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Saturday, 21 October 2017

Risk rally rolls on

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Divyang Shah sees the tardy US data on jobs as just a sideshow to the risk rally.

Divyang Shah, Columnist

Divyang Shah, IFR Senior Strategist

The delayed September nonfarms release finally sees the light of day on Tuesday. Given that the report covers the period before the shutdown/debt ceiling saga, it is not expected to provide much in the way of new information beyond telling us how the economy performed heading into October. A weak Sept payrolls would likely have little impact on risk markets beyond confirming what we already know… that tapering has been delayed.

A strong report, on the other hand, coupled with more positive revisions, would likely see the market willing to entertain the risk of a December taper. At this juncture a taper in December is unlikely, but not so insignificant a risk that it can be completely ignored.

A more likely date for tapering, however, is at the March FOMC meeting, with the end of QE pushed out from mid-2014 to sometime around Oct/Nov.

Removal of the twin risks of a Chinese hard landing and Fed tapering, along with a lack of eurozone related tantrums, has provided a significantly positive backdrop for risk markets. New record highs on the S&P500 are only the start, as many are now considering the prospect that we could see the index at 1,800 by year-end.

This is a train that no one wants to miss, especially when there are benchmarks to beat before year-end. Bond markets are likely to move largely sideways as risk markets continue to rally.

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