Nothing exceptional in Fed’s lone journey

Macroeconomic environment Eurozone : retail sales declined by 0.2% mom in August (after a more pronounced decline of 0.6% in July), but even so increased by 1.8% yoy. Italy : services PMI beat expectations, accelerating to 53.3 in September from 52.6 in August. Spain : services PMI inched lower to 52.5 in September from 52.7 in August, due notably to a slowdown in new orders. UK : disappointing service PMI, which weakened to 53.9 in September from 54.3 in August. US : services PMI declined to 53.5 in September from 54.8 in August. According to the ADP employment report, private payrolls increased by 268,000 in September, after an increase of 168,000 in August. Equities European equity markets closed in the green (Stoxx 600 added 0.5%, buoyed by the telecom and healthcare sectors, which gained 0.94% and 0.74%, respectively). There were gains right across the board (+0.43% for the CAC 40 , +0.48% for the FTSE 100, +0.84% for the FTSE MIB), the one notable exception being the DAX (which lost 0.42%). All this was fuelled by expectations Italy will gradually rein back its deficit. In the US, new record high for the S&P 500 (2939.863 during yesterday’s session ). VIX is still camping below 12%, down from Tuesday. As for emerging equities, the MSCI EM was stable around 1035. Bond markets / Derivatives All eyes still largely riveted on the Italian budget (government seeking to appease tensions by promising to curb the deficit post-2020) and data out of the US ( more pleasant surprises). Bear steepening by US Treasuries logically propagated to core sovereigns, while peripheral spreads tightened (especially for BTP). The TNote-Bund spread now at 265bp. Money markets / Central banks All Libor contract weakened on Wednesday, especially U S Libor futures. Back-ends struggle d most, with implied rates rising by more than 10bp. The spread between the EFFR and IOER is still scotched at 2bp. FX DXY dollar index extended its rebound against most G10 currencies save sterling, which appreciated seemingly in anticipation of a favourable outcome to the Conservative Party’s annual conference. The New Zealand and Australian dollars, two commodity currencies, recorded the sharpest corrections, with the Australian dollar affected by the slump in housing permits. The Japanese yen and Swiss franc, two safe-haven currencies, also struggled as the Italian risk subsided. The Turkish lira plunged after inflation soared above 24%, while the Brazilian real continued to perform well after opinion polls favourable to J air Bolsonaro. Commodities Aluminium set a 3-month high at $2,198/t on news Alunorte , the world’s largest alumina refinery, will halt production because of the ongoing dispute with the Brazilian authorities. The refinery has been operating at half capacity since March and recent cutbacks will likely affect Norsk Hydro ’s bauxite mining activities in Brazil and Norway.