Talking Points:
- Risk aversion moved from the atypical global bond selloff to more familiar equity drop last week on US election news
- Sentiment will be put to the test in the week ahead between the election countdown, rate decisions and key data
- Top event risk and themes includes: Fed, BoJ, BoE rate decisions; NFPs; Brexit; and China stability
See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.
Few have been comforted by the congestion patterns that have developed for financial benchmarks like the S&P 500 and Yen crosses these past months. Like looking through clear ice, the violent undercurrent of doubt have been disturbingly clear for those that have depended on low volatility and complacency to navigate the markets over the preceding weeks, months and years. This past week, sentiment came under greater pressure than what we have seen to this point as the Chinese Yuan pushed to multi-year lows (testing a dynamic that led to seizures in 2015), a global government bond drop and a surge in volatility after breaking news related to the US Presidential election.
In the week ahead, we head into dangerous waters filled with extraordinary event risk to provoke already agitated fundamental themes. Monetary policy will find the most consistent wave with four key rate decisions on tap. The Federal Reserve, Bank of England, Bank of Japan and Reserve Bank of Australia are all scheduled to deliberate on their policy bearings; but they certainly do not all carry the same potential to move the markets. Where the Fed will draw the greatest preemptive media interest, the BoE and BoJ are most likely to shift speculation and position. The former will tap deep-seated concern over the Brexit fallout and has set out expectations of further easing. The latter previously made a move that can be construed as surrender in fighting the markets and Yen. It would not be difficult for the outcomes to these events to spur volatility.
Event risk is densely packed into the coming week's calendar. From the aforementioned rate decisions to Eurozone 3Q GDP to global PMIs to November NFPs. Those will throw embers that can ignite strong market moves. However, it is important to understand what themes are most susceptible to these catalysts. Market sentiment is certainly under considerable strain and open to a host of threats. Concerns over the forthcoming US Presidential Election (November 8th), ongoing fear about the depth of the Brexit risk, failed support via monetary policy, and troubling capital flows (from China and bonds for example) are some of the concerns that are easy to provoke but difficult to soothe. We take a look at the trading conditions and the many threats of volatility ahead in this weekend Trading Video.
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