1. Themes for the Week
- Chinese data (Wed) could add to renewed market anxiety about extent of slowdown. So far, yesterday's CPI data printed in line with expectations. Is the global economy ready for further FED rate hikes?
- CNY Fixing Confusion: PBoC created confusion recently, as the new fixing regime should be market-based (this was a condition of the IMF). However, there has been a lack of communication from the PBoC which has not commented on recent CNY weakening and has not explained what the goals are and how the system works. Instead, the market is left guessing in a situation with very high uncertainty, which participants don't like.
- Fed speakers to clarify their views for US hikes in 2016. December’s median expectation implied 100bp of tightening in 2016; this week the market will be looking for confirmation.
- MPC (Thu) expected to stay on hold, with Weale now firmly a "dove". Rising chance of McCafferty abandoning rate hike call - which would be a surprize and put much more pressure on Gbp. The likelihood of a more gradual uptrend in inflation than previously expected could prompt a more dovish tone overall from the minutes. Industrial Production (Tues) unlikely to shift market's perception.
- ECB minutes (Thu) and data (Ind. Prod. on Wed, German GDP on Thu) to shed further light on prospects of extra easing. The market expects reassurance that the door is open for further easing, but this may be too aggressive. There is a risk of further Euro strength.
2. Trends in line with these themes
In FX, Gbp, Cad and Aud remain weak vs. Jpy and (to a certain extent) USD. If the risk-off theme continues, the Jpy pairs will be better to focus on; if local themes take center stage, it may be easier to short vs. USD.
I like shorting DAX and Crude as well.
Good Luck!
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