Week Ahead - Risk Events & Opps: China returns, US CPI/tax (long ‘China-flation' vs short ‘T

Week Ahead Risk Events & Opportunities: China returns, US CPI/tax cuts (long ‘China-flation’ vs short ‘Trumpflation’), Kashkari Fed? (long Gold), USD rally to pause

This week’s themes/trade ideas:

  • US reflation – CPI/retails, tax cuts and Fed Chair appointment: Despite a Columbus Day-shortened week (Mon), it will be a busy one qualitatively. Markets will attempt to glean the FOMC minutes (Wed, Thu am SG time) for hurricanes impact on outlook as well as any lingering reservations about balance-sheet unwind. Even hard data on monthly inflation (PPI Thu, CPI Fri) will be subject to economists’ interpretation (consensus is pricing-in acceleration in both, which could disappoint) as are retail sales after a post-storm surge in auto sales and gas prices. On the fiscal side, negotiations will focus on SALT deductions that may be more challenging after Sen. Corker-Trump sparring over the weekend. Finally, in Fed chair appointment speculation, Bill Gross’ mention of Kashkari (echoing Gundlach last week) may pique Trump’s interests – raising this possibility, while more-conventional candidate Gov. Powell speaks later this week (Thu/Fri). ECB’s Draghi and Fed’s Brainard discusses Bernanke’s latest blog post (Thu).

  • Trade idea – Tactically reduce USD longs: I maintain a strategic USD long but gains are limited in coming weeks (more a late Oct/early Nov concern) once tax cuts are more likely.

  • Trade idea – Rangebound UST 10s: UST 10s’ failure to break 2.40% last week is informative given a strong NFP (focus more on AHE/participation rather than the headline drop). Expect range-trading in 2.30-2.40% this week. Bullish UST/SPX and bearish USD if Trump considers Kashkari as Fed Chair. The converse if Trump meets Taylor. $20bn 10yr USTs will be reopened (Wed).

  • Trade idea – Tactically long gold: Kashkari consideration for Fed Chair is underpx’d (6% according to Predictit as of 9 Oct-17). Last week’s ‘shortlist’ of four candidates was a non-event. Only two names would force a market rethink: Kashkari (dovish) and Taylor (hawkish). The latter is too hawkish, but the former has the endorsement of Gundlach, Gross and – significantly, Breitbart (5 Oct-17). If the 'reality-show President' tweets ‘Kashkari’ (who speaks Tue) - much less formally introduces him as a candidate - this would be bullish UST/SPX, bearish USD – and especially long gold, which would perform well on a tactically muted USD view this week.

  • China returns from Golden Week: PBOC fix (Mon) will be watched for extent of weakness (likely more muted vs CFETS RMB basket). President XJP speaks (Wed) and may issue a communique that could shed light on the CCP’s plans (no surprises expected).

  • Trade ideas – Stay long ‘China-flation’ / ‘Party Congress Put’: Long RMB, industrial metals and China equities – all on an RV basis – vs low-beta FX (eg SGD), oil and MSCI World through 18 October start of Party Congress. Caveat: Cover long CNH-SGD before MAS semiannual meeting (Thu), consider reinstating after.

  • Spain existential crisis enters second week: Catalan Pres. Puigdemont is expected make an announcement (Tue) in lieu of Madrid’s prohibition of the previously planned assembly (on Mon). Tensions will remain elevated.

  • Trade idea – Reduce short Ibex/Caixabank, monitor Puigdemont (Tue) to re-engage: I’ve reduced shorts on Caixa Bank and closed short-Ibex for a small profit. Doubts among Catalan leadership have stalled the momentum for these trades. Still, the rebound in Ibex/Caixa Bank was too quick – reducing risk premium, which is would be warranted if Puigdemont keeps the independence option alive during his address (65% chance).

