300BP TARGET FOR 10-YEAR BTP-BUND SPREAD

Macroeconomic environment Eurozone : according to the flash estimate, headline inflation accelerated by 0.1pp to 2.1% yoy in September, whereas, rather unexpectedly, core inflation decelerated by 0.1pp to 1.1%. Germany: unemployment stable at 5.2% in September, unchanged from August. US: personal income increased by 0.3% mom in August, spending at the same pace of 0.3% (prior: +0.4%). Price indices highlighted a slowdown in headline inflation, the increase in PCE price index decelerating to 2.2% yoy in August (prior: +2.3%), while the core PCE price index was stable at 2.2%. Confidence indices pulled back in September, the Chicago PMI shedding 3.2 points, while the UoM consumer sentiment index declined to 100.1 (prior: 100.8). Equities European equities under the cosh, posting their worst one-day performance since 7 September, after Italian government agreed higher deficit . The FTSE MIB underperformed sharply, falling almost 3.5%, dragged down by the banking sector ( 3.7% loss for the SX7E , with Intesa plunging 7.7%). FTSE and CAC outperformed other European indices. At sector level, energy, healthcare and durable consumer good s outperformed, managing to limit their losses. The V2X recovered slightly by 1.5 point to 14.6%. In the US, the S&P was in the green at close of European trading. Bond markets / Derivatives The budget announcement in Italy pummelled BTP, yields rising by between 20bp and 35bp right across the curve. German sovereigns benefited from the upturn in risk aversion , the y i eld for the 10-year Bund easing by 5.6bp over Friday’s session, with the curve flattening through the long end (2bp steepening of 10Y-30Y). US Treasuries benefited marginally from this rally, the 10-year TNote easing by 1bp to 3.04%. Money markets / Central banks Euribor and Eurodollar contracts appreciated, yields for back-ends falling by 4.5bp and 2bp, respectively. Eonia forwards also slipped, down 1bp for the maturity corresponding to the ECB September 2019 meeting. FX The US dollar appreciated slightly, mainly against the euro, sterling and Swedish krona. The euro was marked down in reaction to the Italian budget announcement and to the Eurozone’s weak core inflation. Sterling was on the defensive ahead of the Conservative Party’s annual conference, which got under way over the weekend. The Canadian dollar recorded the strongest gain against the greenback on the back of Brent’s rebound towards $83/bbl. Commodities Copper lost 1.6% in reaction to some disappointing Chinese data. Brent put on 1.3% and is nearing $83/bbl.