Over the past week, the S&P500 dropped -0,4% (17,8% YTD) while the Nasdaq100 gained 1,0% (22,4% YTD). The US small cap index dropped -1,3% (11,4% YTD). The box score for the week does not reflect on the wild swings witnessed intra week and the pronounced weakness witnessed at the beginning of the week following more evidence that the US economic weakness seen in the industrial sector (US manufacturers experienced their worst month in 10 years) is also spreading to the services sector, according to the ISM services published last week which although it stood above 50 (52.6), hit a three year low, missing all estimates. Global equities (and especially US ones) found a good enough reason to erase most of their losses from what was deemed to be a “goldilocks” non-farm payrolls report which despite also printing a worse than expected reading managed to trigger further short covering activities that were further fuelled late on Friday by the Fed announcing that it would continue to inject USD75bn in overnight repo every day through November 4th in addition to conduct a series of term repos (from 6 to 15 days) maintaining an additional USD140bn in the market until early November, easing concerns of a potential cash shortage. The remaining strength in the US economic activity came from gaining momentum in real estate as new home sales ran at the highest since 2007 and existing home sales held at their strongest in 18 months with recent mortgage applications also running 10% above the level of last year while US car sales held firm in September. Our concern is that overall risk conditions are deteriorating and that risk markets are only holding a straight face in light of mounting pressure coming a synchronized global economic slowdown and deteriorating market dynamics. Those were illustrated recently by money market liquidity stress commanding continuous central bank support, serial IPO failures, large bankruptcies (Thomas Cook) and falling market liquidity (orderly markets are only to be observed in rallying markets while any drop quickly becomes disorderly). In our view, leveraged loans and VC companies that have been the largest beneficiaries of repressed short term rates and banking deregulation, are now becoming the weakest link in the leveraged global financial system as they find it increasingly difficult to disgorge their bloated and overvalued inventories onto public markets that are opening their eyes to the silly valuation proposed to them from companies that will never make a profit (basing all their marketing hype on growth) and that were only made possible by abnormally low financing rates. The failed IPO of Uber, We work (a developing story that will have repercussion and negative potential snowball effects on real estate dynamics) and Peloton are just the most recent striking examples of a long series. But for now, the straight face is holding….and it seems it might hold (a little) longer, fed by expectations of improved “pro forma” US/China trade talks and increased chances of a Trump re-election as the impeachment proceedings backfire against the Democrats by terminating J. Biden or at best by putting forward a candidate that will be sufficiently left handed not to have a chance to be elected. AAPL rallied 3,7% (43,9%, Z-score 2,2). FB gained 1,9% (37,7%). CBOE Volatility Index dropped -1,0% (-33,0% YTD) to 17,04. The Eurostoxx50 sold off by -2,7% (17,3%), underperforming the S&P500 by -2,3%, seemingly affected by Trump announcing that the US would slap a 10% tariff on European made Airbus planes and 25% duties on French wines, cheese and other liquor from the continent affecting goods worth USD7.5bn. Diversified EM equities (VWO) in contrast gained 0,8% (6,2%), outperforming the S&P500 by 1,2%. CSI300 Chinese equity index (ASHR) gained 0,7% (23,8%). Indian shares (EPI) sold off by -2,8% (-5,9%). Russian shares (RSX) sold off by -2,0% (20,1%). The Dollar DXY Index (UUP) dropped -0,2% (5,9%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,3% (0,0%). EURUSD gained 0,4% (-4,3%). EURCHF gained 0,8% (-2,9%); EURJPY dropped -0,6% (-6,7%) and EURGBP took a wait and see attitude rising 0,1% (-0,9%). All in all, considering the weakness in oil markets and the risk off sentiment, EM currencies did fairly well and continue to be a low beta risk in our view while at the same time traditional safe haven currencies showed their limits last week. 10Y US Treasuries rallied -15bps (-116bps) to 1,53%. 10Y Bunds dropped -1bps (-83bps) to -0,59%. 10Y Italian BTPs climbed 1bps (-191bps) to 0,83%, underperforming Bunds by 1bps. US High Yield (HY) Average Spread over Treasuries climbed 42bps (-107bps, Z-score 2,3) to 4,19%. US Investment Grade Average OAS climbed 5bps (-39bps) to 1,33%. In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (-42bps) to 0,68%. Gold gained 0,5% (17,3%) while Silver ended flat (13,2%). Major Gold Mines (GDX) gained 1,5% (32,1%). Bitcoin gained 1,4% (122,4%). Goldman Sachs Commodity Index sold off by -2,5% (5,5%). WTI Crude sold off by -5,5% (16,3%). CPER dropped -1,3% (-2,3%). DBC dropped -1,3% (3,5%) as Goldman Sachs Commodity Index sold off by -2,5% (5,5%).

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