Last week was way more chaotic than suggested by the weekly scorecard and started early on Sunday night with China letting CNY break the key 7.00 level in response to D. Tump’s decision the week earlier to levy 10% tariffs on the remaining USD300bn of US Chinese imports. D. Trump immediately called this small FX move a great violation (most EM currencies dropped more than CNY on that day), calling the currency move a “grave violation” and labelling China a currency manipulator the next day. This, coupled to HK rising social unrest, led to a global “risk off” wave of equity, EM currencies and HY debt selling as China answered tit for tat by suspending imports of US agricultural products. The geopolitical outlook got more blurred with social unrest mounting in Hong Kong and D. Trump escalating the economic and diplomatic pressure aimed at toppling power in Venezuela by seizing government assets and threatening third parties willing to trade with Venezuela (to which China responded it was an act of “gross interference” and a violation in international relations’ norms). Tensions also mounted between India and Pakistan (and China) following India’s efforts to tighten its grip over the contested region of Kashmir (by revoking a constitutional provision allowing a Muslim majority region to make its own laws and allowing people from outside the region to buy property there). The Tweet of the week was probably this one: “Things are going along very well China. They are paying us tens of Billions of Dollars, made possible by their monetary devaluations and pumping massive amounts of cash to keep their system going. So far, our consumer is paying nothing and no inflation. No help from the Fed’”. On Friday, at the same time as D. Trump said the US would not be dealing with Huawei anymore (a highly sensitive topic for China if any), he tempered a little saying near the stock market close that the planned talks for September were still “on”… as they will likely be on for October, November, December but with very little chances of success as the recent escalation clearly suggests that the US is now engaged in a “forever war” with China. Part of the amenable exchange between the two countries last week involved the US calling China a “thuggish regime” after a Hong Kong journalist was (admittedly unfairly) harassed. Over the past week, the S&P500 dropped -0,3% (16,7% YTD) while the Nasdaq100 dropped -0,5% (20,9% YTD). The US small cap index dropped -1,3% (12,5% YTD). CBOE Volatility Index rose 2,0% (-29,3% YTD) to 17,97 (closing well off the intra week high of 24 seen on Monday). The only rallying (and therefore best performing) sector beyond the mining sector was IYR (ISHARES US REAL ESTATE ETF) which gained 2,0% (22,0%, Z-score 2,3) on ever lower yields. KBE (SPDR S&P BANK ETF) were the mirror worst sector, selling off by -2,0% (12,0%). Technology closed mostly lower (especially chips on renewed traded tensions) and Uber managed to report a loss of 5bn USD in a quarter on a USD70bn market cap. The Eurostoxx50 dropped -1,3% (13,1%), underperforming the S&P500 by-1%. Although the sabre rattling of Trump on trade with China were not deemed positive for Germany (the Dax underperformed), the announcement on Thursday that Germany which is erring very close to recession will consider on September 20th the possibility of more fiscal stimulus to facilitate the energy transition was probably a great (and largely unappreciated) news and one that might open the scene for more fiscal spending throughout Europe (the League may end up having shown the way after all) at below zero funding rates…. Diversified EM equities (VWO) dropped -1,3% (5,2%), underperforming the S&P500 by-0,9%. CSI300 Chinese equity index (ASHR) sold off by -3,1% (18,1%). In the EM space on Friday, Fitch announced it was upgrading Russian long term local and foreign currency debt to BBB (from BBB-), leaving the outlook stable. The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,5% (4,0%). EURUSD gained 0,8% (-2,3%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -1,0% (-0,2%). USDZAR rallied 3,2% (6,3%). USDCNY gained 1,8% (2,7%). Elsewhere in FX, EURGBP gained 1,9% (3,6%, Z-score 2,0) as the British economy contracted in Q2, for the first time in seven years and with British Prime Minister Boris Johnson warning opposition lawmakers and MPs from his own party that they will not be allowed to stand in the way of his plans to pull Britain out of the European Union by the end of October. The opposition Labour is also determined to launch a motion of no-confidence in the government and with the ruling Conservatives not enjoying an overall parliamentary majority, just a few defections could bring the government down and lead to new elections. Despite miraculously recovering equity markets (more miracles could be on their way), safe haven currencies such as CHF, JPY (and precious metals and Bunds and Treasuries) all further rallied last week. 10Y US Treasuries rallied -10bps (-94bps) to 1,74%. 30Y US Treasuries rallied -12bps (-76bps) to 2,26%.10Y Bunds dropped -8bps (-82bps) to -0,58%. 10Y Bunds dropped -8bps (-82bps) to -0,58%. 10Y Italian BTPs underperformed rising 27bps (-94bps, Z-score 3,1) to 1,81% on the same old fears of political instability in Italy which we believe will ultimately and as always be bought or short covered as news of snap elections in Italy may only solidify the League’s grip on the political scene to the detriment of its less predictable 5 Star coalition partner. US High Yield (HY) Average Spread over Treasuries climbed 18bps (-111bps) to 4,15%. US Investment Grade Average OAS climbed 8bps (-39bps) to 1,33%. In European credit markets, EUR 5Y Senior Financial Spread climbed 5bps (-39bps) to 0,72%. Gold rallied 3,9% (16,7%) while SPROTT PHYSICAL GOLD TRUST rallied 4,3% (16,5%, Z-score 2,1). Amidst the global turmoil and despite equity markets making a valiant come back, Gold printed last week new historic highs in GBP, the Indian Rupee, the Australian and Canadian dollars. Silver also rallied 4,8% (9,6%). On the topic of silver (which is breaking out), it was eye opening to read that one could secure all of available silver with only the cash necessary to own Tesla market capitalisation and still be left with a few billion dollars for petty cash. Major Gold Mines (GDX) rallied 5,7% (39,2%). Seashells (Bitcoins) rallied 14,1% (222,9%). Goldman Sachs Commodity Index dropped -1,8% (5,4%). WTI Crude sold off by -2,1% (20,0%). 

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