Ok, get ready.
For now, the fiscal-chaos-can has been kicked, Harvey is behind us, and North Korea’s latest nuclear test has come and gone.
But dead ahead is Irma’s landfall in Florida, North Korea’s “founding day” (which by most accounts will be “celebrated” with an ICBM launch), and of course, more gridlock in D.C. We are, figuratively and literally, in the eye of the storm on Friday.
U.S. equities got through the week ok, all things considered (i.e. considering they had to catch up, or maybe “catch down” is better, to global markets in terms of reacting to the North Korea drama after a long holiday weekend).
Of course whatever air was left in the reflation balloon was let out despite the debt ceiling deal. Here’s 10Y yields and USDJPY on the week and really, this kind of sums things up:
Not a good week for financials for obvious reasons:
The euro was again the big news in FX as Draghi’s feeble attempts to address FX strength at the Thursday presser weren’t nearly enough to dissuade the bulls. The single currency surged to the highest since January 2015 during Asia hours on Friday before giving some back. Here’s the big picture (as if you don’t know what this looks like by now):
European shares held up reasonably well in the face of the FX headwind, with the DAX the outperformer:
Besides the euro, the yuan was the story of FX land, and was on pace for its best week in more than a decade until this hit:
- PBOC SAID TO CUT YUAN RESERVE REQUIREMENT TO ZERO FROM 20%
That’s a rollback of a measure put in place to discourage people from speculating on the currency’s depreciation, and the implication was immediately clear:
In short, from Beijing’s perspective: if weaker-than-expected fixings don’t work to put the brakes on the rally, well then we’ll see if speculators will step in and do the trick because after all, if it gets out of hand, we can always squeeze them and restore order or else just use the counter-cyclical adjustment factor to push things back in the other direction. Simply: this takes the onus off the PBoC when it comes to stopping the currency’s relentless ascent.
So you got a little bit of a selloff when that headline hit…
…but the big picture here is unchanged – massive rally from the late May/ early June short squeeze through current:
China’s export growth cooled in August, but still printed just barely below estimates and import growth was strong, suggesting domestic demand remains resilient:
The loonie had a great week against the dollar (a little whipsaw action on Friday around Canadian jobs data notwithstanding) following the BoC hike and is now near its strongest since May 2015:
Everything was going ok for oil until Friday, when the bottom fell out on concerns about the impact Irma may have on demand. “Uncertainty has the market pulling in their horns ahead of the storm. They are worried about demand destruction,” Phil Flynn, senior market analyst at Price Futures Group, told Bloomberg.
Gold hit a fresh one-year high on Friday amid the dollar malaise (much more on this later this evening):
Of course if things keep going the way they’re going, gold isn’t going to help you.
Because if, between apocalyptic weather phenomenon and flying, nuclear-tipped ICBMs, we all end up living in Cormac McCarthy’s The Road, the only “hedges” that will “work” will be pistols, bullets, and canned goods.
“The clocks stopped at 1:17. A long shear of light and then a series of low concussions”…