The Weekly Update

Risk appetite picked-up into the latter part of the week as the US House and Senate both voted in favour for a two-week extension in federal funding through to December 22, and the rumor mill suggested Mr. Trump could announce his US infrastructure plans as soon as January. We expect to hear more on the House and Senate reconciled tax-cut proposal in the next couple of weeks leading up to year-end; ahead of this Trump will present his closing argument for the GOP tax overhaul on Wednesday. Despite the yield on the 10-year UST selling-off after the US government announced it would avoid a shutdown over the weekend, and the non-farm payroll print beat expectations, it closed marginally unchanged over the week. Meanwhile, the dollar regained momentum. The UST yield curve flattened further over the week to new decade lows; we gather the reason behind spread compression between the 2s 10s and 5s 30s is due to longer-dated UST buying from US corporates, to pre-fund pension requirements in order to benefit from the current deductible rate; expected to be reduced once the proposed tax-bill comes to fruition.

Elsewhere, Japan’s Q3’17 GDP reading buoyed the risk-on environment; rising to 2.5% qoq verses expectations for +1.5% qoq. Early Friday morning we also got wind of a last-minute Brexit ‘breakthrough’; according to sources the divorce settlement could be as much as GBP 60bn, there will be no ‘hard border’ with Ireland, and EU citizens residing in the UK, and vice versa will have their rights protected. Trade talks should commence soon, but there is still a very long road ahead in negotiations. Elsewhere, the German coalition discussions will officially commence on Wednesday, if Germany’s future vice-chancellor Martin Schultz, from the SDP party gets his way, the EU could be transformed into the ‘United States of Europe’ by 2025; if this does ever happen, the ‘United’ Kingdom will be watching from the outside.

Meanwhile, a strong data week saw China’s trade data for November beat market expectations, with exports jumping to 12.3% yoy in dollar terms, imports also remained strong in November. Caixin PMI readings improved in November, and remain comfortably in expansionary territory. The country’s FX reserves also increased last month. Over the weekend we had the CPI and PPI readings for November; PPI was broadly in-line with expectations, however, CPI softened in November. Later in the week, we will get the retail sales, fixed asset and industrial production releases for November; all expected broadly in-line with October’s figures.

Elsewhere, Mr. Trump’s comments on Jerusalem led to Hamas calling for an ‘intifada’ against Israel (and Trump). This ’declaration of war’ is the third of its kind in the region but is not, at this stage, expected to be as violent as the previous one in the early 2000s. Both previous uprisings actually weakened the Palestinian economy, so it will be interesting to see just how far Ismail Haniyeh, the leader of Hamas, is willing to go. Currently, we see limited spillover into the rest of the Middle Eastern region. Aside from the broad spread widening witnessed across investment grade and high yield bonds, we didn't witness any indiscriminate sell-off across our holdings in the regions sovereign and quasi-sovereign issues.

As we fast approach the year-end holidays there are a number of key data prints, and political and policy events ahead. Today we have further NAFTA talks, EU diplomat discussions over Brexit and the US Jolts print. Tuesday kicks-off with UK inflation readings, and later the US PPI print for November. Germany’s ZEW could also garner some attention as could the US November monthly budget statement. With the US employment sector clearly strong, CPI readings are expected to be watched very closely on Wednesday; especially after a dip in average hourly earnings in November. The main feature on Wednesday will be the FOMC rate announcement, where a 25bps hike (to 1.25%-1.50%) is expected. We will also hear more in Brexit negotiations on Thursday as the EU parliamentarians, Junker and Tusk meet in Strasbourg. Might be worth looking up at the sky at night, as you may be able to catch the Geminid meteor shower late Wednesday night.

Super Thursday will feature the ECB policy meeting, expected to stay put on rates and bond-buying programme, and the BoE policy decision; also expected to remain unchanged, however, policy signals into next year could be of interest. The Swiss National Bank will also gather on Thursday, its quarterly policy assessment, and growth and inflation forecast could grab market attention, as the central bank maintains its record low -0.75% deposit rate. Putin’s end-of-year conference could be watched closely; ahead of another six-year term as president commencing in March. The end of the week will see the EC council summit conclude, aside from this we will get the Euro Area’s trade data for October, US empire manufacturing data and November IP release.

