The Weekender: Navigating the Whirlwind, It's All About Catching Waves & Reading Currents

It’s been a whirlwind of market action this week , with plenty of moves to digest and, as always, the need to manage both the negative and positive tail risks.

Friday on Wall Street felt like a high-wire act, with the rally taking a backseat to quarter-end rebalancing and the looming anticipation of next week’s NFP (Non-Farm Payroll) report. The Dow eked out a small gain, while the S&P 500 and NASDAQ took a breather, slipping just a bit—despite flirting with record highs. It’s like they’re teasing us, hanging right there on the edge, but the real action could be just around the corner when those payroll numbers hit.

The real party on Friday wasn’t in the stock charts—it was in the inflation data. A cooler-than-expected PCE inflation print had the "50 in November" crowd throwing confetti like it was New Year’s Eve. Core PCE, which the Fed watches like a hawk, clocked in at 2.1% on a three-month basis and 2.4% over six months. Those softer-than-expected numbers gave fresh momentum to those betting on another 50-basis-point rate cut coming in November. The ultra-doves are celebrating, and the markets are keeping an eye on how this sets the stage for the next Fed move.

With quarter-end rebalancing in full swing and the all-important jobs report looming, the markets felt like a runner poised at the starting line—ready to sprint, but holding their breath. Nobody wanted to make any bold moves just yet. It was the quintessential "wait and see" day, with investors treading lightly, positioning themselves ahead of what could be a game-changing week.

Everyone knows the Fed is now laser-focused on U.S. jobs data, so no one's eager to get out over their skis before next week's Non-Farm Payrolls (NFP) report drops. The stakes? Huge. This report could keep the ultra-doves grounded or send them soaring again. It’s a make-or-break moment: will the dovish camp get more ammo to push for rate cuts, or will cold, hard data bring their optimism crashing back down to Earth?

Even with Friday's mixed bag of trading, major U.S. indices are still on course for weekly gains. A solid GDP reading and a consistent cooling off in inflation have bolstered confidence that the Fed might stick the elusive "soft landing"—all while gearing up for a possible rate-cutting spree. It’s the balancing act that keeps investors on the edge, hoping the Fed can nail this tricky landing without sending shockwaves through the economy.

China's Market Mania: A Stimulus-Fueled Surge

Meanwhile, in China, markets wrapped up the week with a literal bang. Mainland shares soared on a wave of stimulus-induced optimism, closing out more than 15% higher. The CSI 300, China’s beleaguered blue-chip index, is now up a staggering 17% from its September 13 lows. For an index staring down the barrel of a fourth consecutive annual decline, this week’s rally—featuring three separate sessions with gains of 4% or more—felt like more than just a lifeline.

But before we start popping champagne bottles, let’s pump the brakes. While some of this rally might not have been entirely state-engineered, a good chunk was clearly investors racing to get ahead of government interventions. This kind of market front-running is the norm in Asia, but organic demand? Not quite. It’s more like everyone’s piling in, hoping the government keeps coming to the rescue.

And frankly, all this cheerleading from those who don’t fully grasp the nuances of China’s economy—hello, U.S. Bank sales desks—is a bit much. The same tired line of “this time is different” keeps making the rounds.

We’re all in the business of rolling the dice on China’s stock market roulette—it’s what we do. But let’s not kid ourselves; until China addresses its deep-rooted structural problems, this rally could be nothing more than a temporary sugar rush. For the sake of Chinese citizens drowning in debt under a one-man regime, I genuinely hope I’m wrong. But if history’s taught us anything, it’s that blind optimism isn’t a winning strategy.

The Yen's Wild Child Moment

Switching gears to the FX market, the Japanese yen turned into the “Wild Child” everyone suddenly wanted to ride. Volatility spiked after USD/JPY plunged 4.5 big figures, fueled by the news that Shigeru Ishiba clinched the Liberal Democratic Party (LDP) leadership. A formal vote in the Diet on Tuesday is expected to rubber-stamp him as Japan’s next Prime Minister.

