The trading of all asset classes in October was difficult. The plunge in global equities, the pain in bonds, the retreat of commodities and the ongoing rally of the USD against emerging markets and the EUR – all that forced a rethinking about what is a safe-haven. The blame for uncertainty and risk-off moods came from the FOMC rate path projections, the Trump trade wars with China and ongoing with EU, the Italian budget battle with the EU, the UK talks on Brexit with the EU, the slowdown in 3Q growth in EU and Japan and China, the credit concerns in China and EM, the ECB ending QE, the BOJ thinking about policy shifts, the geopolitical problems from Iran sanctions, Saudi and the murder of journalist Khashoggi and the political shifts to the right from Germany to Brazil.
This list didn’t scare the October Track Idea dinner participants as much as depress it. The food and wine offered little comfort and the energy level of the room was the weakest seen for all of 2018, even February. The group included portfolio managers, investors, research analysts and quants, gathered for a lively discussion of the markets with the first question being what is most important going forward, the second being what drives risk moods, and the third being a broad discussion of politics.
What’s most important to markets going forward?
This was more a listing exercise than a debate as most in the room agreed on the factors but not the order or impact of them. The list of issues was long and we spent much of the time trying to find something to add rather than to debunk the list. The contrast to the September dinner was stark and the mood was less one of fear and more one of disappointment. Here is the list:
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