1. Themes For the Week
- Last Friday’s poor NFP report keeps markets tense. Between disappointing domestic data prints and ongoing weakness in emerging markets, equities may remain under pressure this week and risk appetite will be one of the main drivers. FOMC minutes this week (Thursday) and fedspeak will be important in this context. We also have Non-Manufacturing ISM.
Short term, the risk recovery is easier played via US equities, although longer term, we remain in a downtrend until September’s highs are taken out. European equities remain the easier route for playing risk aversion. In any case, a nice break of September lows would look bad on the charts.
So long as the USD remains weak in the NFP aftermath, I’d prefer to play long NzdUsd. If risk appetite also starts to turn sour, UsdJpy shorts also become appetizing.
- Global growth anxieties might stimulate more accomodative measures in Japan and Australia. The market is not pricing in any imminent move, but the accompanying statements will be worth paying attention to. The constant weakness in commodity markets (especially energy) will definitely keep the lid on comm-doll strength.
- Similar reasoning would apply to the BoE which is again expected to remain on hold, despite mounting evidence of domestic inflation. PMIs will obviously get thrown into the forward expectations cauldron. Gbp shorts are still in play, even though we have started to see something of a pullback. Data dependant week for the Sterling?
- Euro Area is falling back into a deflationary environment. Fundamentally speaking, the Euro should be weaker each week, as the expectation of further QE takes root amongst market participants. However, the new nature of “funding currency” and hedging dynamics seem to be messing with the Euro’s direction. Stay away while choppy, but opt for shors if/when the September lows give way.
- China & Hong Kong away until October 7th – so watch for the Chinese data when they open back up for business as it will influence risk appetite.
2. Charts in line with these themes