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The Weekly Track relief-2

- The Weekly Track – Relief by Bob Savage
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If the US/China trade war was the cause of the October selling, then the start of November has more to go as this narrative turns to deal making. The relief rally back in risk assets is the first chapter of the last week but not the full story for the month ahead. We have moved into a post-modern Goldilocks fairy-tale for policy and economics. We no longer believe in buying the bottom but in selling the top. The week ahead brings the US mid-term elections – expected to deliver gridlock; the RBA, RBNZ and FOMC rate decisions – all expected on hold – and a host of important data starting with Services PMIs and ending with Chinese inflation and trade reports – all expected to show slowing global growth and less price pressures. Interest rates are the bogeyman for the straight shot higher in equities. Markets want to believe in the relief trade but need constant reassurances that inflation remains tame, that policy shifts gradual and growth continues at target, all o
f which requires a bounce for Europe, Japan and China into 4Q. US growth and its divergence is a complicated issue as well given that FOMC hikes need to be met with higher real growth and improving productivity to keep margins robust. Markets closed Friday with insufficient momentum to hold the equity bounce and we had little positive news to support markets further over the weekend, leaving us vulnerable to more harsh language about politics and policy driving prices into Monday. The early snapshots for 4Q growth are not bullish enough to hold the present relief trade either, but perhaps this changes with the heavy news agenda ahead. Relief by its definition is temporary.