Talking Points:
- Global shares traced out another measured but clear decline Tuesday lead by the still-lofty S&P 500
- Top event risk this past session including an RBA rate decision, Brexit vote and US trade data failed to spur volatility
- Event risk ahead from China trade to ADP jobs to the UK budget keeps a simmer as we await the ECB, EU Summit, NFPs
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The S&P 500, DAX and FTSE 100 continue to track lower, but operating with a measured pace. Given the unease may hold over risk trends most recent surge higher, this slip is testing the very animal spirits that have supplied lift in the absence of traditional fundamentals. Further out the risk spectrum, assets like emerging market currencies and the ETF, high yield fixed income, and carry trade were flagging well before stocks capitulated. And yet, speaking to how engrained skepticism is throughout the system; volatility readings from FX to commodity to emerging markets have collapsed this past week to catch up to the already-basement level piloted by the VIX.
On the fundamental front, themes are stable enough to keep trends at bay. Neither risk trends nor trade policy conflicts are fueling the fires that are smoldering just around the edges of the market. Event risk on the other hand, has attempted to revive at leas some degree of volatility to the landscape. This past session had a range of event risk and data to work with. The RBA rate decision was the most consolidated listing on the docket, but the central bank's neutral stance offered little foothold for either bulls or bears. The House of Lords delivered the Prime Minister her second unfavorable vote which pushes the pressure to the Commons to salvage a Parliament-government standoff should the Brexit negotiations run into troubles. It was the trade data that drew the greatest interest. The US deficit unexpectedly swelled to its biggest negative gap in five years - though this was due to both a jump in exports and imports.
Ahead, the docket will act to distract and deflate as much as it does to leverage volatility. There are noteworthy listings immediately ahead. The private US payrolls figure from ADP and announcement of the UK's budget are particularly high profile. Yet, compared to what is due for the final 48 hours of the trading week, they are essentially distractions to what is ahead. Later this week we have the EU Summit and ECB combo as well as NFPs Friday. The week forward, the FOMC rate decision is leveraging a 98 percent probability of a hike. Anticipation can pump the breaks on significant market developments short of systemic shifts in risk trends or a complete reversal on trade policy. Traders should keep focus on measured technical conditions or those assets that aren't holding out for the next round of high profile event risk. We discuss the speculative pocked market in today's Trading Video.
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