NY MORNING: Equities On Edge

Risk sentiment meaningfully softened through Asia and looks likely to weigh on price action until the end of the session. The main catalyst which started the move that saw S&P 500 trade back into 3,100 and ASX 200 fall precipitously to the tune of 120pts stemmed from the Hong Kong Democracy and Human Rights Bill. The controversial bill which fights for Hong Kong autonomy has gained bipartisan support in the Senate and now goes to a vote in the House of Reps.


Does VIX point higher? Source: Eikon.

The fact that the bill is only a few steps away from being enacted puts a significant strain on US-China trade talks, which has seemingly fared better in recent times. China have made their stance clear that any involvement from the US in domestic affairs will be met with forceful measures. A sustained break above 7.05 in USDCNH, a leading indicator of US-China trade health, could potentially drive more bearish price action in the near-term and see the VIX target 14.9/15 levels. 

Jeremy Corbyn's performance in yesterday's anticipated TV debate was met with mixed reviews. Some said he beat out Johnson convincingly while others disagree. GBPUSD failed to hold and is now trading around 1.29 levels, 100pips off our 1.3 target. However, we view Corbyn's marginal win as less important for overnight GBP weakness and instead primarily attribute the slide to USD risk. We maintain medium-term GBPUSD bullish bias on expectations that Conservatives win the UK election come Dec. 12 but note that price action is likely to range in the mean-time until then.
 

Data risk ahead

Despite the slow calendar week, markets start to see the first signs of scheduled risk in CAD CPI due out at 1.30pm LT and FOMC Minutes set for release around 7pm LT. CAD CPI likely serves as the more interesting release out of the two given the firm bid in USDCAD through November. Overnight,  comments from BoC Member Wilkins reaffirmed the BoC's dovish-to-neutral tone and helped USDCAD make a sustained approach towards 1.33 alongside a broader USD bid. Long positioning in the Loonie has retreated sharply after having been the strongest conviction bet among G10 currencies.

In terms of the FOMC, we expect broad-based consensus among members in how they view the strength of the US economy presently. We closely monitor any balance sheet discussion and the extent in which the Fed will continue to undertake "not QE" open-market operations.