  • EM inflation: Mexico/Czech (Mon), Egypt (Tue), India/Argentina/Banxico minutes (Thu)

  • Trade idea – Begin to add to MXN longs (Mon), add more (next week) if Nafta talks/Trudeau meetings constructive: CPI peak (Mon) is likely to be a modest positive for Mexican assets after outsized weakness last week on the back of the PAN-split. Banxico minutes (Thu) should reinforce monetary conservatism as such policy orthodoxy is a structural-positive. Whether MXN ends the week up or down depends on: Trudeau-Trump meeting (Tue-Wed) on the eve of fourth-round Nafta talks (Wed-Sun) and Trudeau-Nieto meeting in Mexico City (Wed-Fri).

  • Trade idea – Stay cautious India equities: An upside inflation surprise should be a modest negative for scope for RBI easing by year-end. Negative Sensex and INR.

  • Trade idea – Stay constructive Argentina equities: Moderating CPI (Thu, cons 1.25% vs prior 1.4% mom NCPI) would be a positive sign for macroeconomic management.

  • Trade idea - Reduce short Qatar equities: The recent revaluation of FX reserves (stronger) plus market chatter of an upcoming sovereign bond issue would be temporarily positive for Qatar risk. QNB reports earnings (Wed).

  • European/New Zealand politics: European markets are likely to focus on Spain/Catalonia, UK PM May’s viability/continuity and elections in Austria and Germany’s Lower Saxony (Sun). New Zealand may finally know what coalition will govern them (by Thu) when “king-maker” Winston Peters from NZ First decides whether to support a National or Labour-led government.

  • Trade idea – Reduce short GBP: A strategic short bias on GBP may pause this week given the rising possibility that PM May could reassert herself (via cabinet reshuffle). Further weakness would need help from a longer Shapps’ list of anti-May Tories (current: 30 of 48 needed) or poor macro data (watch IP/trade on Tue). Brexit narrative is already pessimistic going into fifth-round talks (starts Mon) and Hammond’s questioning at Commons (Wed). The SNP party conference in Glasgow (Mon-Tue) could mobilise Bremainers.

CALENDAR: THIS WEEK

[More risk events & opportunities in Calendar]

Week of 9-Oct-17: China money/loans (10-18 Oct), Qatar money (10-15 Oct), India trade (10-16 Oct), Pakistan trade (10-16 Oct), New Zealand Reinz house sales (10-14 Oct, prior -20% yoy), US House plans to vote on $28bn supplemental disaster relief funding (Some GOP/Dems may ask more for TX/Puerto Rico relief)

  • Mon/9: Germany IP

  • EM: China Caixin PMI composite/services, Turkey IP, Czech CPI, Serbia MPC, Mexico CPI (prior 6.66% yoy)

  • Other: UK Brexit Sec Davis and EU Barnier begin fifth round of talks, EZ finmins discuss ESM/labor tax cuts/Portugal econ adjustment, Scotland SNP party conference (9-10 Oct)

  • Companies: SpaceX scheduled to launch Iridium satellite (1137pm)

  • Holidays: Korea, Japan, Taiwan, US (Columbus Day)

  • Tue/10: Australia NAB biz conditions, Japan CAB/trade bal, BOJ Kuroda speaks (830am SG time), Norway CPI (prior 1.3% yoy), Germany trade bal (prior surp. 19.5bn), France IP, UK IP/mfg prod (prior 0.4%/1.9% yoy), UK trade bal (prior def. 2.872bn), Canada housing starts

  • Speakers: Catalonia Puigdemont expected to address regional parliament, ECB Lautenschlaeger (12am), ECB Mersch (345am), Fed Kashkari (10pm), RBA Debelle, Scotland First Minister Sturgeon (SNP conference, 1020pm)

  • Other: Japan deadline for Tokyo Gov. Koike to decide whether to run vs Abe, Australia High Court will hear arguments whether five dual-citizen lawmakers (incl. Deputy PM Joyce) breached the constitution when they were elected to parliament (10-12 Oct), France strike, IMF/WB meetings (10-15 Oct, agenda), Canada PM Trudeau meets Trump (10-11 Oct)

  • EM: Philippines trade, Hungary CPI, Chile trade/copper exports, Romania NBR minutes, Russia CAB, Egypt CPI (prior 31.9%), Argentina BCRA MPC

