Monetary policy has been the centre of attention. The FED decided to leave interest rate unchanged this week. The odds of a December liftoff rose to 50%, from 35%, after the U.S. central bank dropped a reference to global risks and asserted that economic growth remains “moderate.” Likely, the payrolls figures on Friday will be very important for the FED decision. Based on a domestic issue, the FED has to act and increase the interest rate. Growth remains steady; so far 63% of the SPA 500 companies reporting earnings beat analyst’s estimates. We are expecting to see this trend ongoing in the coming weeks. Inflation remains subdued and unemployment is at a very low level. If the international picture is a bit more complicated, the FED could lose credibility if it does not act.

In one of the shortest meeting ever, BOJ decided to maintain also status quo. The reality is that BOJ is waiting for the FED to act. Increases in the rate in the US will boost USD against JPY and will stimulate Japanese exports. Japan is already gaining from the Chinese devaluation, 20% of Japanese exports go to China. So, if the FED would increase interest rate in December, likely BOJ would not increase EQ before March. But we are still convinced that sooner or later BOJ will increase it is monetary policy program.

This week, the Bank of Australia could decide also to wait for the FED to act before decided to increase interest rates. The decision is expected for tomorrow and the consensus is split 50/50 between a quarter of point increase and no change.

The Chinese economy is not set for a hard landing. The PMI manufacturing came back this morning at 48.3, below the expectations. In a normal situation, a figure below fifty signals a contraction. But in the Chinese case, fifty is not the border between a contraction and an expansion. Another strong indicator of the Chinese economy is the commodity. Indeed, due to prices and USD dollar effect, the value is down. However, commodity demand in volume is increasing. The Chinese economy is in a middle of an economic model change, shifting to a more modern and “services” economy. We cannot expect anymore a two-digit growth but more an average growth of 5%-6%. It is probably too early to buy China and emerging markets, but this time, will come soon.

The main investment themes remain the same. Long European and Japanese equity because a more monetary policy is on the way. In low-interest rate environment, preference for small and medium cap stocks. It is too early to consider emergent market due to USD potential appreciation and commodity prices uncertainties.

On the FX side, EUR, JPY, and AUD would be at some stage under pressure against, particularly USD and GBP.

On the commodity side, Gold remains an insurance against uncertainties and high volatility. Energy would remain under pressure and some agriculture commodity should be considered as a potential investment.