European markets are set to open small up after another positive session in Asia. The Eurostoxx future is approaching 3,500 almost the whole sell-off we had in August, the S&P is also not far from 3,000. Important to note that China has managed to close positively despite the weak data over the weekend, is bad data good again for markets as we are hoping on Central Banks intervention? Chinese import stumble, -5.6% YoY in August, bad sign for Emerging Markets (the eight contraction over the past nine months) while, exports decreased 1% in August, -16% exports from China to the United States and far below market expectations which saw +2% for the same month.

Hong Kong leader Lam’s withdrawal of the extradition bill did little to stem violence that’s now the norm on weekends. Demonstrators set fires, vandalized subway stations and set up barricades after tens of thousands marched to the US consulate to appeal for help. Riot police cleared areas that were blocked, fired tear gas and made arrests. Tourist arrivals plunged almost 40% in August.

Oil extended gains, +1% this morning, after Saudi Arabia changed its long-time energy minister before an OPEC meeting this week, signaling a potential change to Saudi Arabia oil output policy.

On Brexit, Boris Johnson isn’t giving up his Brexit ambitions despite the latest Tory defection. The PM remains committed to pulling the UK out of the EU by the end of next month and may challenge legislation requiring him to ask for a delay if there’s no deal by the 19th of October.The government is to ask MPs to agree to a snap election for a second time, in what could be one of Parliament’s last acts before being suspended. Amber Rudd quit the Cabinet and the Conservative Party in protest of Johnson’s leadership. A hard Brexit would throw the UK into recession next year, KPMG economists said.

On Friday we had the important US data on Payroll which was on the low side with a net downward revision of 20,000 to June/July. The unemployment report held steady at 3.7% but the underlying details of the household survey were quite strong (employment was up a whopping 590,000 and the participation rate ticked up to 63.2% vs 63.0% the prior month). The average workweek, which is viewed as a leading indicator of labor demand, rebounded 0.1 after testing the lower end of the recent range last month.This report doesn’t alter the outlook for the economy and is unlikely to move Fed expectations.

Citigroup’s economic surprise index, which rises when economic data prove better than forecast, has climbed above zero for the first time since February. Strong private payrolls data and a better-than-expected reading on the services sector helped pull the gauge into positive territory and propel the S&P 500 Index out of the trading range it had been stuck in for much of August.

We would fade the rally if it continues even this week and it is our intention to lower the weight ahead of the Central Banks messages due from next week. Positioning is not as low as it was at the end of August, expectations are higher along the line as there are new hopes for US/China deal, 50bps cut from the Fed, substantial announcement on QE by the ECB….In reality, nothing has changed, the Fed is not going to be as dovish as the market is hoping, Germany’s economy is basically in recession, recent manufacturing ISM contracted for the first time since August of 2016, Companies are pulling back on CapEx due to the trade war, and this will show up in EPS. Markets have recovered the “price to perfection” situation but the reality has not changed.