BREXIT: ARE WE ON THE VERGE OF ECONOMIC CHAOS?

Macroeconomic environment France : the manufacturing PMI declined from 53.5 to 52.5 , the services PMI from 55.4 to 54.3 in September. Germany : the manufacturing PMI declined from 55.9 to 53.7, whereas the services PMI improved from 55 to 56.5. Eurozone : the manufacturing PMI declined from 54.6 to 53.3, whereas the services PMI improved from 54.4 to 54.7. UK : PSNB reached £ 5.9bn in August ( £ 6.8bn without banking groups). The day after the Salzburg Summit, Theresa May issued a very feisty statement, criticising notably the lack of respect shown by the European Union. She is nonetheless under pressure in her own party, while J. Corbyn is pushing in favour of a second referendum. There are once again rumours of snap elections. US : the manufacturing PMI improved from 54.7 to 55.6 in September, whereas the service PMI weakened from 54.8 to 52.9. Equities New record high for the S&P 500, which broke above 2 , 940 points at the start of Friday’s session, US equities moving higher with an increase of 1.08% over the week. European equity markets extended their rise on Friday, with a gain of 0.42% at close for the Stoxx   600 , which put on 2.06% over the week. VIX pulled back below 12%. Emerging equity markets were on the rise, with a gain of 2% for the MSCI EM over the week. This morning, the Hang Seng was down 1.41%. Bond markets / Derivatives Bull market in Europe, benefiting notably from Theresa May’s statement . BTP outperformed their German counterparts by 3bp-7bp, with 10-year spread pulling back towards 235bp. On the other hand, US Treasuries underperformed, with yields rising by 1bp from 5 to 30 years. Gilts appreciated, with yields easing by 2bp-3bp across most of the curve . Money markets / Central banks Further compression of US 3-month Libor-OIS spread to 17.8bp. All Libor contracts were on the rise, in particular Short Sterlings after Theresa May’s statement. FX Sterling weakened in reaction to Theresa May’s statement. Turning to emerging currencies, the Argentine peso climbed by 2.9% against the greenback, whereas the Turkish lira shed 1.15%. Commodities At Friday’s close, Brent was unchanged from the day before, despite some intraday volatility.