MEASURING ITALIAN RISK VIA INDEX-LINKED BONDS

Macroeconomic environment Germany : retail sales declined by 0.4% mom but increased by 0.8% yoy in July. France : CPI increased by 0.5% mom and by 2.3% yoy in August. Italy : CPI increased by 0.5% mom and by 1.7% yoy. Spain : retail sales declined by 0.6% mom and by 0.4% yoy in July. Eurozone : according to the flash estimate, headline inflation slowed from 2.1% to 2% in August, core inflation from 1.1% to 1%. Fitch has revised the outlook for Italy from stable to negative. UK : consumer confidence improved from -10 to -7 according to the GfK index. The Nationwide house price index declined by 0.5% mom for an increase of 2% yoy. US : Chicago PMI declined from 65.5 to 63.6 in August. The UoM consumer sentiment index underwent a slight upward correction in August, as did short- and long-term inflation expectations. Equities European equity markets closed in the red on Friday, with the Stoxx 600 down 0.81%, after Bloomberg reported that Donald Trump had rejected EU ’s offer on auto tariffs as not good enough. As for US equities, the S&P 500 remained stable. Asian equities were down this morning Bond markets / Derivatives August closed on another risk-off session, with a widening o f peripheral and soft core spreads. At 288bp, the BTP-Bund spread reached its highest level since 2013, admittedly in thin volumes. In the US, Treasury yields also eased, with an underperformance by intermediate maturities. The US 10-year swap spread edged lower. Money markets / Central banks The US 3-month Libor-OIS spread extended its downtrend, down to just 21.5bp. This decline stems from capital inflows, boosting MMF premiums. Inflows reached $6.3bn in the week to 29/08. The increase in T B ill issuance has thus far failed to reverse this trend. The EFFR-IOER spread has remained extremely tight. FX The euro weakened on Friday, reacting in particular to comments by Donald Trump concerning currency manipulation. Commodities Crude oil prices were stable on Friday, as concerns over a trade war between the US and China and its impact on demand were counterbalanced by the upcoming sanction s on Iran.