Financial Markets
Disappointing ISM surveys could signal a growth consolidation.
That, in turn, would spur a correction in risk assets.
Equities are celebrating domestic economic disappointment rather than re-pricing the risk of ongoing profit struggles. This reinforces that liquidity and share price momentum are still the dominant market forces.
Wedged between an improving labor market but icy global conditions, the Fed may be on the verge of conducting a policy mistake. This would be dollar and yen bullish. Commodity and EM currencies should bear the brunt of any pain. The pound's upside is limited, but so is the downside. NZD should soon buckle. Draghi did nothing, yet the euro rebounded little.
While a September rate increase is still possible, the recent batch of disappointing U.S. economic data, combined with lackluster inflation readings and election uncertainty, suggest that a December hike is much more probable. Similar to last year, risk assets are likely to react negatively to the prospect of further monetary tightening. Stay tactically short global equities and position for a stronger dollar.
Forget about the production-cooperation pact agreed between Russia and KSA over the weekend at the G20 meeting in China. With or without it, rebalancing of the oil market will force global inventories to draw beginning in 2016Q4 and continue into next year, setting the stage for a gradual rise in prices - slightly above our central tendency for WTI of $50/bbl - to encourage more rigs to return to the U.S. shales.
A common perception is that the euro has been a failure for Italy. We challenge this perception and explain why it is so important for investors, whether it is wrong or right.
Conditions are falling into place for inflation to plunge and monetary easing to progress rapidly. This in combination with structural reforms creates a bullish backdrop for Argentine financial markets. The current economic, structural and political configurations look more promising for Argentina than Brazil. Go long Argentina/ short Brazilian sovereign credit, overweight the Argentine bourse versus the Frontier Markets benchmark and, go long the Argentine Peso versus the Brazilian <i>real</i>.
With recent comments strongly hinting that the Fed is on track for a rate hike in December, the dy-namics of the Fed Policy Loop make spread product appear extremely vulnerable.
Transport stocks have discounted a recession, trading below trough bear market relative valuations. That is too cheap given signs of stabilization in global export growth.
The August payrolls report did not change our view that a Fed rate hike is likely in December, but not before that.