The fall in equity prices last week reached levels that force me to reassess the significance. This is because it is the largest weekly fall (I’m referencing the S&P 500 which in my view is the most important equity index to follow) for quite a few years, when that happens you have to at least do your due diligence and ask why it’s happening. I’ll leave fundamentals to the smarter fellows, but from an Elliott Wave Theory perspective I am starting to wonder if we have completed wave 3 of the bull market rally since March 2009. I will have to do some more technical analysis before I can increase my level of conviction that this supposition is correct, but what this could mean is that we are in for a correction which could target the 1740 – 1850 zone (for Ellioticians this is the price territory of wave iv of 3). This would be a 10 – 15% correction, no small thing, but as I said a bit more analysis is required before I change my view that we should still attempt to recapture the highs by yearend. We have the years final FOMC meeting on Wednesday, it’s entirely possible that the smart money has been anticipating a change of wording and is de-risking in front of the announcement.

Japan’s Prime Minister, Shinzo Abe’s Liberal Democratic party cruised to an election victory over the weekend, strengthening his mandate to continue with his aggressive policies to force Japan out of deflation. The fact that year on year inflation in Japan has been above 2% for some time is no reason to exclude the narrative! This is likely to mean that the Japanese yen will continue its weakening path for the next few years. Expect to see USD/JPY at 130, even 140! Currency wars here we come. We can’t all have trade surpluses, but it seems everyone’s trying to achieve this. Good luck!

Oil prices are attempting to bounce this morning, unfortunately no one has told the Russian rouble which is already 0.7% weaker. The Financial Times reports, this morning that, Russian dollar denominated debt is now commanding yields slightly in excess of that experienced by Rwanda, clearly there are severe stresses impacting Russian assets, and a major crisis is unfolding, I have no idea what the endgame is, but it certainly doesn’t look like a pleasant outcome. Perhaps there are sensible reasons for diminishing risk sentiment after all!

For now the equities up-dollar up (equities down-dollar down) paradigm remains in force, which shows the US dollar is the poster currency for positive growth prospects. If my supposition that we are about to see a decent equity market correction is right, then we could also see the US dollar pullback versus other major currencies as well. There is no clear pattern this morning where the US dollar is concerned versus other major currencies. Up slightly versus the euro, but down against pound sterling; up against the New Zealand dollar, versus down slightly against the Australian dollar. No clear pattern, I’m afraid. The Japanese yen is slightly stronger versus the US dollar, which could be viewed as an interesting outcome, considering Prime Minister Abe’s electoral success. In Emerging market space the Russian rouble, Turkish Lira, and Indian rupee are all weaker against the dollar, but spare a thought for the Indonesian rupiah which is now weaker than it’s been since 1998. As I keep saying, the Russian rouble is by no means alone feeling the heat of falling commodity prices and imminent US interest rate normalisation.

We have Empire Manufacturing data later on today, which is expected to highlight robust conditions in the United States, as well as some US industrial production data, and CBI Industrial trends orders data in the UK. All in all a fairly light day for macro data. For my part I am focussed on the FOMC in a few days, that will really set the tone for the next few months.