We are currently in a market condition where most macro traders will find it choppy and better off staying on the sideline.
For quantitative traders, it’s probably a perfect market to play on mean-reversion and relative value trading. Reason for all this? Economy and geopolitics headlines are mixed without a clear trend yet moving forward. It’s just like when we play chess and stuck with a middle game stalemate, until one of the players makes a mistake.
It’s not a coincidence that US dollar index hovering around 200-DMA, and US 10yr yield floating around 2pct mark. Taking a look at asset prices (S&P500 +1.4%, EURUSD -0.7%, oil price remains unchanged), we might get a hint of what’s been happening. RBA indicated that Aussie rate has some room to get lower, Draghi had been dovish in his euro economy projection as usual on ECB announcement last Thursday (and left some traces of more easing in September). And now the market is looking at the biggest of all these titans, the Fed to give it’s guidance next week, a 25bps cut will ease off some pressure and we might see market slightly rally on the risk-on side, any other than that, people will think Powell as being too hawkish or dovish, and can sway the macro market one way or another.
Global growth has been undoubtedly weakening, but as we are all aware, the market price is about the expectation of the future, so theUS-China trade deal and what central banks around the world think are paramount for macro traders. Along with Boris Johnson’s appointment as the PM of UK and Trump administration flip-flop stance on US dollar (and on FX intervention), we will see more spices in the coming weeks.
We will see China manufacturing PMI, FOMC statement, and US Non-farm payroll as the key headlines for next week.
