CASHING IN ON US SHORT RATE ASYMMETRY

Macroeconomic environment US : August nonfarm payrolls beat expectations with an increase of 201 thousand (consensus: 190 thousand) and an acceleration in average hourly earnings to 2.9% yoy (prior: 2.7%; consensus: 2.7%). The unemployment rate was stable at 3.9%, but the alternative measure of labour underutilisation (U-6) improved by 0.1pp to 7.4%. Eurozone: mixed performances as regards industrial production in July, with a stronger-than-expected increase in France of 0.7% mom (consensus: +0.2%), but an unexpected 1.1% mom decrease in Germany (consensus: +0.2%). Equities Mixed session on Friday, with investors waiting for any fresh developments in the trade war. Equity markets had their worst week since March. The S&P 500 was down 0.37% at close of trade in Europe, after opening down 0.5% from Thursday’s close. The VIX broke above 15% intraday. In Europe, the Stoxx  600 closed 0.02% higher, with financials down 1% (banks shedding 1.26%). In Asia, the MSCI Asia Pacific was down 0.49% on Friday … Bond markets / Derivatives TNotes underwent a brutal selloff in reaction to the publication of the Employment Situation Report, yields declining by 6bp-7bp from 2 to 10 years. European sovereigns followed suit. Soft core struggled in particular, notably OAT. Along with GGB, BTP were the only sovereigns to close higher, reacting to a statement by Giovanni Tria about the need to reduce the structural deficit. As regards implied volatility, the USD ULC continued to perform, whereas for the EUR, movements were concentrated in the URC . Money markets / Central banks The US 3-month Libor-OIS spread still testing 20bp. This spread has declined steadily since April when it stood at 60bp. Net inflows into premium MMF have continued to rise, reaching $3.95bn in the week ended 5 September. Even so, assets under management at premium MMF remain way below levels before the MMF reform. US and UK bor contracts declined sharply on Friday, with a pronounced underperformance by back-ends . FX In reaction to the good employment data, DXY dollar index rebounded, the greenback appreciating against some G10 currencies as well as emerging currencies. In the case of G10 currencies, it was mainly the Australia n and New Zealand dollars that corrected, especially in reaction to a disappointing AIG construction index in Australia. The EUR/USD pulled back below 1.16 to test 1.1560. The GBP/USD was stable, but sterling appreciated against the euro, the EUR/GBP setting a low at 0. 8947. Commodities