The report of the week will be Durable Goods Orders.  Most investors know the housing market is recovering, and it’s home buying season.  So we should get some good reports on that front.

But Durable Goods Orders have been weak the first 3 months of the year; a 4th month would begin raising red flags that manufacturing is set to slow the 2nd half of the year.  We need to see a good report for confirmation of the recovery story.   

“Mitt Romney looks to be the front-runner for the Republican Party in the presidential elections.  It is clear that he has no misgivings on China being a currency manipulator.  If the U.S. economy were to go into a double-dip recession, Obama’s chances of reelection would decrease markedly, while Romney’s would increase.  The probability of this political outcome can be seen in real time here,here and here (notice the inverse correlation between the final two charts).  Should Romney become the Republican front-runner, a double-dip recession could clear the way for his election and dangerously increase the risk of protectionism.” — (RCS Investments Macro Outlook Begn-2012) —- 

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My hunch of Obama’s reelection chances hinging on the U.S. recovery seems accurate.  Make sure to check out his chances in real time. 

Sentiment has hit an air pocket and jives with recent subpar economic reports.  Is the economy catching a breather, or is it something more nefarious?   

I think it’s a little in between.  On the bearish side, the global economy is likely exerting a negative impact on the U.S. economy.  On the bullish side, the consumer may have been somewhat affected by rising gas prices, which are now coming back down.  

While job creation continues to strengthen according to Gallup, it’s prudent to keep an eye on initial jobless claims, which have increased in recent weeks.  April job creation is likely to mirror March, a slowdown from the widespread job creation that characterized the end of 2011 and beginning of 2012.  

He shares my worries.

“Employers probably added more than 200,000 workers for a third straight month in February amid optimism about the U.S. expansion, economists said before a report this week.

Payrolls increased by 210,000 last month after rising 243,000 in January, the most in nine months, and 203,000 at the end of 2011, according to the median projection of 55 economists surveyed by Bloomberg News. It would mark the strongest three- month stretch in almost a year. The jobless rate probably held at an almost three-year low of 8.3 percent.” — Bloomberg

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(RCS): A weak positive feedback loop in the U.S. economy continues.  This is a bullish tailwind for risk markets.  Furthermore, the global economy seems to have stabilized. 

In my latest macro update in late January, I was looking to increase my short positions if we broke through support levels : 1,300-1,306.  Well, the S&P 500 bounced off precisely 1,300 a few days later and never looked back. 

The $64,000 question is whether continued austerity in Europe will precipitate a solid leg lower in the global economy, translating to renewed weakness in the U.S.  

It’s interesting to note that the ECRI continues to stand by its recession call.  Economic data last week was a little mixed.  Gas prices continue to rise.  In Europe, it seems that everyone has forgotten of the upcoming French election and what the consequences of a substantial rift between Germany and France, the largest economies in Europe, would entail.  I’ve been slightly net short since the beginning of the year and my investments in risk markets (see to the right of my RCS Investments website) are in commodities, but mostly in oil.  

However, I remain cautious with the macro outlook.  I believe the risks far outnumber the returns of remaining heavily invested in risk markets.     

Remember, it’s not a race, it’s a marathon.  

Mish was the first to hit on this and now Barry seems to be intrigued by a significant divergence in fuel usage and visions of economic reacceleration dancing in analysts’ heads.  Note that both this phenomenon and a, thus far, non-confirmation of the Dow Theory is a growing thorn for further advances for risk-assets.  

Certainly something to keep an eye on.  

Here’s a basket of economic data released today.  Overall it’s bullish.  The economy remains in recovery mode and seems to have strengthened during December and January.  Remember that these are coincident indicators.  

Along with the Conference Board forecasting continued growth in the months ahead, the U.S. economy will continue to strengthen as long as Europe can stay in control of its issues.