Slower growth could end risk rally

October 6, 2015

A strong rally in equity markets has come on the back of the weaker marco data as rate expectations are pushed back which makes risk assets more attractive. The issue investors face however is that if the global slowdown continues then this will impact corporate profitability further and the strength in equities we’ve seen in the past few days could be short lived. Investors look to be slowly but surely reducing the chances of a 2015 Fed rate hike as reflected in the currency and fixed income markets. The recent nervousness in financial markets and concerns over China is filtering through to the wider global economy as yesterday saw lacklustre services data not just from the US, but the Eurozone and in particular the UK which saw its lowest reading for the services PMI since May 2013. This translated into sterling weakness as GBPUSD retreated from the 1.5200 level again and it remains just above key support at 1.3450 on GBPEUR (just below resistance at 0.7435 for EURGBP).

Overnight there were no surprises from the RBA who kept rates on hold at 2% which led to a spike higher in AUDUSD back above the 0.7100 level and the Aussie sits at 0.7110 at the time of writing. For the remainder of today things are quiet on the economic data front but later on tonight there will be a speech from the ECB’s Mario Draghi and even later from the Fed’s voting member William who’s been calling for a hike in 2015.

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