The Citi US Economic Surprise Index is climbing back into positive territory

The Citi US Economic Surprise Index is a widely followed indicator that measures how recent economic data compares to consensus expectations.

How It Works

• The index rises when economic data releases (such as GDP, employment reports, inflation, or retail sales) exceed expectations.

• It falls when data disappoints relative to forecasts.

• A positive reading means that, on average, economic data has been coming in better than expected, while a negative reading indicates worse-than-expected data.

Why It Matters

The markets move the most on surprises as they trigger a readjustment in future expectations and as all good traders know, the change in expectations is what drives prices.

Where Are We Now?

The index has been on a steady decline since mid-January as Trump launched his tariffs war and weighed on economic sentiment bringing high uncertainty. More recently, the index started to climb and it’s now almost back into positive territory as we can see from the chart below (h/t @lisaabramowicz1 on X).

The better than expected data also helped to alleviate the growth fears and led to a rebound in the US stock market and a contraction in the credit spreads. Growth expectations is the main determinant of credit spreads which also influences stock market returns as eventually it all comes down to future earnings growth.

Credit spreads refer to the difference in yields between corporate bonds and risk-free U.S. Treasuries of the same maturity. They reflect the additional risk investors demand for holding corporate debt.

What Happens When Credit Spreads Widen?

• A widening spread means corporate bond yields are rising relative to Treasuries, signaling that investors see greater default risk.

• This often happens when economic uncertainty grows, making it more expensive for companies to borrow.

• It can indicate a slowdown, weaker corporate profits, and potential recession risks.

What About Contraction?

• If credit spreads narrow, it suggests improving economic confidence, as investors demand less premium for riskier debt.

Below you can see the correlation between the S&P 500 (blue) and the US credit spreads (red)

This article was written by Giuseppe Dellamotta at www.forexlive.com.