Contagion is the watchword when it comes to emerging markets...

Macroeconomic environment US : Thursday’s publications produced some unpleasant surprises, with the ADP Employment Report missing expectations (163 thousand vs. 190 thousand), while there was a sharper than expected decline in factory orders in July (down 0.8% after a 0.6% increase for June, the prior having been revised downwards). The non-manufacturing ISM helped offset these disappointments, as the index improved to 58.5 in August (from 55.7 in July), beating the 56.8 consensus by some way. Germany: surprising 0.9% decrease in industrial orders (when consensus had been for a 1.8% increase), while the construction PMI recovered into expansion territory at 51.5 (up from 50 in July). Equities Third consecutive session in the red for European equity markets, with the Stoxx  600 shedding 0.59% (to a level last touched back in April 2018), reflecting the significant exposure of European companies to the downturn of emerging indices. The S&P 500 followed suit, down by 0.6% at close of trade in Europe, with losses for the Energy sector and Tech sector. The MSCI Emerging index at its lowest after falling by 1.77%. Bond markets / Derivatives The selloff in the equity markets enabled sovereigns to appreciate, with the yield for the 10-year Bund easing by 2.5bp to 0.35% over Thursday’s session. BTP continued to perform well, notably at the short end, with the 2-year easing by 8bp, the 10-year by 3.5bp to 3.05%. US Treasuries also benefited from the bull market, with yields easing by 2bp-3bp right across the curve. Money markets / Central banks Further decline of the US 3-month Libor-OIS spread, which is now sitting around 20bp, at its lowest since last December. The EFFR is still just 3bp off the IOER. US 3-month Libor contracts were stable, the market putting the probability in a hike in the Fed Fund rate target next week at more than 98%. Euribor contracts inched lower right across the strip . FX DXY dollar index edged lower, but managed to hold above 95, in reaction to the mixed data out of the US. The EUR/USD was stable around 1.16. The Swedish krona recorded the sharpest decrease after a still dovish meeting of the Riksbank . Finally, the Japanese yen and Swiss franc, two safe haven currencies, appreciated in reaction to the bear run on the equity markets. Emerging currencies went their separate ways, with rebounds by the Argentine peso and South African rand, whereas the Russian ruble and Turkish lira weakened. Commodities Crude oil prices fell in reaction to the IEA Status Report. Brent shed $1.35/ bbl , WTI $1.5/bbl. Gold crept higher and is now not far off $1,200/ oz .