It’s hard not to acknowledge market optimism based Friday’s price action as it defies the usual retreat after stronger data post a more hawkish Fed’s statement.
S&P500 ended up 3066.91 of almost 1.5% higher than the previous week. On Friday itself after the strong non-farm payroll number (128K vs expected 90K), the index jumped almost 1% with strong performance across all sectors (see chart below).
This optimism is nevertheless echoed in the currencies space where EURUSD, AUDUSD, USDJPY are making recent 3-month high in the majors, and Asian currencies are also similar showing stellar performance in the same period. In particular, we notice that the drop in USDSGD has been prominent for the past months as it sees a large influx from Hong Kong, relatively higher yield, and correlation with USDCNH which is lower due to US-China trade deal expectation which is still in progress.
So what we can expect from here? For short and medium-term speculators, it’s probably too early and hence risky to fade such strong momentum. But as we are heading into year-end, it’s probably worthwhile to be ready for any opportunity to take-profit and follow hedging flow that real-money and other longer-term funds need to make by year-end.
A price move of some assets will probably be here to stay, for example, EURUSD is expected to be supported as Lagarde has succeeded the super dovish Draghi. But it’s hard to discount any possibility of USD cash hoarding (due to funding) and further stock hedging by Christmas – especially if any good news around US-China deal has been priced in.
Next week important macro headlines include US ISM Non-Manufacturing PMI, RBA decision, and German PMI.
