EUR 21.16 For Business Accounts Only

The Weekly Track change

- The Weekly Track - Change by Bob Savage
/articles/the-weekly-track-change/

As surely as the calendar shifts from August to September, so will market themes and moods. Positioning over the last week continued to see emerging market pain and the culmination of the crisis in Argentina with the ARS off 25% and rates rising to 60% despite IMF aid plans. This typified the summer. Emerging markets suffer from idiosyncratic stories – from South African capital flight linked to government policies – land reform and new corporate structures, to Turkey and its ongoing battle with the US over a jailed Pastor and refusal to hike rates to battle TRY weakness, to Brazil as the upcoming election sees little chance for a business-friendly leader, and to India where floods and Modi health care plans hurt. But behind these stories is the FOMC promising to hike in September, US rates being higher than most global competitors driving global capital to the US at the expense of emerging markets. Also, driving the move in emerging markets, is the trade policy shi
fts and the knock-on effect to many order books. When China and the US fight, emerging markets suffer. The US-Mexico bilateral deal on trade drove a near story line where Trump tactics on trade lead to a US win on a myriad of deals with Canada and Europe expected ahead of the mid-term elections and China after it. Where US companies find themselves in a winning position along with better GDP outlooks and fatter profits. This hope was tempered on Friday with the failure of US/Canada to get to a deal by deadline, with Trump pushing for $200bn in China tariffs in the weeks ahead, with Trump threatening to pull out of the WTO and renewing auto tariff threats on the EU. Buying the dip in EM last week didn’t seem to work so well as just buying US technology shares. While growth is beating value in the US it’s not working so while globally. This is the contrast that matters into the new month and begs the question of whether the seasonal change will lead to new themes as we
ll. The contagion fears offset many of the best hopes for the US also crashes with the looming political focus as the President faces more investigation after August saw his lawyer Cohen plead guilty to campaign finance violations and implicate Trump in the process and as his former campaign manager was found guilty of tax evasion and bank fraud. Trump responded to this on Fox News, saying "If I ever get impeached, I think the market would crash. I think everybody would be very poor.” The balancing act of US markets ahead revolves around the principle of uncertainty being dangerous. The biggest signal for trouble in the month ahead maybe in this chart with EUR/CHF flashing red and the S&P500 flashing green.