The Weekly Update

The yield on the 10-year US Treasury tracked marginally higher over the week off the back of broadly stronger US data; including an upward revision to Q3’17 GDP and PCE Deflator yoy readings. ISM prints did, however, disappoint. Yellen’s upbeat testimony (her last as Fed Chair) to Congress and the vote on the Senate’s tax bill also boosted market sentiment; despite the in-house political drama. The Fed’s Beige Book also highlighted a pickup in US economic activity. Meanwhile, the DXY (dollar index) regained some momentum after the Senate’s 51-49 vote on tax-cut legislation. The next step will see the House and Senate work to reconcile their tax bills; one of the differences include the pace and timing of corporate tax cuts; which, according to Mr. Trump, could be sliced to 22%, instead of the House-proposed 20%. So, one to watch in the coming weeks, with an agreed tax-bill expected before the year is up. More importantly, however, Congress faces the Dec. 8 government funding deadline; in order to avoid a government shutdown on Friday.

Other headlines which grabbed market attention last week included: the Bank of Korea’s 25bps ‘dovish hike’ to 1.5%; the central bank stated that inflation is expected to stay ‘in the mid-1% range for some time.’ Meanwhile, OPEC and Russia agreed to a further extension to production cuts (into end-2018) which saw Brent spike higher; according to Russia's energy minister, Novak, ‘everybody recommended to extend the agreement’. However, all parties also agreed that this is a flexible extension; if oil prices were to overheat, the length of extension would be reconsidered. Elsewhere, UK PM May agreed to pay over double the initial exit-fee, in order to kick-start trade negotiations; sterling traded higher against the dollar following the news. All eyes will be focused on the Brexit developments this week (ahead of the EU summit next week), events include: PM May’s meeting with EC president Juncker today, the EC College of Commissioners’ decision on the extent of Brexit negotiations on Wednesday and David Davis’ Parliamentary Committee, expected to be formed on Wednesday.

As mentioned, Brexit developments will be a main feature this week, US employment day releases on Friday will also grab market attention; current expectations are for +199k jobs created in November, no change to the unemployment rate and a pick-up in average hourly wages. Ahead of this we’ll get the factory orders and durable goods readings later today, US PMI and ISM readings on Tuesday and ADP employment change reading on Wednesday. China’s trade data and Caixin PMIs for November will also be of interest, with the former released on Friday. We will also get China’s FX reserve release this week, markets currently expect a spike to USD 3.123tn  in November. Thursday will be dominated by German coalition discussions, and we’ll also get the German IP print, Q3’17 GDP reading for the Euro Area and final revision of Japan's Q3’17 GDP reading.

The Weekly Update

A relatively quiet Thanksgiving week saw the yield on the 10-year US Treasury close unchanged from the previous week and the dollar (DXY Index) tumble for the third consecutive week. Meanwhile, the offshore renminbi broke through the 6.60 level on Friday, closing 0.73% stronger against the dollar.

This week tax reform could attract much attention as Senate votes on its proposed tax bill (expected on Friday); Republican policymakers would like to get the tax bills reconciled by Christmas. Meanwhile, markets will be watching the German coalition talks this week as Merkel’s CDU party discusses a potential ‘grand coalition’ with the Social Democrats (SPD). This morning we saw China’s Industrial Profit reading for October fall marginally; although still robust at 25.1%. There’s not much in the way of other key economic data prints today, however, what could be of interest is New York Fed President Dudley speech on the “U.S. Economy: 10 Years After the Crisis”. Tuesday’s focus will be the confirmation hearing for newly nominated Jerome Powell, who is said to favour gradual rate hikes and understands the needs for the easing financial regulation. Meanwhile, President Trump will gather with Republican and Democratic leaders to kick-start the federal spending debate ahead of the Dec, 8 deadline.

Fed Chair Janet Yellen’s is due to testify before the Congressional Joint economic Committee in Washington on Wednesday, this will be her last appearance in front of Congress as Fed Chair. Key data releases out of the US include the second estimate for Q3’17 GDP, personal consumption and core PCE, the beige book will also be released on Wednesday. A busy data day on Thursday will kick-off with China PMI readings (we also have the Caixin PMI release on Friday) and Japan’s CPI October reading, US personal income and personal spending prints, and the Fed’s favoured PCE deflator (and core) releases for October.

