance of peers has been one of the key themes since the early spring, as US assets and the USD have outpaced all competition in the midst of political woes in the Euro area and US trade tensions with China and Turkey.

Key Quotes

“Judged from various investor surveys (and recent performance), the market is “long/over-weighted” US assets, and while this strategy has arguably paid off well over the summer, we are less sure that it will continue to do so for the rest of the year.”

Yesterday Philly Fed plummeted from 25.7 to 11.9  and adjudicated from leading/lagging parts of Philly Fed, we have more of the same in store down the road.”

“If the market is already positioned towards a very rosy outlook for the US for the rest of the year (as we judge it is), then the positioning should be more vulnerable to negative US surprises than vice versa.”

Former Fed hikes (higher real rates), a strong USD and likely spill-overs from the recent EM turmoil are all reasons to believe that the momentum in the US economy will start to fade during the rest of the year.”

“While we have also advocated that European growth momentum is losing steam, there are early and tentative signs that the US momentum will abate faster than the European ditto (here we talk about PMIs dropping from high levels).”

“Even though financial conditions have not tightened particularly much in the US, despite Fed’s QT and rate hikes, the slight tightening that we have seen since February should be enough to dampen the US momentum more than the European financial conditions suggest that the European will.”