Talking Points:
• The strong NFPs figures from last week further leveraged expectations of a near Fed hike
• Knock-on effects from the Fed's liftoff was one of the three major concerns listed by international bodies
• Fed liftoff, China's slowdown and Emerging Market capital outflow are steps to a more systemic liquidity crunch
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Last week's NFPs returned focus to one of the global risks that market players like the IMF, global central bank presidents and G20 leaders had pegged as one of the greatest transformative risks facing the world today: a Fed rate hike. In the past months, we have seen a number of lists of profound and unrealized risks released to the market; and many of the top listings tend to be the same. Next to the knock-on effect of Fed hikes; China's unique problems, Emerging Market capital rotation and moderating global growth trends are common concerns. These are the important risk catalysts that could deepen the pressure to deleverage. However, the intensity of the risk aversion effort moves beyond the motivators of the sentiment. A move to liquidate risk exposure that has been leveraged by monetary policy and complacency can overwhelm an order exit effort and lead to liquidity gaps. We discuss the major risks that threaten to topple the market, the profile of a market as the effort intensifies and the areas to avoid as well as those to take advantage of in today's Strategy Video.
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