September Themewatch

Some good moves on the first trading day of the month leave us optimistic that volatility and the opportunities that it brings are back. We look at the dominant themes in the market at the moment. On Tuesday, the trio of EUR, CHF and USD far outpaced the rest of the market while finishing relatively unchanged against each other.  Our Premium subscribers received an alert prior to Today's NZ dairy auction, whose fresh decline in price fueled our Premium NZD shorts against CAD, JPY and AUD. Our Premium GBPUSD short is more than 100 pips in the green. See charts & trades details in the Premium Insights.

Theme 1: US economic recovery and coming rate hikes

This is by far the dominant theme and the burgeoning USD bull market is the result. On Tuesday, the ISM manufacturing index rose to a 10-year high at 59.0 versus 57.0 expected. In many ways it's truly astounding that the Fed is still at 0% and printing $25 billion per month.

Theme 2: Disinflation in Europe

Deflation fears capture many different themes that all point to a lower euro. The main one is the potential for ECB asset purchases and/or another minor rate cut this week. The euro fortitude on Tuesday likely reflected some position squaring ahead of Thursday's ECB decision.

Theme 3: War in Ukraine

If it wasn't clear that Russia wouldn't back down when the Malaysian Airlines plane was shot down, it's abundantly clear now. Ukrainian forces demolished the Luhansk airstrip as they retreated in a sign that they don't plan to be back soon.

Minor-theme 1: Can it only be Brazil

Terrible GDP data last week showed Brazil in recession. It's improbable that what's happening there isn't hitting other emerging markets. Fear is building.

Minor-theme 2: Scottish referendum

The latest poll put the side voting for independence at 47%, up 6 points in the past week. What was once a curiosity is now a pressing matter with the Sept 18 referendum looming. Traders hadn't seriously considered the implications of a breakup but they are now.

In the hours ahead, Australian Q2 GDP at 0130 GMT is the top release. The consensus is for 3.0% annualized growth. Stevens also speaks at a 0320 GMT function in Adelaide and could add some colour to yesterday's RBA decision.