UBS: “The Current Market Configuration Is The Opposite Of February 2016”

zerohedge.com / by Tyler Durden / Apr 15, 2017 6:32 PM

Last February, as Chinese stocks and the Yuan were crashing every day, sending the S&P tumbling and government bond yields crashing to record lows, in the process aborting the Fed’s first attempt to hike rates, volatility was soaring and confidence in the economy was in the dumps: in short, the bottom appeared like it was about to fall off. And then, as if by magic, theShanghai Accord happened, a few central bankers and finance ministers sat down behind closed doors and ironed out an agreement whose details are still unknown, and unleashed one of the biggest market surges in history, in the process once again fooling the Fed and central banks that (benign) inflation has again arrived, lead to not one but two rate hikes by the Fed this time. Indeed, unlike last February when pessimism rules, this time it is optimism about the economy and future that is seemingly boundless, even if the actual economy refuses to confirm this euphoric outlook.

And, if UBS is right, there is no reason to be optimistic. At all.

In a note titled “Separating reflation myth and reality”, the Swiss bank looks at the record gap in what has now become watercooler talk, namely that between hard and soft data surprises, and says that the gulf between the two series is now unprecedented:

The cause of the gap between soft and hard data is often put down to a lag. However, not only is the response from hard data more delayed than usual, the magnitude of the gulf between them is unprecedented. We believe understanding the reasons behind this gap is central to the identifying the nature of today’s reflation, and charting its future.

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