So, what changed in the blink of an eye? Well, the markets seriously missed the mark on one thing—Sanae Takaichi’s surprisingly strong showing. She actually outpaced Ishiba in the first round of voting, bagging 181 votes to his 154. But in the second round, which carried more weight with LDP Diet members, Ishiba pulled ahead, thanks to broader appeal among his supporters.

The yen’s surge wasn’t just about Ishiba winning—it was more about who he isn’t. He’s not Sanae Takaichi, a vocal critic of any Bank of Japan (BoJ) monetary tightening. Ishiba, with his focus on beating deflation, isn’t exactly BoJ policy’s number one cheerleader and his stance will likely be shaped by incoming economic data.

.The sharp drop in USD/JPY has already caused a noticeable shift in market behavior. Traders who were comfortably "buying the dips" last week have flipped to "selling the rallies" as they scramble to cover their positions, realizing they’re under-hedged against a strengthening yen

Now, while yesterday’s election result signals that BoJ policy isn’t about to change dramatically, a hefty fiscal stimulus package could ramp up expectations for an earlier rate hike. But let’s keep things in perspective—the yen’s future trajectory will depend far more on how quickly the Fed starts cutting rates and, of course, the next big data point: next Friday’s NFP report. That’s where the real fireworks could start

Given the yen's notorious volatility, I'm not diving headfirst into a full-sized short USD/JPY position unless I see more than just a 200-pip downside window. I need convincing—the kind that comes from clear weakness in U.S. data. Sure, we cashed in nearly 300 pips on those lucky shorts from above 146—because, hey, you never kick a gift horse in the mouth—but I'm still holding out for that perfect storm where the U.S. economic data aligns. Yes, we’ve got a small hedged short on USD/JPY, but my ideal play is to sell closer to 144 before the NFP hits, which would then give me 400 downside pips, assuming 140 USDJPY is the name of the game on this next leg of the USDJPY trade. To me, that level ( 144) is a no-brainer risk-reward ratio.

China's Policy Shift: More Than Just Smoke and Mirrors?

Back to China, the real headline this week has been the significant shift in domestic policy. With growth slowing over the summer, Beijing has stepped up its game, rolling out a suite of new measures designed to stop the economic slide. This signals that policymakers are now much more serious about preventing further weakness as we head into year-end.

While the stock market has been riding the stimulus wave, my focus always gravitates back to the FX market. The upward momentum for Asian currencies, driven by the anticipation of faster Fed easing, has only strengthened. Case in point: USD/CNH has dipped back below the critical 7.0000 level for the first time since May last year. Meanwhile, the Thai baht (THB) and Malaysian ringgit (MYR) have been outperforming, riding the same wave.

Now, the MYR isn't the easiest currency to trade directly—you’d have to dip into Malaysian assets for exposure—but the offshore THB is fair game. That said, I think the real cash has already been made, and now we’re left in the "breadcrumb" phase. The FX market is going to need some solid proof of China’s economic comeback before we see any fresh, big moves.

In other words, it’s time to buckle up and wait for the data to show whether China’s stimulus efforts are actually delivering on their promises. Only then can we gauge whether there's still more juice left in this trade or if it’s time to shift focus.

Commodity Currencies: Still Time to Join the Party?

In the G-10 space, commodity currencies are having a moment in the sun, with the Australian dollar (AUD) and New Zealand dollar (NZD) grabbing all the attention. AUD/USD just smashed through the key 0.6900 level, which signals plenty of upside potential from any technical perspective. We could easily see a run into the low-to-mid 0.7000s, especially if the momentum holds. It's prime time for the Aussie dollar, and the charts are hinting that there’s more juice in this rally.

So, if you’re thinking you’ve missed the down-under currency party, think again—you might still have time to get in on the action. But as always, timing is everything, and you'll need more than just a "gut feeling" to keep this trade moving. We’ll need solid evidence of a strong recovery in China and a visible uptick in physical commodity demand for a true breakout. Without that, any rally could lose steam quickly.

This is a classic case of "show me the data." Until China really starts cranking the gears again, the Aussie and Kiwi could remain range-bound, so don’t jump in expecting fireworks unless the economic backdrop delivers the goods. But it’s an upside risk that is worthy of a small hedge.

