Driving requires a good road and a good operator. Trading requires a good market and balanced risk-takers. There is an interesting divergence in moods for business and consumers around the world. The compare and contrast clearly helps to explain why the USD, US rates and US stock market has a different momentum and trajectory for now, but for how long. The better moods in the US reflect the better economy and better profits, however, we all know that markets trade on future expectations not present ones. The balancing act is when the rest of the world matters. Overnight there was little economic data in Asia other than Australia business confidence – with the mood there at 2-year lows – lower because of trade and politics at home. The data in Europe was less with French employment lower in 2Q, UK jobs also showed a bit of wobble with claimant count higher and wages higher – labor costs going up mean BOE will be on watch later this week. But the balancing act against this was the German ZEW where moods are improving as well.  So here is the see-saw going into the US open:

  • Less Fear – NAFTA talks resume, EU talks with US on trade progress, US Republicans push for more tax cuts, North Korea Kim and US Trump set up plans for another meeting, EU Barnier says its realistic for a Brexit deal in 6-8 weeks. 
  • More Fear – The NYT reports China faces sanctions from US over Uighur re-educations camps, WSJ highlights focus on Indonesia as next domino risk in EM.  Hurricane Florence is going to disrupt US East Coast – worst storm to hit mid-Atlantic since 1989. China takes US to WTO

    • The biggest question is about how the data in the week may change reaction functions of the Fed, ECB, and BOE and whether the risk of growth is best understood by the mood or the actual forward-looking data. The chart to consider is using the Chicago National US activity index and its telling us that there is a 1 in 4 chance for a recession.

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