Stocks perched on the edge

Friday's stock rebound in the US was a welcome relief after the nail-biting two days of losses that preceded it. And it was somewhat unexpected to see stocks making a fight back into a weekend when you might have expected them to hunker down, lick their wounds and wait for a new week. Strong bank earnings figures last Friday surely helped. But with US Treasury bonds still up at 3.16%, a V-shaped equity recovery seems a stretch too far as we head into the year-end. Buying this dip may take a while to pay off. And the downside risk remains substantial.

The week ahead offers a lot for us to digest on the political front. Bavarian elections over the weekend show us that even in Germany, the old political order is under threat, with new regional elections in a couple of weeks. Carsten Brzeski outlines the details of this in his recent note.

Then there is the Brexit deal, or rather the lack of it, which is weighing on both the GBP and EUR. There was supposed to be a meeting of EM ministers today to proclaim some sort of deal having been struck. But it appears that weekend talks have reached a stalemate. Instead, the EU is meeting to talk about contingency measures in the event of no-deal. That doesn't sound very optimistic.

Emerging market sentiment may have been given some support by the Pastor Brunson release from Turkey - but the alleged murder of the Saudi journalist in their embassy in Turkey opens a new source of risk, as President Trump threatens "punishment". Any Saudi retaliation will presumably mainly come through reduced oil supply and higher prices. That won't help market sentiment.

Then in terms of the macro picture, there are the Fed minutes to digest mid-week. After recent market turmoil, these will be pored over for any signs that the Fed is veering towards a faster pace of tightening. I don't expect there to be any.

Reserve Bank of Australia (RBA) minutes provide some of the central bank interest in Asia-Pacific this week, though they haven't been interesting for a very long time. You have to at least have some potential near-term policy action for such publications to be worth a read. This is not the case for Australia, though it would be interesting to see how the RBA were evaluating Australia's house price declines and high household indebtedness (mainly housing related) with their longer-term positive view of the economy. It seems to me that you can paint a much bleaker scenario based on the household balance sheet erosion.

The BoK has been a bit more interesting of late, with some hints about hiking rates (same household debt problem as Australia), though later backtracked. We aren't expecting a rate hike this week. But the confusing signals coming out of the BoK mean that we shouldn't rule anything out. Tough talk might just be one way for the BoK to try to realign the KRW which has been one of the worst performing currencies in the region month-to-date. Indeed, a number of economists are looking for a hike this week - about 7 out of 18 according to the Bloomberg poll.

For a bit of real economy data, Singapore's Non-oil domestic exports on Wednesday offers a break from all the political and central bank noise.

But the key event to watch will be China's 3Q GDP release on Friday, where a very slight slowdown of the YoY growth rate from 6.7% to 6.6% is the consensus expectation. Any softer than that will likely put the yuan under weakening pressure.