From the FXWW Chatroom – The recent drop in equity markets encourages to be more pro-risk because of supportive valuations and positioning.
Investors are long cash, USD, short EM. They are also the most bearish on global growth since the GFC and 85% now believe we are in late cycle. A very bullish stance would be justified should the US and China find a deal + Chinese growth bounce.
On the latter: signs of Chinese growth bottoming out
The China Monetary Conditions index (MCI) suggest PMIs and Chinese growth, along with metal prices, should have seen / be close to a bottom.
On fiscal, the benefit from the lifting of tax-free threshold to Rmb5k/mth, (kicking in in Oct18) + 6 deductions in early 2019 = savings for taxpayers range from 100% to 14%.
Start to position. Buy AUD calls that include the G20 meeting and Xi’s December speech, and capture Chinese bounce + metals recovery. The currency is already cheap anyway.
S/r 0.7090 buy 4m (21Feb) 0.7400 AUD calls (20d) at 8.6 vols (57.4 %AUD)
The RBA is behind the curve, The AUD Trade Weighted Index is well off the highs and its relationship with Australia’s ToT suggest the AUD is very cheap. Chinese intervention in the equity market should also be a relief.
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