We should see a positive open helped by a last minute recovery in US and positive Asia (Japan +1%, Hang Seng +1.7%).

The sector rotation continued even yesterday as Crowding is starting to be an issue and it doesn’t feel like we are “out of woods” yet.

ETFs and Index future volumes were minimal compared to the moves in the factor space for the last few days. Single stock and Sector traders have been instead very busy.

Over last week, performance dispersion across EU factor pairs was the highest since 2016 and 5th highest since 2013.

If you ask how did we get here you should analyze first the performance we had in August. Momentum long / short rallied over 17% in August (best month since June of 2008) and has now lost nearly 10% in just 5 days!

Additionally Europe’s Most Short basket has been outperforming the market suggesting a squeeze beneath the surface.

Sector-wise, Autos and Banks own 70% of the Low Quality spot rally over last week.

At the index level, FTSE continues to underperform on GBP strength, after a GDP beat and further defeats for Boris Johnson.

Yesterday, the Chinese Premier Li stated that US and China should find some solutions to this trade dispute that is damaging both economies. It seems that the ongoing war has already halved oil demand growth (cut 800,000 barrels a day from consumption growth since the end of March 2018). In addition, it is distorting Macro data as US Retail imports reached an unusually high number before September (1st tariff tranche). Some officials said that China is expected to agree to buy more American agricultural products in hopes of a better deal with the US.

China is further opening its financial system to the world, in a move that removed the $300Bln overall cap on overseas purchases of assets. Until now, foreign investors had to seek for government approval (under QFII and RQFII program) in order to buy Chinese stocks and bonds in Renminbi. So far, the Chinese bond market accounts for $13 Trillion while the Chinese Equity for $7 Trillion and two thirds of $300Bln cap quota are still unused. Clearly, Chinese authorities are looking for foreign capital to balance payments and increase Renminbi use.

In US, there was also the interesting news of Trump declaring the US – Taliban talks dead.  He also warned that the US could do “certain things” that would cost millions of lives in a move to end the war, a step he said he doesn’t want to take. Following the Taliban crisis Trump decided to fire John Bolton as national security adviser.

Along with Citi, Deutsche Bank and Wells Fargo JP Morgan reduced the annual net interest income target due to the current rates environment. Profitability is key concern in the current situation as margin are shrinking and trading diminishing.