Last week started with a truce on the US/China trade war where D. Trump agreed to suspend a set of tariffs increases due to start on October 15th, only setting the stage for more high-stake negotiation between the Chinese and US leaders for November 16th in Chile. This did not prevent the House of representatives to pass four pieces of legislation toughening its stance on China, three of which concerned pro-democracy protests in Hong Kong. Economic data in the US showed retail sales dropped -0.3% for the first time in 7 months in September, suggesting manufacturing weakness could be spreading to the broader economy, without causing equity unrest as this was seen comforting expectations of more Fed rate cuts (at the end of the month) and liquidity (QE and non-QE) provisions. In terms of the earnings season, 24% of the S&P will report this week (including Mc Donald and Amazon). So far so good and banks (with the exception of Goldman) did particularly well last week. This historical bull market has been running with the fuel of central liquidity provisions and share buybacks accounting for 100% of net purchases over the last couple of years. Both elements are expected to remain supportive with central banks restarting QE and share buybacks set to break a record this year. The score box for last week was uneventful. The S&P500 gained 0,6% (19,2% YTD) while the Nasdaq100 gained 0,3% (24,3% YTD). The US small cap index gained 1,6% (14,0% YTD). CBOE Volatility Index sold off by -18,9% (-43,9% YTD) to 14,25. The Eurostoxx50 rose 0,3% (21,8%), underperforming the S&P500 by -0,3%. Banks generally outperformed, supported by some re-steepening of the yield curve (and rising yields in general which may have been supported by the BoJ own efforts at re-steepening its own curve). Diversified EM equities (VWO) gained 0,8% (8,7%), outperforming the S&P500 by 0,2%. CSI300 Chinese equity index (ASHR) dropped -1,5% (26,5%), mostly due to Friday’s selloff, keeping their lead for the year but dropping despite the Central bank making an unexpected USD28bn equivalent injection into the banking system on Wednesday, adding its own efforts to those of the Federal Reserve. The economic news flow for China last week was not good. Rising pork prices increased inflation to its highest level in six years in September (3% y/y). A slide in China’s exports picked up pace in September (-10.7% from one year ago) while imports contracted even more (by 26.4% from a year ago) and for a fifth month. Chinese auto sales also dropped in September for a 15th month despite government efforts to support the car market. Th total number of Chinese onshore company bond defaults this year also equalled the record set last year for the whole year. Indian shares (EPI) rallied 4,0% (-2,6%). Russian shares (RSX) gained 0,4% (22,8%). The Dollar DXY Index (UUP) dropped -1,0% (4,3%, Z-score -2,6) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (0,7%). EURUSD gained 1,1% (-2,7%, Z-score 2,1). EURJPY gained 1,1% (-3,8%, Z-score 2,0). EURCHF dropped -0,1% (-2,3%). EURGBP dropped -1,2% (-4,1%). AUDUSD gained 0,8% (-2,9%, Z-score 2,0). NZDUSD also gained 0,7% (-5,0%, Z-score 2,1), confirming the broad nature of dollar weakness last week which has the consensus of speculators currently wrong footed. 10Y US Treasuries dropped 2bps (-93bps) to 1,75% while 30Y US Treasuries underperformed with yields rising 6bps (-77bps) to 2,25%, enacting a meaningful re-steepening of the bond curve. 10Y Bunds underperformed with yields rising 6bps over the week (-62bps) to -0,38%. EMLC (VANECK JPM EM LOCAL CCY BOND) gained 0,4% (2,5%) with EM bonds seen generally outperforming. Stocks rose slightly last week. So did credit markets. US Aggregate Corporate Average Spread over Treasuries dropped -3bps (-41bps) to 1,12%. High yields did better with the US High Yield (HY) Average Spread over Treasuries dropping -7bps (-143bps) to 3,83%. US High Yield (HY) Caa Average Spread over Treasuries dropped -3bps (-63bps) to 9,26%. Despite this generally mild performance print, the credit news flow last was less encouraging as the private equity market for unicorns continues to consume itself and as Wework’s liquidity problems could spread if the IPO market remains clogged for them. In European credit markets, EUR 5Y Senior Financial Spread dropped -2bps (-50bps) to 0,60%. Gold gained 0,1% (16,2%) while Silver gained 0,1% (13,3%). Major Gold Mines (GDX) gained 0,6% (28,6%). Bitcoin dropped -1,4% (123,9%). Goldman Sachs Commodity Index dropped -0,7% (7,7%). WTI Crude dropped -1,7% (18,4%). CPER gained 0,4% (0,5%). Over the week end… B. Johnson, bound by a law passed earlier by opposition Members of Parliament, has formally asked the European Union for another extension. He “narrowly” escaped having to eat his hat on his promise not to ask for a delay by sending an “unsigned” letter to the European Union…asking for a delay until December 31st, adding that he would rather see Brexit happen before. Fatigue about Brexit is at its maximum and the reaction muted so far with GBP slightly lower and stocks slightly higher overnight. B. Johnson will ask today again the House of Commons to back his deal with the EU in a new “meaningful vote”. The rest of news flow this week end dealt with headlines of unrest in Hong Kong, Catalonia (following the condemnation of pro-independence Catalan activists) and in Mexico where the outcome was perhaps inevitable but most unwelcome for the rule of law and democracy. Overnight, Japan’s September exports were reported to have declined -5.2% (from -3.7% expected) in September with exports to the US dropping a sharper -7.9% y/y than exports to China (-6.7% y/y). 

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