1. Themes for the week
- Increasing Focus on Emerging Markets (and various investment banks have been releasing reports on EM lately, and are likely guiding attention there). FED rate hike expectations and China slowdown/FX intervention are once again responsible for jitters in EM space. This time round we also have declining commodity prices which are increasing the weight on EM FX and the weaker economies (liek Brazil and Russia). What can change market sentiment? Surprizes in Chinese data maybe...rallies in Comodities...and the "technical oversold market" excuse.
- Another potential round of easing by the PBOC - keep your eyes peeled...this will feed into the risk off scenario if it surfaces.
- Fed Liftoff? Jackson Hole will be quite influential this week. That said, with all the risks to global growth, and the lack of inflationary pressures, there really is NO reason for the Fed to hike in September. The markets have likely NOT priced in the delay in rate hikes yet.
- Deflationary Impact of Commodity decline (has been hurting Cad & Aud) but bond markets are also worth watching. The decline in commodity prices can have two implications for inflation. First, we could see a temporary dip back into deflation in the EU in coming months while US inflation stays around the current level of 0.2% for longer. Second, the projected rise in core inflation will be more subdued. This implies that it will take longer for the Fed to reach the 2% inflation target and thus underpins that the tightening cycle will be very gradual.
- Better EU data + hedging mecchanics (European boards down = Euro up) suggest potential continuation to the upside for the Euro. This could be exacerbated if the Fed hints at postponing the rate hike to December.
2. Charts Reflecting the Themes
Tough to ignore the bearish momentum and
risk-off tone in equities. So long as we maintain this tone,
selling rallies is the best plan.
Crude is sinking still...and taking the other commodities for a ride.
This undermines inflation, and keeps the Cad and Aud in check.
Euro looking strong even if we still need to overcome the recent range.
Risk off = unravelling of equity investor hedges, which allows the Euro
to gain traction. We've also had some better fundamental data which
may continue this week. EurCad, EurUsd look like good pairs to watch,
alongside UsdJpy (short). Gbp will become interesting once we break this recent
range.
3. Quick Quality Stock Selection
I like to combine some longer term fundamental filters, alongside attractive debt ratios and valuations. Here are some names from North America and Europe, to look into further if you're looking for quality names at a discount. (screener: Financial Times)
4. Momentum Stocks
Only 1 momo stock in this week's filter: IOSP (USA)
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