FED FUNDS: IS EVERYTHING UNDER CONTROL?

Macroeconomic environment Eurozone: GfK consumer confidence index shed 0.1pp to 10.5 in September in Germany, while French Q2 GDP was confirmed at 0.2% qoq (second estimate), and household consumption expenditure increased by 0.1% in July, in line with expectations (note that the prior month estimate was revised upwards to +0.3% mom from +0.1% previously). US: Q2 GDP estimate revised upwards to 4.2% (SAAR) from 4.1% previously. The stronger growth than estimated previously was due to nonresidential fixed investment and net exports. The growth in corporate profits (as defined for the SNA) accelerated to 3.3% on Q2, up from 1.2% the previous quarter. Equities US equity markets set new records on We dnesday, with the S&P 500 up 0.57 %, buoyed by the technology sector (+0.90%). More mixed showing by European equity markets. The Stoxx  600 went back on the rise (+0.3%) after a hesitant spell intraday, not the FTSE 100 (-0.58%) and IBEX 35 (-0.3%). Bond markets / Derivatives With risk aversion subsiding, this weighed on Eurozone sovereigns, in particular core. The one positive performance was posted by Italian sovereigns, the BTP-Bund spread narrowing by 9bp. Money markets / Central banks The FRA-OIS spread was stable at 21bp. TNotes put up for auction achieved their highest bid-to-cover since May. FX Sterling rose by almost 1% against the euro and US dollar in reaction to a statement by Michel Barnier who said that the UK could expect a partnership with the EU “such as there never has been with any other third country”. The EUR/USD was stable over yesterday’s session, while the Turkish lira shed a further 3% against the US dollar, the USD/TRY now trading at 6.45. Commodities Oil rose today following the weekly US oil inventory report from the EIA, which reported a 2.6m bbl draw week-on-week in domestic crude oil inventories.