ECB: status quo maintained, ESTER confirmed

Macroeconomic environment Eurozone: August HICP confirmed (final estimate) at 1.9% in Germany and 2.6% in France. France: national index puts inflation at 2.3%. US: surprise decline in inflation in August, with the CPI decelerating by 0.2pp to 2.7% (consensus: 2.8%), likewise for the core CPI that pulled back to 2.2% (consensus: 2.4%). Turkey: 1-week repo raised by 625bp to 24%. For more details click here . Equities Mixed session for European equity indices, what with the euro’s appreciation post-ECB meeting, while calm returned to the emerging markets after the Turkish central bank acted decisively. The DAX closed in the green, but the CAC and FTSE MIB in the red. Financials outperformed before the rise in bond yields, while Energy and Utilities underperformed in Europe. The $ MSCI EM put on 1 . 36 %. As for the VIX, the term structure resumed its steepening. Bond markets / Derivatives As regards sovereigns, Eurozone yield curves underwent a bear steepening, with a tightening of spreads, in the wake of the ECB press conference. Unsurprisingly, swap spreads for long-dated papers tightened by around 1bp, but were flat at the short end. As for implied volatility, short maturities underperformed due to the ECB’s forward guidance, leading to a sharp steepening of the volatility surface for gamma. . Money markets / Central banks ESTER chosen as the new risk-free benchmark for European banks. In time, it will replace Eonia (normally from 1 January 2020). The BoE kept its bank rate on hold. In the money market, the FRA-OIS continued to narrow, down to 17bp. In the Eurozone, Eonia-bor spreads narrowed . FX Further correction by the DXY dollar index to 94.50 in reaction to the keener risk appetite. The EUR/USD appreciated to 1.17 before pulling back towards 1.1670, probably because the market was a seller of the single currency ahead of the ECB meeting. Sterling tested 0.89 against the euro, but the EUR/GBP did not stay below this level for any length of time. Turning to emerging currencies, the Turkish lira rose sharply after the central bank jacked up its key policy rate. The South African rand, Chilean peso and Russian ruble also benefited to quite some extent . Commodities Brent pulled back by almost 2% to $78/bbl .