Markets are continuing to ride and a wave of good news have continued to squeeze the shorts and investors are forced to follow. Sentiment has moved out of the extreme with the market now quite overbought in the short term.

The S&P is up 5% from August lows and has recovered 76.4% of the downturn, facing the last band of the Fibonacci retracement. In Europe, the Eurostoxx has recovered 6.8% from the lows and has recovered already 77% of the downturn move.

This morning in Asia have continued to rise even though at a slower pace. Markets might take a short-term pause in the short-term.

The repricing of growth/geopolitical risk has kicked off an extremely nasty rotation with Long/Short momentum selling off very aggressively in the last 48 hours, largely driven by the short leg (cyclicals and value) having rallied very aggressively. This move is very painful for the majority of the funds.

We have analyzed better the message given by the China State Council meeting released two days ago as it is the strongest loosening message in 2019, to sustain and avoid a further slowdown in the economy, or even worse a recession. Among the expected measures China should provide: A) additional banking reserve ratio cuts, (Required Reserve Ratio) to increase banking lending activity B) lower interest rates to spur growth in the real economy, basically decreasing the Medium-term lending facility and the Loan-prime rate C) boost government spending in fixed asset investment via new issuance of special purpose bonds (railways, highways etc.). So far, China is tracking 5.8% well below late 2018, early 2019 levels.

More Hong Kong protests planned this weekend.

On Brexit, the newsflow is still hectic, this morning the press is reporting that UK opposition parties are planning for a general election on Oct 29th. Lots of debate on the path here but the market remains constructive on UK domestic risk and the flow has been supportive. Gbp has recovered this week 2% vs € and 2.5% vs the $. On a “funny” note, it is worth to mention that yesterday, Johnson’s brother has resigned from his seat in Parliament because of differences with the PM and in protest at his Brexit strategy.

On Macro, yesterday we had a solid Non-Manufacturing ISM, today there is the release of the important US nonfarm Payrolls for the month of August. Given ADP data was solid and unit labor costs beat yesterday we should be expecting a strong payroll number.

Bond markets have had a decent sell off last couple days and a strong NFP might only exacerbate this.

New York Fed President Williams (voter) flagged recent downward revisions to payrolls as a possible signal of less US economic momentum.