  • Holiday: Taiwan

  • Wed/11: Australia Westpac consumer confid, Japan core machine orders, US JOLTS, UST auctions ($24bn 3yrs, $20bn 10yrs)

  • Speakers: China XJP, HK Chief Exec Carrie Lam first policy address (11am), IMF Lagarde (IIF), BOC Senior Dep Gov Wilkins (2am), Fed Kaplan (8am), Norges Nicolaisen (7pm), Fed Evans (715pm)

  • EM: Romania CPI, Turkey CAB (prior def. 5.1bn), Taiwan trade (watch electronic shipments impact), Brazil retail (prior 3.1% yoy)

  • Other: UK Chanc. Excheq. Hammond questioned by House of Commons Treasury Cmte., Nafta fourth round of talks (11-15 Oct, Washington)

  • Companies: BlackRock/Delta/Qatar National Bank earnings

  • Commodities: EIA monthly short-term energy outlook (STEO), OPEC monthly market report, Utility Week Conference, Calgary Energy Roundtable

  • Thu/12: FOMC minutes (2am), New Zealand food px, Japan PPI, Australia home loans, Sweden CPI (prior 2.1% yoy), Eurozone IP, Canada new housing px (prior 0.4% mom/3.8% yoy), US PPI (prior 2.4% /ex-fae 2% yoy), UST auction ($12bn 30yr), US initial jobless claims

  • Speakers: Fed Williams (240am), ECB Praet (250am), ECB Draghi/Fed Brainard on monetary policy panel (1015pm), Fed Powell (1030pm, IIF conference), Trump on Iran nuclear deal (tentative, via AP)

  • EM: Malaysia IP, Singapore retail, Romania IP, South Africa IP, India CPI (prior 3.36% yoy), India IP, Mexico IP, Mexico Banxico minutes, Uruguay IP (prior -18.3%), Argentina CPI (national 1.4% mom, GBA 23.1% yoy), Peru BCRP MPC (curr 3.50%)

  • Other: New Zealand First Peters self-imposed deadline whether to support National or Labour-led govt, EU justice/home affairs ministers meet (12-13 Oct, Luxembourg), Canada PM Trudeau meets Mexico Pres. Nieto on trade/NAFTA (11-13 Oct, Mexico City), Peru PM Araoz/new cabinet Congress confidence vote

  • Companies: JPM/Citi earnings

  • Fri/13: Australia RBA Financial Stability Review, Germany CPI-fin, US CPI headline/exfa (830pm, cons 2.2%/1.8%, prior 1.9%/1.7%), US retail sales advance mom/ex-auto (830pm, cons 1.1%/0.8% mom, prior -0.2%/0.2%), US UMich sentiment

  • Speakers: Germany FinMin Schaeuble/UBS Chair Weber (1205am, IIF), Brazil FinMin (345am, IIF), Germany Bundesbank Weidmann/FinMin Schaeuble press con (8pm, Washington), US Treasury Sec Mnuchin (IIF day-3 opening address), Fed Evans (1025pm), Fed Kaplan (1130pm), Fed Rosengren (830pm, Bosten), Brazil FinMin Meirelles/BCB Goldfajn (after 830pm, Brazil Econ Conference, Washington)

  • EM: Singapore MAS semi-annual meeting, China ex/im/trade (prior 5.5%/13.3%/surp $42bn), Colombia BanRep minutes

  • Other: CFTC positioning

  • Ratings: France/Greece/Korea (Moody’s), Cameroon (S&P), Gabon (Fitch)

  • Companies: Samsung/Wells Fargo/BofA earnings

  • Commodities: China customs import data (Sep, crude oil/coal/natural gas/copper/fuel/soybean)

  • Holiday: Thailand

  • Sat/14: Thailand 1yr mourning period ends (royal cremation in late Oct)

  • Speakers: Fed Powell (1am, Boston Fed Econ Conference), Allianz El-Erian/Ex-Tsy Sec Summers/Barclays CEO Staley (IIF conference)

  • Sun/15: Austria elections, Germany Lower Saxony regional elections

  • EM: Israel CPI

  • Other: Trump-to-Congress deadline on whether he believes Iran in compliance with nuclear deal

#thisweek #china #gold

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