End of August and the mood is sour with the usual set of geopolitical worries dominating – from Trump Trade to ECB rate hikes/QE ending, to Brexit and to EM FX chaos. This is not the way the summer bull rally story is supposed to end.The chance for a sequel into September beguiles but isn’t convincing. These are the key stories apart for a myriad of important economic data that moved markets:

The economic data is also part of the bear returning in Autumn fear as Japan Industrial Production missed mostly because of trade worries, as China PMI was better but the guts show trade issues, as German retail sales missed and as the Eurozone flash inflation was lower than expected, leaving room for the ECB to be less aggressive despite the Austrian CB comment last yesterday. There is everything in the news to be cautious on risk and so its not a surprise to see most equities lower, most bonds higher, commodities lower, safe-haven FX higher with CHF leading. The pivotal ending today is about CAD where the market is prepared for trouble if you believe the positioning data with 1.35 hopes but with the political hopes of Trump and Trudeau aligned for a NAFTA deal today it’s a risk for a larger 1.2880 breakout. The big picture for C$ is not so optimistic and perhaps that is what matters into September, the bigger picture, forget the endings for the month and fear the sequels into the Autumn.

Question for the Day: Are we supposed to buy the EM dip?  The divergence between EM and DM equity markets remains in play for September.Pain trades in ARS, TRY, BRL, INR and ZAR stand out.The question to ask is whether the modest rebound from the middle of August in shares is a siren call to rejoin market or whether it’s just not yet safe given that the FOMC rate hike for September has all but been promised, given the Trump trade deal hopes for China are post mid-terms and given that positions aren’t yet extreme enough. The value vs. growth plays are in contrast here and the technical signals remain telling us to sell.

BoAML’s Fund Manager Survey for August showed fund allocation to EM equities at -1.0%, having fallen 44% since April 2018 highs, but still well above prior crises lows of -17% in 2008 (Global Financial Crisis), -31% in 2013 (Taper Tantrum), and -33% in 2016 (China/Oil).