Commodities React, but Oil Slips

Global commodity prices have started to come back, with Bloomberg’s commodity index jumping around 7% from the month's lows, shaking off the sluggish summer. That said, it’s not all sunshine and rainbows—there are still weak spots in the commodity space. Take oil, for example. Prices have slipped toward year-to-date lows, rattled by fears that OPEC+ might be pivoting.

OPEC has been sending out feelers through the media, hinting that it’s ready to ditch the unofficial $100/barrel oil price target. Instead, it's eyeing a strategy shift toward preserving market share, which would flood the market with more supply and drag prices down even further. That’s great news for big importers like Japan, South Korea, India, and China, but it’s a major headache for oil bulls.

In these circumstances, we expect a tailwind for Asia's oil-importer currencies.

Election Watch: Markets Brace for Impact

The looming U.S. election on November 5th is shaping to be the biggest wildcard for the current upward trends in Asian and commodity currencies. With the race tightly contested, the prospect of Donald Trump returning to the White House could send shockwaves through the market, particularly for currencies riding high on positive China sentiment. Trump's penchant for trade wars and protectionist policies could reverse much of the recent gains, reigniting concerns for economies reliant on global trade, especially in Asia.

Conversely, a win for the Democratic candidate could keep the good times rolling for these currencies. We saw a similar playbook unfold in late 2022 and early 2023, when the USD/CNY pair plunged nearly 9%, from above 7.3000 to just under 6.7000. That sharp move was largely driven by improved U.S.-China relations and optimism for global trade under a more predictable, multilateral approach to policy. If the same scenario plays out post-election, we could see a fresh wave of gains across Asian and commodity currencies, assuming the threat of a second Trump presidency is off the table.

The bottom line is that the U.S. election is the elephant in the room, and its outcome could make or break the rally for emerging market currencies.

Euro's Balancing Act

Additionally, the improving growth outlook in China is proving to be a tailwind for the euro, adding more fuel to the belief that EUR/USD will remain comfortably trading between 1.1000 and 1.1400. However, the euro's upside is capped by rising expectations that the European Central Bank (ECB) may accelerate its rate-cutting cycle. September’s sharply weaker inflation figures have provided ample justification for the ECB to deliver another rate cut in October, potentially back-to-back.

So, while we’re still bullish on the euro’s broader prospects, we’re exercising caution for now. We only want to buy on deeper dips while targeting knock-ins above 1.1225. The potential for further gains exists, but the near-term is about timing the right entry in a market poised for monetary easing.

Final Thoughts

In a market going vertical with FOMO (Fear Of Missing Out) vibes on full blast, staying nimble is the name of the game. Wall Street's latest rate-cut-triggered moonshot, China's stimulus-fueled market mania, the yen's rollercoaster ride, and looming political landmines all add to the cocktail of volatility, making traders both giddy and cautious.

But here’s the deal—trading isn’t just about catching the wave; it’s about reading the currents. Sure, there's room for high-flying bets, but those tail risks could throw the market into a tailspin. So keep your hedges tight and your risk radar sharper than ever. And hey, a little humour never hurt—because in the high-stakes world of global markets, sometimes you’ve just got to laugh, roll with the punches, and remember that the house doesn’t always have to win. But when it does, at least you went down swinging!

NUTS & BOLTS

Departing from my usual "Nuts & Bolts" focus on U.S. economics, China is taking center stage this week. All eyes are on Beijing as they roll out a series of bold, headline-grabbing policy measures to jolt their economy back to life. Not every day we see the world’s second-largest economy go all-in like this, and the ripple effects are starting to spread across global markets.

After months of calls for bolder action, China’s policymakers finally brought out the big guns this week. Instead of sticking to its usual playbook of drip-feeding the economy with piecemeal fiscal or stimulus tweaks, Beijing decided to swing for the fences, unleashing a coordinated blitz to boost confidence. While we remain skeptical that this latest round of measures will single-handedly reignite growth, it's undoubtedly a step in the right direction. The message is: they’re done with half-measures, and now it’s all about swinging big.

