There is a bit of a Hamlet moment for trading markets this week, some want to take arm against a sea of troubles and by opposing end them. Others are less courageous. The US divergence theme isn’t going away but its meeting up with ugly politics in the US with the net result that the relentless USD bid has cracks today and the emerging markets are less scary. The urge to buy the dip and argue we have seen the capitulation seems a bit too simple. There are other themes at play mixed with the headlines of the Swedish Riksbank on hold at -0.5% but promising to hike in December or February still. SEK is the weakest of the G10 off 0.3% to the USD. Germany saw weaker factory orders but the EUR is up 0.1% on the day.

The point is growth just doesn’t always matter. There are 3 other themes at play today: 1) Global real rate spreads driving flows. Inflation data in EM and DM matter to present divergence trade. 2) EM US borrowing rates are so wide to local yields that USD bids aren’t going to go away even in the face of “value” buying. 3) US tech and the risk of regulation. Trump warned Facebook, Google and Twitter last week and the hearings this week make clear the risks. The point being that the moderation in fear of EM today is modest at best and the new themes beyond divergence are countering any feel-good-buy-the-dip ideas. So back to watching the safe-havens with gold, bonds and JPY all up. The barometer that seems most correlated to EM pain and stock wobbles is the EUR/CHF and its still flashing yellow.

Question for the Day: Is Trade the key to risk now? The larger US trade deficit with China yesterday sent many macro types to risk-off as they figured this will spur more Trump action on tariffs and promote a harder line to China and others ahead. The split of US growth vs. Chinese moderation is notable and blamed on trade policy first. The fact that trade is a constant headline means few other stories matter unless there is a shift – which puts the Canadian talks as crucial for risk moods into the month. As for China, the squeeze up in rates there overnight is worth watching as it’s the key for CNY support in the short-term, but its not helping EM or equities much.