We are almost at the weekend. We almost have headlines for a EU/UK Brexit deal. We almost have a deal between US and Turkey over Pastor Brunson. We almost are sure that the US won’t list China a currency manipulator and so trigger more sanctions/tariffs. We almost have a convincing calm back in equities after a week-long rout. The phrase “almost” is in the same category as “hope” to wizened traders. This isn’t a strategy, process or something to trust. Close doesn’t count, but in a world of fake-news, or one where journalists go missing.  There are a few items to support the mood swing in risk overnight that aren’t qualitative – 1) ECB Draghi still sees need for significant monetary policy stimulus. Read as easy policy despite QE tapering. This along with his concern about global headwinds supports risk. 2) China trade shows no signs of trouble from US trade war. The trade surplus grows to $31.7bn more than expected even with imports up 11.9% m/m after -3% m/m, exports up 9.8% m/m after -2.6% m/m. 3) Eurozone industrial production was better. This bounce back in August from July puts the idea of a bigger slowdown to rest. As for trading markets today – the 3Q earnings are a key focus and driver with JPM Chase out and shares higher. The hope for stability in markets helps drive today but the biggest place to watch is still in Emerging Markets. The hype around Turkey over the summer given US economic pressures is important and the recovery in the TRY significant but perhaps not sufficient.  A break of 5.68 would be needed today to convince the market that inflation, bad government policy and a seemingly lost central bank can be overlooked for a test of 5.25 – where the USD uptrend should hold.  

Question for the Day:Where are the bubbles? After you see a drop in equities like we have this week, the logical question to ask is where are the systemic points of pain that could add to the selling of assets. The 3Q earnings for US S&P 500 start in earnest today with bank earnings on the docket. Banks are important as they reveal the domestic credit demand and health along with the global interconnectivity. The bubbles in credit were the obvious drivers of the 2008 crash and many expect the same in the next crisis. However, focus on bubbles remains squarely on three areas globally – real estate, direct lending and private equity. Unlike 2008, the leverage in these potential bubbles seems more constrained. Banks in 2007 had up to 30 to 1 leverage. Those days are gone.