SNB REMAINS cautious given the STRENGTH of the SWISS FRANC

Macroeconomic environment UK : retail sales increased by 0.3% mom (prior: -0.2% mom) and by 3.5% yoy . US: Philly Fed improved to 22.9 in September (prior: 11.9), while existing home sales increased by 0.4% mom in August. Equities Equity markets closed higher on Thursday. Within the EuroStoxx  50, it was mainly financials and building materials that outperformed, whereas the tech sector corrected. Bond markets / Derivatives It seems the Italian government considers there has been a sufficient contraction of sovereign spreads to enable it to resume its sabre- rattling over the fiscal deficit. As regards other sovereigns, there was a slight widening of spreads, whereas swap spread s stabilised. As for volatility, gamma is slowly heading towards record lows, with the 3Mx5Y straddle at 58bp. Money markets / Central banks Euribor strip virtually unchanged, whereas the Euribor and Short Sterling strips steepened slightly. Turning to central banks, no change in the SNB’s rhetoric, which reiterated its readiness to intervene as and when necessary. As expected, Norges Bank raised its key policy rate by 25bp, but shaded down its forward guidance given the balance of risks for growth. In South Africa, the SARB kept its key policy rate on hold at 6.5% after inflation pulled back to 4.9% in August. FX The US dollar weakened against all G10 currencies save the Japanese yen and Norwegian krone. The Swedish krona recorded the strong est gain on expectation Riksbank will raise its key policy rate at the end of this year. The New Zealand dollar drew strength from the stronger-than-expected GDP growth in Q2 (+2.8% yoy ). The EUR/USD tested a new high at 1 . 1770 before stabilising at 1. 1750. We remain cautious regarding this rebound. The Norwegian krone corrected after Norges Bank sounded a word of caution over the outlook. Strong rebound by emerging currencies, notably by the Argentine peso, Chilean peso and South African rand. Commodities Brent inched lower, back below $79/ bbl , whereas gold was unchanged despite the correction of the US dollar.