Wednesday, September 9, 2015

Risk on rally as we head towards final countdown for Fed – Deutsche Bank

FXStreet (Delhi) – Research Team at Deutsche Bank notes that the recent rally in global markets was a risk on rally which is unlikely to sustain for a long term, given the disappointing country level macros.

Key Quotes

“Global risk markets enjoyed some respite on the first trading day after US Labor Day holiday, feeding off gains in the Chinese stock markets and calming words out of G20 meetings suggesting that Chinese authorities are likely to keep the stock markets supported and the currency stable in the near term.”

“We continue to believe that the recent correction attributed to concerns over China and global growth and imminent Fed hikes was overdone, and that a large part of the extreme moves observed recently was due to a lack of market liquidity.”

“This in principal should bode well for some additional retracement. However, EM assets are still facing strong headwinds due to its fundamentals’ weakness, disappointing country level stories, and exposure to multiple risks (China, commodities, and the Fed).”

“Especially, as we approach FOMC next week, the final countdown toward Fed hikes has started. A September hike - considered as a (marginal) base case by DB but not discounted by the market - will likely be disruptive for risk markets in general and EM assets in particular. The recent correction has indeed brought valuation more attractive, but we are not convinced of a sustainable rally.”
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