Brazilian real set to firm in short term

Macroeconomic environment US : surprising decrease in initial jobless claims to 207 thousand in the week to 29 September, to their lowest level in nearly 49 years. Factory orders also provided a pleasant surprise, increasing by 2.3% mom in August, their strongest 1-month rise in 11 months, fuelled to a large extent by commercial aircraft orders. Germany: construction PMI fell back to 50.2 in September after rebounding to 51.5 in August. UK: new car registrations plunged in September, falling by 20.5% year-on-year. Equities All equity markets closed in the red in reaction to the rise in long interest rates. European markets weakened, the Stoxx 600 shedding 1.08%, with real estate (-2.97%) and consumer goods (-2.31%) leading the retreat. The CAC 40 underperformed, losing almost 1.47%, with real es tate (-3.77%) and consumer goods (-3.92%) dragging down the index. US markets did not fare much better, with the S&P 500 down 1.1% and the Nasdaq down 1.81% at close of trade in Europe. The VIX recovered back above 14.75% intraday, up 2pp from its level at Wednesday’s close. Bond markets / Derivatives Jerome Powell’s remarks set US markets alight, with the yield for the 10-year TNote soaring to 3.20%. The selloff spread to European markets, with the yield for the 10-year Bund up 5.5bp intraday. On the whole, Eurozone curves steepened through the long end, the German 2Y-10Y adding 4bp. Calmer session for BTP after rumours there could be concessions over the 2019 and 2020 deficits. Money markets / Central banks Money market strips steepened anew, in particular the sterling Libor strip, back-ends correcting by 10bp on anticipation s of a Brexit agreement with the EU. The Eurodollar and Euribor strips steepened in reaction to Jerome Powell’s remarks. The euro 3-month basis was unchanged at -40bp, still on account of the year-end transition. FX The US dollar extended its rebound against all G10 currencies save the Japanese yen and sterling. The Japanese yen played its role as a safe haven in reaction to the bear run on the equity markets, while sterling was bolstered by the prospect of a Brexit agreement. The New Zealand, Australian and Canadian dollars, three commodi ty currencies, weakened in reaction to sagging commodity prices. All emerging currencies corrected, in particular the Turkish lira, South African rand and Argentine peso. Commodities Brent fell back towards $85/bbl. After opening higher, aluminium retraced, investors speculating that the shutdown of the Alunorte alumina refinery would be temporary.