This week was a calm one, with very few macro data publications, as usual on month end. The next week will be very busy with ISM and employment report in the US, even though data will be clouded due to September storms. Key points to note this week:
- Durable goods orders are solid in the US, above expectations
- Euro Area inflation comes out slightly below expectations
- Fiscal reform announcement by Mr. Trump. Quite logically US bonds sold off, but nothing dramatic given markets have been disappointed several times by Mr. Trump. At best, this reform will be adopted around year end
- Yellen speech mid-week confirms the latest FOMC slight hawkish tone
In short, not much and markets did not move that much either, apart from some profit taking in EM. The only notable move was the dollar up from €1.195 to €1.18.
We used this dollar move to take some profits in our short fixed income pocket and reduce our long USD versus EUR position. We booked profits as well on our long Russell 2000 versus S&P.
Generally speaking, in September we had :
- A 20-25bps move higher in core bond yield
- Central banks on the hawkish side
- The lower dollar move pausing
We must now wonder about what will come next. The short fixed income trade risk reward deteriorated since the beginning of the month, in order for this evolution to continue, activity and inflation data will need to remain consistent.
Since base effects are rather positive for the months to come, especially after the surge in crude oil prices last week, we should be comforted by October mid-month US CPI publication, even though it should be transitory. We therefore keep our trades on, but with a lower risk.
We should not forget corporate earnings season starts within 15 days, and that should be positive for equities as usual.
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