Today will mostly be about wrapping up Q3. Random-seeming month-end moves are guaranteed! If I just look at Q3 market moves, the picture is that we’re not having a ‘euro crisis ‘ (it’s actually one of the stronger global currencies in Q3). Rather, the pervading theme has been broad risk aversion and fear of economic slow-down. Sure, the European mess was a huge catalyst, but it’s how the global economic cycle polays out that matters. So the yen has been the big winner and the Zloty, Huf, Rand,and BRL have all fallen by more than 20% against it in 3 months. Pretty much every major equity index has dropped by more than 10% in the quarter, so has the CRB, and 10-year Note yields have fallen over 1%.
So we’re priced (to some degree) for slow or no growth and for low rates. Are we priced enough for that outcome and will the data continue to lead us deeper into fear of global recession?
The title of last night’s FX weekly was ‘It’s going to get worse’ which sums up how I feel about the risks. The European crisis won’t be solved by magic, the US is too painfully close to stalling speed for comfort. So where do we position? In FX, I start by looking at the top currencies in Q3 and wondering whether counter-trend positions can work. Can I sell the yen? Tempting. Can I sell the CNY (the only other currency to have out-performed the dollar in Q3). Absolutely. There’s a clear tipping point for global growth where China doesn’t want or need an appreciating currency.
At the other end of the spectrum, the NZD has fallen by only half as much as the AUD in Q3. And now they’ve been downgraded. Nirvannah would be a higher GBP/NZD rate, an England/All Black final at the end of October and a plane ticket… I can dream! But seriously, short NZD does make sense still.
Today: Eurozone Sep CPI exp 2.7% vs 2.5%, but that won’t help the euro. US spending and income, but more importantly Chicago PMI, exp 58. Austrians vote on EFSF. daily attached…
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http://www.easyforexnews.net/wp-content/uploads/2011/09/sgfxdaily.pdf
Societe Generale
Research & Analytics