IS IT TIMELY TO BE MOVING BACK INTO EMERGING ASSETS?

Macroeconomic environment Eurozone: Economic Sentiment Indicator inched lower to 110.9 in September from 111.6 in August. Germany: consumer prices increased by 0.4% mom in September, for an increase of 2.3% yoy , when the consensus was for a 2.0% increase. US: durable goods orders increased by 4.5% mom in August. Equities Mixed performances by equity markets. After opening in the red in reaction to the Italian budget and the rise in US interest rates, European equities recovered, the Stoxx  600 closing 0.36% higher . In the US, equities were on the up, the S&P 500 putting on 0.5% at close of trade in Europe, buoyed by the tech sector. Italy agrees to set budget deficit at 2.4% of GDP. Bond markets / Derivatives Thursday, Eurozone sovereigns reacted to developments in Italy, opening very much in risk-off mode before strains eased as the budget meeting scheduled at 8 p.m. drew nearer. Following the news that Italian fiscal deficit will reach 2.4, the BTP/Bund reached this morning 260bp. Spreads widened, notably at the short end. In the US, swap spreads underwent a further flattening. As regards volatility, the bounce- back by gamma ahead of the FOMC meeting was retraced after the Federal Reserve made clear its commitment to a gradual monetary tightening. Money markets / Central banks Few movement s in money market rates in the case of the Eurodollar and Euribor strips, whereas Short Sterling fronts corrected by 2bp. Note that the euro 3-month basis widened considerably as it now factors in the year-end transition. FX Sharp rebound of the US dollar against G10 currencies, notably the Swiss Franc and euro due to the uncertainties surrounding the Italian budget. If the Swiss franc weakened even in this uncertain context, this was probably because of interventions by the Swiss National Bank. The Turkish lira extended its recovery, still in anticipation that the diplomatic spat with the US will subside . Commodities Brent edged higher to $81.6/ bbl , whereas gold corrected.