The three standout moves in China’s latest policy push were eyebrow-raising: direct central bank support for the stock market, capital injections into the big six state-owned banks, and—perhaps most surprisingly—cash handouts in the form of consumption vouchers just ahead of Golden Week (the seven-day national holiday from October 1-7). The latter, in particular, has been a hot-button issue since the pandemic, signalling that Beijing is now serious about propping up consumer spending.

While we’re still waiting on official details about the total fiscal cost, it's unlikely that these measures will blow the budget. On top of that, the slew of monetary and macroprudential actions—like cutting benchmark rates, slashing mortgage rates, and reducing the downpayment ratio for secondary homes from 25% to 15%—is laser-focused on stabilizing China’s troubled housing market. Beijing has finally gone beyond just talking the talk. Whether it’s enough to turn the ship around remains to be seen, but at least they’re steering in the right direction.

The decision to supercharge stimulus in China likely stems from four major developments: (1) housing prices are in freefall, (2) the job market is floundering, (3) corporate profits are shrinking, and (4) the looming threat that the trade war with the West could intensify. The steep slide in the housing market has proven harder to halt than Beijing anticipated, with existing home prices in the 70-city average plummeting by 9.0% year-on-year in August.

While the official urban unemployment rate of 5.3% in August might not raise alarms, it’s masking a more troubling reality. The labour market’s “true” health is far direr, especially when you consider that youth unemployment is soaring at 18.8%. On top of that, industrial profits are in free fall, nosediving by 17.8% year-on-year in August—a stark sign of corporate strain.

The U.S. presidential election, now just weeks away, is adding more fuel to the fire. Beijing is aware that a Trump victory could escalate trade tensions, potentially leading to higher tariffs on Chinese exports. Given this cocktail of pressures, it’s no wonder that Chinese authorities felt compelled to ramp up their economic defences, preparing for the rocky road ahead.

Although Beijing's recent policy measures are a step in the right direction, we're still cautious about the underlying health of China's economy. The manufacturing and export sectors have largely propped up growth, but that lifeline may be short-lived. A lot of the recent uptick in exports could be driven by importers scrambling to get ahead of impending tariff hikes—something that won't last forever.

What’s more concerning is the ongoing struggle to stabilize the housing market. The sheer volume of new, unoccupied housing stock is staggering, and it will likely take years to work through the backlog. According to recent estimates, the number of presold but uncompleted housing units has skyrocketed. In fact, the IMF reported in August that "unfinished presold housing as of end-2023 amounted to eight times the 2023 annual completion rate." To put that into perspective, we're talking about roughly 60 million units still in limbo.

So, while China’s ailing economy has received a much-needed stimulus injection, we remain skeptical. While the measures are encouraging, Beijing’s coordinated policy efforts are unlikely to provide the lift needed to fuel a full economic recovery.

TWEET OF THE WEEK

“The trading system is simply overwhelmed. There is a huge stampede of stock bulls.” Hao Hong, chief economist at Grow Investment Group, said in a post on X.

CHART OF THE WEEK

RUNNING UPDATE

I’ve had one hell of a productive week of running, even if my Garmin watch is acting like I went from hitting my 12-week endurance peak to plummeting off a cliff in just four runs. I’m convinced the system’s got a glitch because I’ve been sticking to my low and slow Zone 2 routine. I think the borderline Zone 2/3 heart rate is messing with the metrics, but whatever—it’s not shaking my confidence. I’m fully committed to racking up the kilometres with that "run slow to run fast" mentality. No chasing peak times for now, just stacking distance and letting the magic happen.

My new goal? Burn through these Asics Kayano 31s before Christmas—500 more kilometers, totally doable at 170 km a month. I want to hit 2025 with a fresh pair of runners and a plan for big, healthy things. Time to let the kilometers do the talking!

SONG OF THE WEEK

With "Proud to be Scottish" blood surging through my veins, it's no shock my playlist is drenched in the sounds of Scottish and Irish bands. But it’s not just the heavy hitters that fire me up—Kenny Anderson, aka King Creosote, is one of those hidden gems. Hailing from Fife, his tracks embody that raw, authentic vibe I can’t get enough of. Today, his song "For One Night Only" hit me hard, turning my run into something epic. Talk about pure inspiration!