Last week’s repo market instability was relieved by Wall Street expectations that the Fed will fix the cracks exposed in the US repo market by ultimately agreeing to purchase between USD200bn and USD500bn of Treasuries. Those concerns gave way to White House instability after the opening of an impeachment enquiry against D. Trump’s for his meddling in Ukraine. US stocks paused but D. Trump quickly capitalized on what he deemed to be just another “witch hunt” which not only has very little chance to go through (the Senate is controlled by Republicans) but gave him a chance to expose more of J. Biden’s travers. In the end, Wall Street may have to contend with the risk of seeing E. Warren at the White House … but this was also seen as a problem for another week as the market opened sharply higher on Friday. However, those gains vanished giving way to sharp losses at some point on a scoop that the Trump administration was discussing ways to limit US investors portfolio flows into China, a move that would have repercussions on the billions of USD pegged to major indices and which could possibly lead to a forced delisting of Chinese shares in the US. This brought the battle against China from the trade to the capital front with potentially huge implications... Last week, US stocks also had to cope with yet another failed Unicorn IPO (peloton) on Wednesday. Over the past week, the S&P500 dropped -1,0% (18,2% YTD) while the Nasdaq100 dropped -2,0% (21,2% YTD), with tech and small caps closing below their 50d moving average and small caps just below their 200dMa. The US small cap index sold off by -2,7% (12,9% YTD). CBOE Volatility Index rallied 12,4% (-32,3% YTD) to 17,22. Some of the Fangs were also hit last week in response to D. Trump’s making the point in his UN speech that they may restrain competition and abuse a dominant position. FB sold off by -6,8% (35,1%, Z-score -2,6) AMZN dropped -3,8% (14,9%, Z-score -2,2). NFLX dropped -2,8% (-1,7%). AAPL bucked the trend gaining 0,5% (38,7%) while GOOG dropped -0,4% (18,3%) and MSFT dropped -1,2% (35,6%). Health care entered “bear trend” and break down conditions as the worst performing sector. XLV (HEALTH CARE SELECT SECTOR) dropped -2,9% (3,3%, Z-score -2,2) on the heels of the US political imbroglio. XBI (SPDR S&P BIOTECH ETF) sold off by -7,6% (6,6%, Z-score -2,1) for the same reason. The Eurostoxx50 dropped -0,8% (20,5%), outperforming the S&P500 by 0,2%. Diversified EM equities (VWO) sold off by -3,3% (5,4%), underperforming the S&P500 by-2,3%. CSI300 Chinese equity index (ASHR) sold off by -2,8% as a result of Friday’s selloff (23,0%) which eroded some of China’s outperformance for the year. It was no later than last week than JPMorgan analysts advised overweighting China due to investors’ being afraid of what could happen to China (which is not happening) whilst not owning enough of it on the face of a strong and now rather resilient performance. It is not the least of all paradoxes either that China which has been blamed for not doing enough to open its financial markets is now being blamed for the opposite. Clearly, D. Trump does not want US public (or even private) pension funds to invest meaningfully even passively in China via international indices. The political pressure will intensify to prevent bond and equity indices to see their financial markets better reflect the growing economic importance of China. Indian shares (EPI) closed unchanged (-3,1%), supported by lower oil prices and as India was spared from Trump’s ire on the occasion of an official Presidential visit to the United Sates which galvanized the Indian community in the US. This story could benefit India for a while longer as D. Trump tries to differentiate (favour) India from China in its trade relationship. The Dollar DXY Index (UUP) gained 0,7% (6,1%) while EURUSD dropped -0,7% (-4,6%). The MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,3%, still holding the ground year to date (-0,3%). 10Y US Treasuries rallied -4bps (-100bps) to 1,68%. 10Y Bunds dropped -5bps (-82bps) to -0,57%. 10Y Italian BTPs rallied -10bps (-192bps) to 0,82%, outperforming Bunds by -1bps. On Friday, the USD Repo Govt GC Overnight closed at 1,8% while the US Federal Funds Effective Rate stood at 1,85%, supported by ample Fed (USD100bn) liquidity provision ahead of quarter end. In a note published over the week end, Morgan Stanley noted that a similarly large decline in bond yields has in history only happened twice over the past 50 years during the global financial crisis and the European sovereign debt crisis in 2012. US High Yield (HY) Average Spread over Treasuries climbed 18bps (-149bps) to 3,77%. US Investment Grade Average OAS climbed 1bps (-44bps) to 1,28%. In European credit markets, EUR 5Y Senior Financial Spread climbed 3bps (-44bps) to 0,67%. Gold offered no protection last week, dropping -1,3% (16,7%) while Silver sold off by -2,5% (13,2%) and Major Gold Mines (GDX) by -4,3% (30,2%). Lower rates for longer, a restart of QE and an approaching recession will remain the best gold’s friends going forward. In the meantime, some deleveraging needs amidst sentiment and positioning remaining a little bit frothy (on the futures side) may be the reason why. ZH had a better “one picture explanation” associating last week’s drop to the Golden Week. Bitcoin dropped -20,5% (119,4%, Z-score -2,2). Goldman Sachs Commodity Index dropped -1,9% (8,2%), healing the scare from the recent attack of Saudi oil’s installation. WTI Crude sold off by -3,8% (23,1%). CPER gained 0,2% (-0,9%) and agricultural products continued to recover as DBA gained 1,9% (-7,2%). Over the week end… On Saturday, Treasury spokeswoman Monica Crowley said in an emailed statement (that fell short of the officialdom of a Presidential tweet) that “The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time,” This should help heal some of Friday’s wounds…or else we can expect at least some tweets about great talks taking place. Q3 ends today and the September US job report is due out on Friday with 145k non-farm payrolls expected (from 130k last month) but the private ADP employment change due on Wednesday is expected to show a drop (140k from 195k). Some US PMI’s will be published in between.

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