Three points

*  It's starting to look like the recovery in, well, everything might be somewhat more than a dead cat bounce.  Yes, the SPX has already carved out a nice W, but it lags the Bovespa, which is somehow up on the year, even in dollar terms.

The inverted head and shoulders pattern in copper has been well-flagged, but price action continues to look bullish with the neckline breaking.   Even during the "meltdown" copper held up relatively well; technically it looks good for another 10% upside.

Even global banks have caught a tailwind (though you might say that that as a necessity for all of this to be anything but a dead-cat bounce.)  Macro Man wouldn't be surprised to see the market turn a little more cautious early next week ahead of the ECB- once bitten, twice shy, etc.

Gun to the head, Macro Man would expect the general rally in sentiment to continue in one form another until, let's be cliche'd here, May or so.   At that juncture the prospect of the Brexit vote will be close enough to matter, and at some point markets will have to focus on the rather unappetizing menu of candidates on offer for the world's most important political office.  Late spring/early summer seems as good a time as any for another serious look down below.

* The recovery in risky assets leaves the Fed in a bit of a sticky spot.   As noted previously, a properly data-dependent institution would almost certainly be hiking this month given recent newsflow on employment, wages, and inflation.  That the market is pricing less than a 10% chance is a testament to half a decade's worth cherry-picked pessimism coming from the Eccles building.  If the scenario sketched out above were to play out, taking a pass in March might leave them looking like muppets by April- much like panicking last September seemed to leave them feeling sheepish swiftly thereafter.

Macro Man therefore likes being short the March Fed funds contract, which is pricing something like a 5% chance of a rate hike this month, assuming that Fed effective trades 37-38.  The trade cannot be a home run- not only is the upside limited to 10 ticks thanks to the way that the contract settles into the monthly average funds rate, but Macro Man is getting paid into shorts in tiny increments too small to be a rounding error to a large institutional portfolio.  Still, the OIS market should provide broadly similar odds without the liquidity constraints; where else can you make a bet on payrolls with such positive asymmetry?

*  Finally, following on from yesterday's post it's worth briefly mentioning inflation expectations, which at this juncture represent the primary barrier to the Fed tightening again.  Macro Man looked at applying a similar approach to that described yesterday to try to tease some insight out of the Michigan inflation expectations number.   Unfortunately, it proved to be a largely fruitless endeavour.  Generally speaking medium-term expectations are too well-anchored to display strong, consistent reactions to high-volatility variables; moreover, it's pretty obvious that consumers generally react to backward-looking rather than forward-looking data.

Still, Macro Man did find one relationship that piqued his interest.   Having acknowledged the issues described in the previous paragraph, he went ahead and used 5-year oil prices to back out an implied 5 year inflation expectation for non-energy inflation.   He then compared it with the trailing 5 year average of actual non-energy inflation.

Imagine his surprise when he saw what appears to be a solidly negative correlation between trailing inflation and expectations!   This certainly flies in the face of empirical examples observed elsewhere, including 1 year expectations from Michigan.   He suspects that it's little more than a statistical quirk resulting from lags in the data and an insufficiently large sample size, though if any readers have other theories he'd love to hear them!