US EQUITY MARKET: THERE’S A TIME FOR SURFING, AND THERE’S A TIME FOR HEDGING

Macroeconomic environment September IFO better than expected at 103.7 ( consensus: 103.2; prior revised: 103. 9). E xpectation s component at 101.0 (prior: revised to 101.3 from 102.3). Chicago Fed National Activity Index flat at 0.18 in August (prior revised: 0.18). Dallas Fed Manuf acturing Survey declined to 28.1 in September (prior: 30.9). Jap a n : IPP services +1.3% yoy . Equities EuroStoxx 50 closed lower , snapping a 10-session bull run. Significant dispersion at sector level, with energy closing higher, whereas utilities and consumers closed lower. Resumption of ETS inward flows into emerging markets last week. MXEF down 0.86% yesterday. Bond markets / Derivatives Comments by Mario Draghi about a more vigorous pickup in core inflation triggered a selloff in the Eurozone bond markets. Yields rose by 5bp for the 10-year Bund and by 3bp for the 2-year Schatz. BTP underperformed, affected by comments concerning the Italian b udget and the ECB President’s comment s . Uncertainties about how the central bank will conduct its monetary tightening spurred volatility in the Eurozone over the medium-term horizon, i.e. expiries 1 to 3 years for maturities of up to 3 years. US interest rates on the rise due to EZ momentum and supply at the short end. 10Y at the highest since last May at 3.096%. Money markets / Central banks Steepening o f Eonia forwards curve, with the first hikes priced in September 2019 (+10bp) , with more following by December 2020 (+52bp in total). BOJ minutes : no surprises. FX DXY dollar index edged lower. Sterling posted the strong est gain yesterday , the idea that a second referendum could be held having triggered a squaring of short positions. Euro benefited from Mario Draghi’s testimony, whereas the Australian and New Zealand dollars, two commodity currencies, weake ned after China declined to resu me trade talks with the United States. EURUSD is marginally down @1.1747 after failing to cross 1 . 18 : see our FX daily . The Turkish lira rebounded sharply on rising hopes US pastor An drew Brunson, who is being held in Turkey, will be released. Commodities Copper surged with global rates yesterday (+4. 6 %). Oil extended its rise to a 4-year high as the market digested the fallout from OPEC's JMMC meeting over the weekend. Despite calls from the US president to raise output, OPEC decided against an immediate production boost. Although the Saudi oil minister Khalid Al- Falih stated Saudi Arabia would be able to meet any supply shortfall, market sc epticism is rising regarding the Kingdom's ability to mitigate the loss of Iranian barrels.