IS P/E OF US EQUITY MARKET EXCESSIVELY HIGH?

Macroeconomic environment Eurozone : growth slowed in the manufacturing sector in August, the Markit manufacturing PMI declining from 55.1 in July to 54.6, in line with the preliminary estimate, to what is now its lowest level since November 2016. In Germany, the PMI ended shedding 1 point in August to now 55.9 (preliminary estimate revised downward). Same downward revision in France, from 53.7 to 53.5, but the PMI nonetheless put on 0.2 point compared with July. Finally, to complete this roundup, Spain posted a slight increase to 53, Italy a quite sharp 1.4 decline to 50.1. UK: unexpected decline of the manufacturing PMI from 53.8 to 52.8. Equities European equity markets ros e slightly on Monday, which saw the Stoxx 600 inch up by 0.0 7 % . The S&P 500 futures were up 15bp at close of European trading, US markets being clo sed for Labor Day. No improvement in emerging markets , where the MSCI Emerging markets shed 0.84 %. Bond markets / Derivatives Peripheral debts outperformed despite the revised outlook on Italy, Matteo Salvini having conceded that the government’s programme could not be implemented in full as early as next year. Spreads widened amongst core and soft cores, with a 1bp-2bp widening against German sovereigns. As regards implied volatility, much of the movements were on long gamma, with volatilities outperforming the rest of the surface by one deviation. Money markets / Central banks The US 3-month Libor-OIS spread extended its downtrend to 21.4bp yesterday. This phenomenon is largely due to the increase in outstanding premium MMF. At 1.92%, the EFFR is 3bp off the IOER. Eurodollar strips also declined slightly right across the strip. In the UK, the suspense remains whole over an extension of Mark Carney’s tenure. Extending his term of office would have the merit of not adding to the Brexit-related uncertainties, by quashing one source of uncertainty. Short Sterling contracts recorded quite sharp increases right across the strip (implied rates easing by 2bp-4bp). US markets were closed for Labor Day. FX DXY dollar index stable above 95. The EUR/USD was also stable around 1.16. The session’s highlights were sterling’s depreciation (in reaction to the weaker manufacturing PMI and renewed concerns of a no deal Brexit) and the Swedish krona’s rebound fuelled by the squaring of short positions. The AUD/USD also recovered in reaction to a higher August PMI. As regards emerging currencies, the most fragile (Brazilian real, Turkish lira, South African rand) extended their correction, losing more than 1%. Commodities Oil rose slightly today as a data release from Reuters showed Iranian crude exports down 0.35mn b/d month-on-month as US sanctions begin to reduce Iranian volumes. Production rose in Libya in August however, with total OPEC production rising 0.22mn b/d month-on-month (despite the Irania n losses), which limited gains.