Here is this week's Game Plan:
Welcome to 2020 trading. Markets were taken by surprise on Friday when news broke that the top Iranian military commander was killed by in Iraq by US bombs. Markets are now bracing for a possible retaliation by Iran against the US. Equity markets and other risk assets moved lower while oil along with safe-haven assets such as gold, bonds and Yen moved higher. Furthermore, concerns over the US economy were heightened by the worst ISM Manufacturing reading in a decade.
The coming week might prove to be volatile with whipsaw price action, as many participants may choose to sit out this first week of trading and wait until after NFP to start rolling out positions.
Themes for the Week:
- Iran Retaliation: the markets are currently NOT expecting Iran to do anything that would spur a serious military clash with the US. So it would seem that any further tensions could catch traders off-balance.
- US/China Trade War: markets are pricing in a Phase-1 deal by Jan 15th. For now, this is on the back burner.
- Brexit: UK lawmakers reconvene on Jan 7 and will debate the divorce deal PM Johnson has agreed with Brussels. The bill goes to parliament's upper house on Thursday and should allow Johnson to fulfil his pledge to "get Brexit done" by Jan. 31. In the meantime, GBP might start to react to normal macro data releases again.
- NFP-Friday: as usual, the health (or lack thereof) of the US labour market will be in focus and after a worse ISM employment component, traders are bracing for worse data.
- AIG PMI
- ISM Non-Manufacturing
- AU Retail Sales
- Cad Employment Change
- US Non Farm Payrolls
The thematic trades would be Jpy long vs. Eur and Gbp and Gold longs. However, if tensions cool off there may well be a pickup in risk assets with stocks, Aud & Nzd returning bid. Best be prepared for either contingency.
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