Weekly Game Plan 1.10.18

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Here is this week's Game Plan:

Welcome to Q4 2018. Trade wars, Emerging Market distress (due to unsustainable dollar-denominated debt), FED rate hikes, the surging US dollar – they are all real and present dangers. On top of that, Italy’s Fiscal Defiance could get messier, throwing the euro zone’s third largest economy (and largest debtor) into deeper financial uncertainty as the ECB starts to reduce QE.

Over the weekend, China manufacturing PMI for September disappointed, as US/China trade friction is starting to negatively impact the economy. The falling export orders was a direct result of trade tariffs, according to Chinese companies participating in the survey. This may contribute to a bit of Risk-Off tone as markets get under way this week.

Themes for the Week:

• Canada and the United States are trying to save NAFTA but at the time of writing, no deal has been reported by the press. The CAD was the best performing currency last week – suggesting the market is pricing in the likelihood of a trade deal being struck – although the main drivers were rising oil prices and stronger Canadian data.  If a deal between the US and Canada is finalized, expect decent CAD buying.
• Britain’s ruling Conservative Party kicks off its annual conference. Running from Sunday to Wednesday, the widely-watched event could prove a make-or-break moment for Prime Minister Theresa May. Investors will be watching to see whether May can face down hardline Brexiteers in her party and form a united front before the final stages of EU-UK talks.
• The market will keep a close eye on Italian politics, as the populist coalition appears steadfast in opposing the EU calls for budget restraint.
• Emerging Market Distress can be illustrated in a simple chart

Data in the Week Ahead:

• The RBA meets on Tuesday, but it will likely be a non-event for the markets. The RBA remains firmly on hold and the statement following the meeting will likely be similar to the one released after the September meeting.
• US NFP
• AU Retail Sales
• Canada Employment

On the Radar:

US stocks are still appetizing for buyers going into this week. Depending on what happens today in negotiations, CAD might remain strong and I like it vs. Euro, Chf and Jpy. But the Euro should remain weak agaisnt all comm-dolls so long as the risk-on appetite continues, and especially if the Italian situation escalates. GBP trades will have to wait until after the Conservative Party Conference. Chf continues to weaken amongst the risk-on move and is appetizing vs. Cad & USD.