What started as a week of gloom and doom in the markets, ended with a positive note from the US consumer and a cooling in rhetoric on the US-China trade war. This was supposed to be a quiet week, when central bankers are on holiday and economic data on the light side. But from the way the last exchanges occured, the US-China trade war is far from over. China is growing more vocal and its tack is changing as Ashraf pointed out here. More on this from is time last week, Ashraf issued a Premium short in the DOW30 when it was up 300 pts. The trade was closed with a 700-pt gain. No longs will be issued today despite the index being up 300 pts. There are two existing trades for now. We'll return next week with the FOMC minutes of the last meeting and the Fed's Jackson Hole conference (more details here). Meanwhile, GBP is the strongest currency of the day and the week, in a week that was dominated by swings in indices. More on the market dahsboard below.
How do we reconcile robust consumer data with violent market moves? For one, the economic data is backward looking while the market is looking ahead. This is especially the case for a late-cycle economy, when slowdown in manufacturing production, factory capacity and supply orders preceded changes in labour markets. Said differently, "labour markets are always the last to know" -- They're never described as leading indicators. It's also looking abroad to the eurozone, which is increasingly worrisome. On Thursday, the ECB's Rehn told the WSJ that at this point the central bank needs to beat expectations. The market is now pricing a better-than-even chance of a 20 bps cut (rather than 10 bps).