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Activity remains robust in Eurozone

12 September 2017

This week was busy on several topics :

  • On the macro side, economic data continues to show robust growth in Eurozone (PMI 55.7, retail sales +2.6%) and in the US (ISM services 56).
  • ECB took into account this healthy dynamic and revised upwards its GDP projections, but revised downwards future inflation path due to the Euro strength. That being said, Mario Draghi did not give more clarity on future ECB actions. We will have to wait until October 26 for announcements about tapering
  • Bank of Canada surprisingly hiked for the second time in a row. The markets had only a 50% chance priced in due to weak inflation. BOC did not care and concentrated on business activity which is doing very well             
  • Last, heavy news flow in the US with Debt Ceiling resolution, Stanley Fischer resigning (Fed number 2) and Hurricane Irma coming in the next hours…

                                                                                             
Markets reacted with a sharp decline in bond yields : US T Note -14 bps and German Bund -8 bps. The ECB rate hike expectations have been pushed further down the road with a mere 34% probability for a hike before december 2018.

We think this repricing has gone too far and have used the very low level in German bund yields to add to our short.

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