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Best week in 18 months for risk

The unwinding of the short trade and the bidding up of risk assets and risk markets will enter its eighth day today, after last Tuesday’s capitulation.

Sydney
Source: Bloomberg

Looking at the futures markets and the out-of-hours cash markets, today should see several mini-records being broken and see risk assets recording its best Monday through Friday rally in over 18 months.

Stats of the week

This should be the first Monday through Friday rally since 20 January and the first five consecutive up days since 14 June. Since last Tuesday, the ASX has add $89 billion in value and is at a net positive of $44 billion over the past two weeks.

The material sector has added 7.8% since Monday – its best weekly gain in 2015 and biggest weekly move since 2013, while the energy sector has added 12% this week – the best weekly gain since the week beginning 20 February 2012. Brent crude is at US$53 a barrel. It had its first $5 rally since September and has broken above the 100-day moving average for the first time since July when it broke to the downside.

SPI futures are forecasting the ASX to hit its highest level since 28 August. If the ASX adds the points the futures are pricing, it will have added 458 points since the close on 29 September.

What else is catching my attention

Fed fund futures for December is pricing in a 38% chance of a hike – its lowest level of the week and remaining at the lowest levels of the year.

Expectations of a rate cut in Australia in 2015 have fallen to the lowest levels since the China ‘hard landing’ concerns ramped up. The interbank market is pricing in a 20% chance of a November cut while the December cut has fallen from a high of 61% on Monday to 31% chance at the close yesterday. 2016 expectations of a cut are building, with the first meeting of the year being in February – pricing in a 72% chance of 25 basis point cut.

The central bank divergence trade is at its lowest level in 12 months as rate expectations in either direction are at its most neutral in point since October 2014. In the past nine days, the best performing G10 currencies versus USD is the NZD up 4.27% and AUD 3.38%. The next is CAD, is up 1.88%.

Ahead of the open, we are calling the ASX up 67 points to 5277. If the ASX was to close at that level, it would see the ASX adding 4.45%, making it its best week since 8 July 2013 when the ASX added 4.4%.

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