Stocks staged a mild recovery on Friday, bouncing off the lows to end +0.5% on the S&P. HY forgot to squeeze and closed with spreads 10bps wider on Friday. 

Interestingly, bond yields rose 7bps even as stocks were weaker in the early going with hawks of the CBO lamenting on the prospect of the us budget deficit exceeding 1trn by 2019 deficits and reaching 2trn within a decade. 

Likely explaining the weak undertone of bond and credit markets (and of USDJPY and the Nikkei) on Friday that persisted through the day were comments from BoJ Governor H. Kuroda, the first of this kind, hinting at the possibility of starting to think of lifting the pedal off the metal on quantitative easing...sometimes in 2019. The yen surged +0.5%to 105.71 per dollar, while yields on Japanese sovereign debt climbed across the curve. The Nikkei 225 Index closed 2.5% lower on Friday. US Markets and the S&P500 futures looked supra-natural to us again on Friday.

We would not read too much into Friday’s price action which left the markets with many wounds to lick. D. Trump seems to be getting lonely at the top (with a rumor unaverred that G. Kohn, frustrated by the tariff episode, considers to resign which hopefully he does not, as it would deal another blow to markets who see G. Kohn as the guarantor that the asylum remains well guarded.  

For the week, European shares shed -3.6% and the Dax as much as -4.6% on some saber rattling on the trade war front (Germany and Europe were said to be ready to retaliate on US bourbon, jeans and Harleys). EM shed -2.8%. Gold dropped -0.5% on the week but ended on a strong and encouraging note, leaving us confident that this will be the place to be... ultimately. Oil dropped -3.6% on some deleveraging from still too large speculative longs in oil futures, in our view. Bitcoins rallied 11% on the week despite the IRS going after token holders, requesting 500,000 records earlier last week. Two things hurt sentiment last week; the more hawkish tone of Fed chair Powell as he testified to Congress and boot noises on the trade war front. The week end will likely bring a hung parliament in Italy ahead of which Italian bonds rallied on Friday as this is the norm in Italian politics and not much to fret about. 

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