UNITED STATES: IS THE INFLATION RISK REARING ITS HEAD?

Macroeconomic environment News flow concentrated this size of the Atlantic, with the publication of the Eurozone Sentix index, which declined by 2.7 points to 12 in September, some way below the market consensus. UK: activity in the industrial sector rose by 0.1% mom (short of the +0.2% consensus) in July, activity in the services sector by 0.3% mom (a touch above the consensus). Equities After the first week in several months when there were net inflows , European indices were on the rise, with the FTSE doing some catching up. Utilities and financial s outperformed, whereas energy and basic material s underperformed. In the US, Technologies rebounded, t he VIX also edged lower to 14 .1 %. The $ MSCI EM (MXEF) lost 1.15% yesterday. Bond markets / Derivatives Risk-on session in the continuity of Friday, with a narrowing of peripheral spreads. Logically, swap spreads contracted, in particular at the short end (down 1.5bp for the 2-year Schatz), with the ECB meeting now looming. Many positions entered into on the euro long skew, this as gamma continues to underperform , nearing its July levels. Money markets / Central banks Further consolidation of the US 3-month Libor-OIS spread around 20bp. The spread between the EFFR and IOER remains scotched at 3bp. The US Libor contracts were virtually unchanged. On the other hand, Short Sterling contracts declined in reaction to the increasing probability of an agreement over the withdrawal bill . M ichel Barnier declared that an agreement with the UK was realistic, adding that it was doable within the next eight weeks. FX US dollar declined against most G10 currencies, save the Swiss franc and Japanese yen ( two safe haven currencies ) that weakened in reaction to the keener risk appetite. The prospect of a deal between the UK and EU and of only a slightly fiscal slippage in Italy enabled the euro and sterling to turn around. The Norwegian krone recorded the strongest increase of the G10 currencies on news inflation had picked up to 3.4% yoy , reviving speculation Norges Bank would raise its rates. As regards emerging currencies, some divergences in performances, with further declines for the Argentine peso, Brazilian real, Indian rupee, but a rebound by EMEA currencies. Commodities Oil prices edged lower in reaction to an increase in US inventories, Copper declined on concerns of an escalation in the t rade war between the US and China, Donald Trump threatening to apply tariffs on all Chine se products.