The Day So Far
Markets drifting this morning after mixed Chinese data, where retail sales grew by 11% but offset by Industrial Production which grew at the slowest pace since March (5.6%). Particularly worrying is Fixed Asset Investment, which last grew this slowly in December 2000! Rebalancing or not, China is definitely moving towards a slower growth era, the implications of this being felt in commodity markets principally but many of the major trading partners are being hit by the double whammy of the strengthening dollar and lower demand from China. Expect the emerging market pain to continue to be felt as we inch closer towards a Fed hike.
Interesting to note also the growing divergence between the Bund and the US 10 year with the Bund powering higher again this morning following whispers in recent days that the ECB, rather than roll out fresh QE in December, will in fact cut the deposit rate by a greater margin than originally thought. T notes has struggled by comparison, making a weak bounce as equities wobbled this week but expect that trend to continue as monetary policy divergence between the ECB and the Fed grows.
The Afternoon View
Bank holiday in the US so a quiet session is anticipated this afternoon. Big build in API inventories (6.3 million) last night should cap WTI crude below $44 handle but due to the US bank holiday we have to wait until the DOE inventories for confirmation that the supply glut in the US just got much bigger. So much supply needs to be worked off before a sustainable rally in crude above $50 can take place and a test of the 2015 lows remains likely in the coming weeks before the OPEC meeting at the start of December. Short S&P, short t notes and short euro just below handle are our other recommendations.
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