Efficient exports could lessen discount for US crude

Macroeconomic environment China said that it would reject new trade talks if the US administration went ahead with another round of tariffs. The US plans to add 10% duty on as much as $200bn worth of Chinese goods. Equities Mixed performances by equity markets on Monday. Whereas European equities closed slightly higher (+0.07% for the Stoxx 600, buoyed by Utilities that put on 0.78%), the S&P 500 opened lower (-0.3% at the end of trade in Europe), rattled by renewed concerns over the trade war. Investors await developments after Donald Trump threatened to impose tariffs on a further $200bn of Chinese imports. The VIX picked up to reach around 13%. Bond markets / Derivatives Slight selloff concentrated at intermediate tenors (+2bp for the 2-5-10Y fly), accompanied by a narrowing of peripheral spreads. Swap spreads continued to retrace due to the flood of new issues. As regards volatility, the selloff continued right across the surface, in particular in the BRC. Money markets / Central banks Libor contracts were generally stable during Monday’s session. Euribor futures were the only ones to see a slight increase in rates. The US 3-month Libor-OIS spread is still camping below 20bp, at its lowest since last December. The EFFR remains 3bp off the IOER. Probability of a hike in the Fed Funds on 26 September priced in at 97.5% by FF futures. FX The US dollar weakened against most G10 currencies, in reaction notably to the decline of the Empire State Manufacturing Survey. The strongest gains were recorded by the Swedish krona and Norwegian krone, the latter buoyed by expectations Norges Bank will raise its key policy rate when it meets on Thursday. As regards emerging currencies, the Turkish lira and Indian rupee corrected despite the greenback’s bout of weakness. The rupee was penalised by the absence of major measures on the part of the authorities to stabilise the current account deficit and currency. Commodities Gold prices rose above $1,200/ oz as the dollar weakened on the back of disappointing economic data. Gold holdings in physically backed ETFs remained flat yesterday but since June holdings have dropped by 5.5%.