[cppene]

On Friday, a stronger than expected employment report in the US boosted appetite for risky assets and pushed stocks and yields higher. Interestingly in FX space, price action did not confirm the typical correlation of higher equity prices corresponding to a weaker dollar. In fact, EUR/$ declined sharply and $/JPY appreciated strongly as well.

It is quite hard to say whether the correlation between the dollar and equity markets has broken down or whether Friday’s price action was a direct result of positioning shifts. However even if the EUR/$ continues to benefit from higher equity prices, being short EUR vs EM currencies can cancel out the volatility from risky assets and can offer a positive carry/low vol way to express long term EM outperformance views with a valuation benefit.

The key data points for today will be the Chinese credit numbers, which will likely indicate a moderation in the size of new loans creation on a monthly basis but still at a high 34%yoy growth rate.