OPEC and Russian leaders will gather in Vienna on Thursday; there have been rumours that as much as a 9-month extension to supply cuts could be agreed upon (a 6-month extension could be more likely with a subsequent review following this period). Brent continued to hold up last week, closing at $63.86 (up +1.82%). Thursday could also see an interest rate hike from the Bank of Korea. Then on Friday we have the US ISM figures for November, there will also be a number of Fed members speaking, including Kaplan and Bullard; who is due to speak on economic outlook.

The Weekly Update

Last week the US Treasury curve continued to bull-flatten, with the spread between the 5-year and 30-year tightening to ten-year lows; historically this measure has been used as a recession indicator - the tighter the spread and more inverted the curve the stronger the trigger. However, at this stage of the cycle, we do not expect the US to enter into a recession. The tightening appears to be more a case that the US curve is sufficiently more attractive; the 10-year UST, for example, offers roughly 2% additional yield compared with the equivalent Bund and JGB benchmarks. The 10-year yield ended the week 6bps lower, at 2.34%.

US data releases last week included the October PPI which spiked to 5.5 year highs; with demand primarily driven by rebuilding post-hurricanes and following the wildfires. Headline CPI moderated in October, in-line with expectations, to 2%, while the core reading edged higher to 1.8%. Retail sales, also cooled in October, broadly in-line with market expectations and the November Empire Manufacturing gauge plummeted from its three year high. Import and export price indices also disappointed in October. The dollar (DXY Index) once again struggled to find its feet, falling 0.77% over the week.

The sell-off across the USD 1.3tn junk bond market grabbed market attention last week, according to ICE BofAML Indices, spreads across sub-investment grade bonds widened as much as 59bps, from the lows witnessed last month, to average yields of 6%. This is the second largest move this year; back in March spreads across the asset class widened 61bps in under three weeks. So, this could be one to watch in the coming weeks. As regular readers are aware we currently hold no junk bonds.

China’s bond ‘rout’ also hit the newswires last week, the yield on the 10-year benchmark crept above 4% for the first time in three years; the PBoC responded by injecting liquidity into the financial system and the yield eventually closed the week at 3.93%. Also of interest last week was a paper written by the NY Fed staff on ‘China’s Evolving Managed Float’, which concluded that “China’s recent approach to managing the fix, and exchange rate more broadly, appears to have been a success.” Increased visibility and predictability were highlighted as some of the reasons that have “helped desensitized global markets to fluctuations” in the renminbi cause by dollar moves. Noting that the renminbi “has held broadly stable” against the CFETS basket, the report underscored the “sharply scaled back currency market intervention” by Chinese policymakers. As of Friday’s close, the offshore renminbi is up 5.12% against the dollar so far this year, with carry at just over 4%.

Data releases out of China suggested some softening in activity in October, meanwhile, the housing market also cooled in October, resulting from sector tightening measures. Despite recent softer readings, “The economy continues to operate in a reasonable range in terms of production, employment, inflation and corporate profitability,” Liu Aihua, a statistics bureau spokeswoman said in Beijing, adding “The growth momentum remains good, laying a solid foundation to achieve the full-year targets.” As the country strives to manage financial risks, deleverage and push forth with supply-side reforms, economic growth is expected to slow, however, market speculations of a ‘hard-landing’ have ebbed and Chinese policymakers have reiterated their preference for slower and more sustainable growth; which is currently above the government's target.

A Thanksgiving holiday-shortened week will see further Brexit discussions as EU foreign and European ministers meet today; according to sources, PM May could look to get cabinet approval to double the ‘divorce settlement’, originally touted at EUR20bn. The new location for the European Banking Authority and European Medicines Agency will also be decided today. On Tuesday we will hear from Fed Chair Janet Yellen “In Conversation with Mervyn King” in New York, and the Chicago Fed National Activity Index could be of interest. Wednesday’s key event will be the UK’s Budget Statement; growth forecasts will grab market attention with Brexit concerns looming. Later we’ll get the FOMC minutes for the 2nd November meeting, we expect little change in rhetoric; a December hike is still penciled in. Mr Putin is to host discussions on Syria at a summit in Sochi; Turkish and Iranian presidents are due to attend. The preliminary reading for US durable goods orders in October may garner some attention, with market expectations at only 0.3% (vs 2% previously).

