Over the past week, the S&P500 gained 1,0% (20,5% YTD) while the Nasdaq100 rose 0,5% (24,8% YTD). The US small cap index played catch up, rallying 4,9% (17,5% YTD). CBOE Volatility Index sold off by -8,4% (-45,9% YTD) to 13,74. The banking sector outperformed last week on both sides of the Atlantic. XLF (FINANCIAL SELECT SECTOR SPDR) rallied 3,8% (19,6%, Z-score 2,0). EUFN(ISHARES MSCI EUROPE FINANCIAL) rallied even more by 6,4% (6,5%, Z-score 2,3). The most noteworthy development last week was the dislocation in “momentum” vs. “value” factors which saw the value sector gain up to 10% while the value dropped 4 to 5% (which somehow the CTA’s did not catch right). The Eurostoxx50 rallied 1,6% (20,7%), outperforming the S&P500 by 0,6%, supported by hopes but also raising expectations that fiscal policy will take the baton of monetary policy from now on in Europe to support the economy. Europe might very well rally further following a multiyear period of institutional outflows, in our view, especially if the so called value sector remains in favour to which Europe is identified more generally. Diversified EM equities (VWO) rallied 2,2% (10,7%), outperforming the S&P500 by 1,2%. CSI300 Chinese equity index (ASHR) gained 1,7% (31,7%). Indian shares (EPI) rallied 2,7% (-3,9%, Z-score 2,1). Russian shares (RSX) rallied 2,3% (25,9%). The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,2% (5,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,8% (0,4%). With the exception of the real, the dollar dropped vs. most EM currencies last week as the dollar reversed early gains in the aftermath of the ECB meeting which revealed some exhaustion in the USD bull dynamics. While USDBRL gained 0,6% (5,3%), USDRUB sold off by -2,7% (-7,7%, Z-score -2,4). USDMXN dropped -0,6% (-1,2%). USDINR dropped -1,1% (1,7%, Z-score -2,1). USDCNY dropped -0,5% (2,9%) and USDZAR dropped -1,2% (2,0%). With the exception of GBP (which squeeze the last short it seems), the euro strengthened broadly last week. EURUSD gained 0,4% (-3,4%). EURCHF rose 0,6% (-2,7%) and EURJPY gained 1,1% (-5,3%). EURGBP dropped -1,2% (-1,3%, Z-score -2,1). JPY was also noticeably weaker late last week with the BoJ also growing more open to the idea of cutting short-term interest rates deeper into negative territory, especially as it contemplates the effect of a October 1 sales tax increase, according the WSJ reports. 10Y US Treasuries sold off with yields rising 34bps (-79bps, Z-score 2,7) to 1,90%. 10Y Bunds also climbed 19bps (-69bps, Z-score 2,7) to -0,45%. 2Y US Treasuries yields also rose 26bps (-69bps, Z-score 2,6) to 1,80%, still allowing for some re-steepening a little (whatever that meant for ebbing back recession risks). US Economic data came in stronger than expected on Friday with August retail sales climbing +0.4% (vs. 0.2% expected) and the University of Michigan Sentiment climbed to 92.0 (from 90.8 expected). Also, core inflation came out higher than expected in August at +2.4% yoy (from 2.2% and 2.3% expected). 10Y Italian BTPs closed unchanged on the week (-186bps) to 0,88%, outperforming Bunds by -6bps. US High Yield (HY) Average Spread over Treasuries dropped sharply by -24bps (-165bps) to 3,61%. US Investment Grade Average OAS dropped -4bps (-44bps, Z-score -2,0) to 1,28%. In European credit markets, EUR 5Y Senior Financial Spread dropped -2bps (-55bps) to 0,55%. Gold shed -1,2% (16,1%) while Silver dropped a heavier -4,0% (12,6%). Major Gold Mines (GDX) also shed -6,5% (26,3%). The logic behind the ongoing precious metals’ correction seems supported by an overhang of speculative long positions (evident in the futures market) coupled to a high second derivative of bond yields movement last week (for those who forgot bonds can also be painful when they drop). Bond yields remain negative across the board in Europe and have the Fed to look forward to this week to find support, unless the US central bank decides to frustrate market expectations which is unlikely (2.5 rate cuts are still expected between now and the end of the year). The reason for preferring precious metals to any of those core bonds, yielding negative in nominal and in real terms remained whole, in our view. The bulls will rejoice seeing some of the excessive froth being taken out as well. Precious metals are wild animals hating to have too my people sitting on their back. Bitcoin dropped -0,4% (180,8%). Goldman Sachs Commodity Index was unchanged (6,7%) and WTI Crude dropped -3,0% last week (20,8%). But commodities saw a nice turnaround in the latter part of the week, including with copper breaking out (CPER rallied 3,0% (2,9%, Z-score 2,7)) and Agricultural products (DBA rallied 4,0% (-8,9%, Z-score 2,6)) as US core inflation data came in stronger than expected and were also supported by the “interim deal” or rather truce in US/China relations that saw China resume some imports of US soja. Oil is indicating 10% higher, after Saturday’s drone attack on a massive Saudi Arabia processing plant which cut Saudi production by half and took 5% of world production offline, according to Bloomberg. Last week, oil markets had largely ignored forecasts for lower oil demand this year. S&P500 is marked -0.4% lower and gold +0.8% with EURUSD unchanged, this morning. D. Trump was said to release oil reserves to assuage market concerns. 

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