Trading with point and figure

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- Digesting Trump/Clinton debate, still watching oil negotiations, awaiting
Italy Orders, UK CBI Trades, US Consumer Confidence & Services PMI and
Fed's Fischer; UK, Germany and US to auction debt; quarter end influences

- IEF negotiations: in budget terms, Iran in a much better position than
many other to play hardball

- US Consumer Confidence: modest correction seen after August jump, focus
on labour differential

- US Services PMI: seen little changed for a fourth month, again in start
contrast to equivalent ISM

- Deutsche Bank: German government statements a function of constrained
necessity, not indicative of what might actually happen

- Charts: MXN vs USD, WTI Oil future

..........................................................................

********************
** EVENTS PREVIEW **
********************

While there is a reasonably busy schedule of statistics today, there is little doubt that it will be the post-Trump/Clinton 'debate' polls, which will quite possibly attract most attention, as Q4's primary 'risk event' looms in the headlights. The Mexican Peso has been the market's whipping boy for fears about a Trump presidency, and as such the spike higher overnight post-debate would suggest that Clinton emerged in the markets' eyes, though as opinion polls emerge over the next few days, this may change, even if the sobering lesson from the Brexit polls and accompanying market price action serve as a sharp reminder of the need for caution. The only item of note in the overnight run of statistics were an impressive looking 19.5% y/y rise in China's Industrial Profits. However as much as this was the best outturn since October 2013, it was heavily inflated by base effects as August 2015's -8.8% y/y fell out of the comparison.

Be that as it may, it is still quarter end (which may account some of any risk-on reaction that is observed post debate) and a busy week for central bank speakers, which saw Kaplan and Kashkari emerge on either side of the FOMC policy divide yesterday. Today features Fed no. 2 Fischer, whose topic is "Why Study Economics?", which should be the equivalent of a red rag to a bull for many commentator quips, e.g. "there are no signs that anyone of the Fed did", or "clearly no point if the evidence from central bank policies post global financial crisis is any guide" - but enough of that! On the statistical front, Eurozone M3 & Private Sector Lending are accompanied by the not very reliable or representative CBI Distributive Trade survey, but pride of place looks likely to go to US Consumer Confidence and the flash Markit Services PMI, with Case Shiller House Prices and the Richmond Fed Manufacturing Index thrown in for good measure. Govt bond issuance comes from the Netherlands with 2037 DSL, the UK with a modest £400 Mln 2052 I-L Gilt and the US sells $34 bln of a new 5-yr Treasury. Eminently speculation on what may or may not come out of the IEF meeting in Algeria, along with continued concerns about European banks, specifically the current bête noire of Deutsche Bank will continue to provide the overarching themes. With regards to the oil output 'negotiations', it is worth bearing in mind that Iran is in a very good position to play hardball. This is due to the fact oil accounts for just 1/3 of budget revenues (thanks in no small parts to cuts during the sanctions years, and a more diversified economy), which have in any case risen as the lifting of sanctions have seen output jump. One small observation with regards to Deutsche Bank and the potential for a German government bail-out is that the government has no choice but to say that there will not be a bail-out. This is dual aspect, firstly, if they were to admit the possibility, then the follow-up question is 'so you are saying they need a bail-out?'. Secondly, after all the forced bailouts for Greece, Ireland, Portugal and Spain, it would genuinely beggar belief for a German government official to suggest that a bail-out was possible, above all given the precedent that it would set (leaving aside the point that it would be admissible under EU rules, given the patently obvious risks to financial stability - the US government should be rather more aware of this, as that threat applies to the US).

** U.S.A. - September Consumer Confidence / Services PMI **
- The relatively sharp jump in the August Consumer Confidence reading (101.1 from 96.7) was perhaps less surprising when one looks at the pattern of readings for Q3 in recent years, with 2015 seeing an even sharper jump from 91.0 to 101.3, though the 91.0 looked to be something of an erratic outlier. The pattern for September relative to August has been rather more uneven, with the consensus looking for a modest reactive correction to 99.0. While the September labour market data are not due until Friday week, there will be interest in the Labour Market Differential, which rose to a cyclical high of 2.6 in August (best since January 2008). The Markit Services PMI has been remarkably steady for the past 4 months, and is again expected to be little change at 51.2 from 51.0, in rather stark contrast to the slide in the Non-Manufacturing ISM, which clearly garners more market attention.


from Marc Ostwald
 
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