US INTEREST RATES: THE END OF SOFT POWELL

Macroeconomic environment Brazil: landslide victory for J. Bolsonaro with 46%. Germany: sharper-than-expected increase in producer prices in August, up 0.3% mom (consensus: +0.2%) and 3.1% yoy (consensus: +2.9%). US: hugely disappointing Employment Situation Report, with job creations a meagre 134 thousand in September (consensus: 185,000), but even so the unemployment rate improved to 3.7% (prior: 3.9%), against the backdrop of lesser pressures on earnings, with the growth in average hourly ea rnings slowing by 0.1pp to 2.8% . Equities European equity markets in the red for third consecutive session, the Stoxx 600 declining by 0.73% on Friday (and by 1.64% over the week). The technology and basic materials sectors underperformed, shedding 1.97% and 1.56%, respectively. The CAC 40 declined by 0.87% on Friday, dragged lower by the technology and basic materials sector, which lost 2.78% and 1.84%, respectively. In the US, equity indices were in the red. As a rule, the t echnology sector underperformed . The VIX moved up to 16.7. Nikkei 225 corrected by 0.8% Friday, after record gains at the start of the week. Emerging equity indices struggled last week in reaction to the rise in US interest rates . Bond markets / Derivatives BTP struggled on Friday, investors probably seeking to reduce exposure to any impromptu comments over the weekend. The Italian curve is continuing to flatten through the short end, yields rising by 14.2bp at 2 years and by 9.5bp at 10 years. The bear market in the US clearly drove up European yields, with the German 10-year adding 4.3bp, now just shy of 0.60% at 0.57%. Euro swap rates extended their ascent, with the 10-year up 10bp over the week. Money markets / Central banks The US 3-month Libor-OIS spread continued to narrow, passing below 17bp. The SOFR fixed at 2.18%. The EFFR remains scotched 2bp below the IOER. All Libor contracts weakened, with an underperformance by back-ends. Short sterling contracts suffered most, with EU officials optimistic a Brexit deal can be struck . FX In reaction to the publication of the September Employment Situation Report, the greenback extended its rebound against most G10 currencies save the Swiss franc and Japanese yen, the two safe-haven currencies buoyed by the equity markets’ bear run. Another exception was sterling, which recorded the strongest gain after comments suggesting a Brexit deal was on the cards, probably prompting short positions to be squared. The EUR/GBP passed below 0.88, with the pair likely to correct towards 0.8650 if there is an announcement any time soon. The EUR/USD was largely unchanged. Emerging currencies went their separate ways, the strongest increases being recorded by the Mexican peso, Argentine peso and Turkish lira . Commodities Gold prices remained relatively flat Friday. Investor interest in gold seems to be wearing off despite prices rising above the $1,200/ oz level. This can be seen by the accelerated pace of outflows from physically backed ETFs, down by 15t last week .