Everything in moderation, including moderation. The extremes of markets are the stuff alpha is made from, emotional roller coasters eventually end like this week, but the results speak for themselves. Facts and your PnL can’t be ignored. The good news was China shares bounced back up while the bad is China GDP was lower along with industrial production, but FAI and retail sales were better than feared. The good news is driven by the China vice premier Liu hosting a joint group interview, where he listed detailed plans to revive an economy straining under growing protectionism pressures, weak consumption and declining investment. The PBOC also promised in another press conference to lend money to the private sector that has been squeezed significantly in the reform push over the last 12-months. More spending, easier money – both put the focus on the CNY to hold together – and leave some doubters about the ability of China to spend its way out of the present crisis. For traders this means a boost up in commodities and in commodity currencies – particularly AUD, NZD and CAD – and a modest uptick for EM FX,  ignoring rates and all else.

The other stories for today that distract from moderation on this Friday are wrapped around oil and the US problem with Khashoggi leaving the Saudis facing some consequences and making the Iran sanctions look less easy to absorb. Oil will be watching WTI $70 for the week as this is the key pivot for the 3Q upmove. Similarly, Brexit and Italy just won’t go away as dark clouds over risk-taking.But as in all things in markets the micro beats the macro (at least since 2009), the main story will be about earnings and the ability for the S&P500 to diversify away from the rest of the world.The risk mood seems better than the US close but still very mixed with the key difference being China and for that keep an eye on the CNH for a breakout over 6.95.

Question for the Day: Does the China data mean risk returns to markets? The fear that the US/China trade disputes will drive down global growth has eased a bit overnight thanks to better China retail sales, FAI and a less than whispered drop in GDP. There are many that will argue this 3Q slowing has yet to fully reflect the US tariffs impact and that much of the consumption is just a reflection of the bringing forward demand ahead of higher prices. Stockpiling of goods before they cost more. This slowdown in 3Q has been swept aside also by promises from the Government to increase lending to the private sector, to keep policy easy despite FOMC rate hikes continuing, and to further add to stimulus via government spending.There are limits to all of these measures and they rest on the cost of debt. The slower the economy, the worse the debt-to-GDP issue becomes – just ask anyone that lived through 2007-2009.Markets are going to think about the China data today and react – as this was the dominant worry and theme for 3Q that hangs over 4Q. 

Chart on debt-to-GDP from this blog – well worth reading fully as it touches on the other key point about China – employment where jobs have seemingly improved despite the slowing economy.