Derek Halpenny, European Head of GMR at MUFG, suggests that the US data continues to provide mixed signals on the outlook for the economy that would appear at least for now to back up the need for caution, expressed by Chair Yellen. Key Quotes “There has been a lot of attention given to the corporate profit data that was released with the last GDP data for the final quarter of 2015. The data confirmed a US “earnings recession” with two consecutive quarters of decline in the annual rate of growth in corporate profits. In Q4, the drop was 11.5% - the largest since the worst point of the financial crisis in Q4 2008, when profits fell 30.8%. Our own internal valuation model for the S&P 500 does suggest scope for a correction lower to the tune of 10-15% - not an outlandish divergence and similar to the correction we’ve already had between December last year and February. Market participants certainly seem well prepared for that potential correction though – Bloomberg is reporting today of a USD 1trn short position in the S&P 500 and that mutual fund managers are the most pessimistic since at least 2010. A short position of that size surpasses the shorts at the worst point in investor pessimism following the collapse of Lehman Brothers (Sept 2008) in March 2009. These concerns leave rate expectations well anchored and certainly positive ISM reports (Friday and yesterday) or a decent jobs report are probably not enough to see investors shift their thinking on the Fed. That leaves US dollar at weaker levels – certainly on a DXY basis – with the index still 3.6% down on early March levels and only marginally above the low hit a few days ago.” For more information, read our latest forex news.