• Risk-on mood emerged at the end of the session amid optimism over a Brexit deal and strong U.S. earnings, despite renewed concerns over global growth.Concerns over global growth were supported by the IMF decision to cut again its 2019 global growth forecast from 3.2% to 3% to its slowest pace in a decade underpinned by trade tensions. Meanwhile, its 2020 estimate fell by 0.1% to 3.4%.
  • On the data front, the ZEW figures suggested a persistent weakness in the German economy. Investors confidence in Germany’s economic outlook continued to worsen in October to its lowest level since April 2010, although less than estimated (-22.8, consensus -26.4, previous -22.5), while the assessment of the current situation was more pessimistic than expected (-25.3, consensus -23.6, previous -19.9). Moreover, the Chinese producer price index continued to fall in September as estimated (-1.2% YoY, consensus -1.2% YoY, previous -0.8% YoY), whereas its CPI remained strong led by a surge in pork prices (3% YoY, consensus 2.9% YoY, previous 2.8% YoY).
  • The kick off of the US 3Q19 company earnings started on the right foot, with a bunch of companies beating earnings estimates, offsetting some growth concerns. The outlook for the S&P500 3Q19 earnings was low, with the consensus estimating 3% YoY decline
  • The sovereign bonds market was steady until the end of the session, although European yields surged on optimism over a Brexit deal (10Y GER yield +4bps, 10Y UK yield +6bps). The 10Y UST bond yields also benefited from hopes of a Brexit deal, trimming early losses (10Y US +2bps). Separately, tensions in money market rates slightly re-emerged, with U.S. general collateral repo rising to 2.05% from 1.896% in response to a large Treasury coupon settlement. Nonetheless, the US money markets strains should be limited by the Fed’s liquidity provision. On the other hand, James Bullard backed another Fed interest rate cut, supporting current market expectations that price in 68% probability of a rate cut in October.
  • The sterling was volatile during the session amid Brexit developments. The GBPUSD resumed its rally to a 3- month high (+0.9%), outperforming its G10 peers, on the back of Barnier’s comments that a Brexit deal is still possible this week, with both sides targeting a deal by midnight. However, the GBPUSD 1M implied volatility rose near to a year-high. The euro slipped 0.1% against the USD led by the weak ZEW figures in Germany, while safe-haven currencies slipped (USDJPY -0.4%, DXY index -0.1%). Regarding EM currencies, the Turkish lira led the gains (USDTRY +0.7%) as both U.S. and EU sanctions over Turkey were softer than investors had feared. Meanwhile, LatAm currencies depreciated (LACI index -0.4%) given the uncertainty of recent trade talks, alongside the yuan (USDCNY -0.2%) driven by the risk of deflation in China.
  • Equity markets soared with both the U.S. and European banking sector outperforming driven by investors risk appetite. Turkish stock trimmed partially yesterday’s sharp decline (BIST 100 +1.4%).

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