The flash PMI in China came in better than expected at 50.1 (versus 47.7 in July) confirmed the pick seen in July. As we said on Monday : The slowdown in global manufacturing in 1H13 and lower inventories open the door to a turn in the inventory cycle which could give a positive lift for Q4 the major economies.
The FOMC minutes make it clear that there will be reduction in the $85 billion in Government bonds and MBA’s. The guessing game has now started: By how much and will it be in one or the other major classes. We doubt that Ben Bernanke wished to leave his mark in history at the end of his mandate by precipitating a new downturn in the US housing market.
The fact is that the US and China, followed by Europe and now Japan have created a monetary bubble which can only be deflated, as all bubbles, with great pain, especially in the EM. National policies thinking remain, unfortunately, a 100 years behind the reality and consequences of the interrelationships of a global economy. Sadly, it is the champions of the ideals which pushed for, and created, globalization, which today in their actions, have become the main opponents to change.
We were stopped out in our short EURUSD position at 1.3410, but reinterred the position again as we saw no follow through on the upside. We have lowered the stop on half the position to 1.33875 and the other at 1.3415. First target remains in the area of 1.3220-1.3200.