Chicago PMI report  blew out estimates printing at 54.2 versus 49 forecast and well above the 46.1 reading recorded the month prior. This was only the second time in more than a year that the Chicago PMI report rose above the key 50 boom/bust line indicating a string pickup in economic activity,

Most of the gains were driven by a massive spike in New orders component which increased  to 61.4 versus 46.3 in September.  Employment component however showed a slight decline to 38.3 versus 38.9 suggesting that labor conditions remain challenging.

The capital markets’ first reaction to the news was to accentuate the negative by focusing on the lackluster employment subcomponent rather than the much better headline numbers. Both equities and risk FX sold off on the news, but as the day wears on risk assets may try to rally once more as today’s evidence of expanding economic activity should support the recovery trade.

One factor that stands in the way for an unambiguous bull run is the lofty valuation of all risk assets. As we noted earlier in the week, “With Dow struggling at 10,000 S&P capped at 1100 and EUR/USD with 1.5000 the recovery rally looks exhausted as most of the good news appears to have been priced in. “ Still the data this week clearly skews towards risk, as signs of reviver continue and if equities can muster a rally   on the close of the week, high beta FX should follow.