Asset Allocation: is the summer really over?

Macroeconomic environment Russia : surprise 25bp hike in the central bank’s key policy rate to 7.50%. US: retail sales posted weaker growth of 0.1% in August (consensus: +0.4%), which reached 0.3% less autos (consensus: +0.5%). On the other hand, the prior month estimates were revised upwards by 0.2pp and 0.3pp, respectively. US: capacity utilisation rate weaker than expected in August at 78 .1% (consensus: 78.2%; prior: 77.9%). US: stronger-than-expected increase in industrial production of 0.4% (consensus: +0.3% ; prior revised: +0.4%). US: UoM consumer confidence beat expectations at 100.8 in September, near March’s high (when it was at its highest since January 2004). The survey also revealed that 1- year head and 5-year outlooks fell back, the latter from 2.6% to 2.4%. US midterm elections : to see what is at stake and our assessment click here . China: August new home prices +1,49% M/M, faster than July. Equities European equity markets closed higher, as risk perception subsided. The SXXP put on 1% this week . The DAX outperformed. VIX nearing 12; the S&P wa s up every day last week (+1. 16%). MSCI EM $ gained Friday and posted a weekly gain of +0.54%. Bond markets / Derivatives Bear steepening of EZ and US curves, as markets reverted to risk-on mode. Peripheral spreads narrowed, the BTP-Bund spread reaching 253bp. The US 10-year rate brushed up against 3.0%, having risen by 18bp since 24 August. As regards implied volatility, the € gamma underwent a selloff. Money markets / Central banks Slightly hawkish speech by the Fed’s Charles Evans and Robert Kaplan who are favourable to a convergence of the Fed Funds rate toward a more neutral level (3% long-run level according the dots plot). Sell off experienced by Eurodollar contracts, with implied yields rising by 4bp in the case of backs. Euribor contracts closed virtually unchanged. FX DXY dollar index shed 0.6% to 94.78. The week’s best performances were recorded by the Norwegian krone (+2.7%), sterling (+1.3%), the Australian dollar (+1.1%) and the euro (+0.95%), the EUR/USD at 1.166 at close. Calm returned to the emerging currency market this week, with gains of 4.2% for the Turkish lira , 3% for the Russian ruble (after the central bank intervention) , and 2.5% for the South African rand and Mexican peso. IDR, PHP, IDR are down this morning on new fears of US-China trade-war. FX Trends daily here . Commodities Oil traded in a wide range on Friday, as oil demand fears on poor economic sentiment weighed and Iranian sanctions lent support. Brent is up slightly on the week but once again failed to break the   $80/bbl   level sustainably after a rally on Wednesday Gold was trendless despite the decline of the DXY over the week, whereas industrial metals rebounded.