The running of the bulls in equities grabs headlines overnight with China up 2.5% leading the story. Perhaps the more important story is about the ground underneath as the weaker economic data from flash PMI reports seems at odds with the US growth story. Similarly, the US rate differentials clash with the weaker USD. Nevertheless, emerging markets are mixed as the all-clear signal on trade fears continues with CNY and the China charm offense winning in Asia but not elsewhere.

China stimulus talk to offset the US tariffs remains central to the suspension of disbelief about rates, growth or other stories. Those other stories are worth highlighting: 1) Brexit. The EU summit in Austria was inconclusive but with the leaders unanimously voting down the UK PM May’s “Chequers Deal.” The focus on French President Macron as a deal maker into October will be intense.  2) BOJ Noise. The BOJ cut its buying of bonds over 25-years today from Y60bn to Y50bn – and this led to a sharp jump in yields and steeper curve. Higher bond volatility is notable everywhere. 3) Credit. The WSJ article on junk bonds rising as a share of the overall market is worth considering given the sharp uptick in rates this week in the US. When you mix these stories together they clash with the present stampede of bullishness but they also explain the subtle turn of EM in EMEA down with Turkey and South Africa still under the kosh – giving back much of yesterday’s gains.

Markets are fickle and like any stampede the direction of which seems more serpentine than in a straight line. Witness the rise and fall of GBP this week in the G10. We may learn something from Brexit and trading headlines – namely that uncertainty hurts.

Question for the Day: Does growth matter? As markets enter the Friday witching session and face the FOMC next week, many are willing to take some money off the table and wait for the 3Q end. This seems logical but there is always the fear of missing out as the FOMO across the globe has been powerful. Momentum as a risk factor has explained much of the week’s trading and it adds to the passive vs. active management issues that plague all asset classes in 2018. The factor that seems to have lost out in the week is more about growth as the US outperformance hasn’t really been the story for the week – as the S&P500 is up 0.9% so far while the Stoxx Europe 600 is up 2.4% and that despite the PMI flash reports today and the US Philly Fed yesterday. Throw in that the price pressures everywhere and in the US particularly are moderating and you return to a Goldilocks environment – great growth without inflation fears. This isn’t the case in EM or most of Europe.

Explaining the difference matters as we close out the week and it maybe linked to the larger fears about confidence waning everywhere and the US mid-term elections. The SCOTUS issues that plague the Republicans won’t help at the polls. The budget fears are going to remain intense as well. The things that have put the USD at 10-week lows despite higher rates and better growth are where bears need to huddle or they better run early for hibernation. Perhaps it’s the old adage if its not growth then its value – where many see the US stock market as overvalued but that remains the October story for 3Q earnings and 4Q outlooks. The contrast of US confidence to EU and rest of world confidence is where the delta for future growth lives as it’s the capital investment, savings vs. spending base for planning.