US bond and equity markets will be closed on Thursday for Thanksgiving; according to the American Farm Bureau Federation estimates that 46 million turkeys will be consumed and the average cost of feeding a group of 10 has fallen to the lowest level since 2013. In terms of data, we’ll see a number of PMI readings across Europe, and Germany’s Q3’17 GDP print, and the UK’s second reading. Also on Thursday, we’ll see the release of the ECB minutes. OPEC’s Economic Commission Board will gather in Vienna ahead of Nov, 30 meeting; expectations are for the continued enforcement of supply cuts into mid-2019. Black Friday will kick-off with Japan’s manufacturing PMI for November and the German IFO print. This will be followed by US Markit PMIs. The fate of South Africa’s long-term rating hangs in the balance, as Moody’s and S&P publish their reviews on Friday. South Africa is rated BB+ by both S&P and Fitch, and Baa3 by Moody’s so a one-notch downgrade by the latter could see the country’s long-term rating junked. As further delays are expected on the US tax front, Senate is now expected to vote on its version next week; this may see a continuation of the softer market sentiment tone this week. Also, through the week, news on the formation of a German coalition (and a possible fresh election) will grab market attention as will the unfolding events in Zimbabwe; where Mugabe could face impeachment.

The Weekly Update

Last Thursday marked Trump’s first year in office, as the Independent put it he has made “2,470 tweets and 0 major legislative achievements”. According to 73.9% of 929 economic experts surveyed across 120 countries, Donald Trump is “negatively influencing the world economy”; 57.6% think the Trump-administration is hurting the US economy. As we get closer to the end of the calendar year, markets appear to be running out of patience with the lack of fiscal reform promised over a year ago, during Trump’s campaign. Also on Thursday, the US Senate published its tax reform bill which differed from the proposed House Bill; one example could be Senate’s proposal to delay the drop in corporate tax (to 20%) for a year (i.e. into 2019) versus the House’s call for a cut by January 2018. Expectations are for this to remain a contentious area with many market players expecting further delays in implementation as the two attempt to bring their proposals more acceptably in-line. The House’s proposal will be voted on this week, while the Senate Finance Committee brushes up on its own version; expected to be voted on before Thanksgiving. US Treasuries indiscriminately sold-off last week with the yield on the 10-year up 7bps to 2.399% and the dollar fell 0.58%, measured by the DXY Index.

A relatively quiet data week saw a surge in consumer credit in September; US credit-card debt exceeded USD1tn. This week kicks-off with the monthly budget estimate later today. PPI and CPI readings follow on Tuesday and Wednesday, respectively, market calls are for headline CPI to moderate to 2% yoy, with the core reading for October at 1.7% mom. The Empire manufacturing reading on Wednesday could grab market focus as expectations are for a dip. Retail sales readings follow, expected to be softer in October (following the post-hurricane surge in purchases). Thursday will see the import and export price Index prints, also expected to be softer for October. Housing starts and building permit data for October could be of interest on Friday, after the weak September readings.

Elsewhere, China’s reserves remained robust in October, in a statement following the release the State Administration of Foreign Exchange (SAFE) said it expects ongoing reserve stability as confidence in the country’s long-term economic development increases, coupled with a firmer foundation for balanced cross-border capital flow and international payments. October’s trade data (USD) remained robust as exports were held up by strong global demand, while a bounce in imports continues to underline strong domestic demand. Inflation readings remained steady in October, price pressures are expected to remain strong going forward, as economic growth remains robust, the labour market remains tight and the anti-pollution drive holds up commodity prices; currently, we see no need for the PBoC to change policy direction. Tomorrow will see China's retail sales, fixed assets and industrial production releases for October, this week we will also get the FDI reading for October.

In a bid to further liberalise China’s financial sector, on Friday Vice Finance minister Zhu announced plans to ease restrictions on foreign investment into China; foreign firms could potentially own controlling stakes (up to 51% - from 49% - after 3 years, with no limit after 5 years) in joint venture firms within the financial sector. This development will be worth monitoring as the world's second-largest economy strives to ease barriers across its financial markets, having already made big moves in opening up its equity and bond markets to foreign players.

On Friday S&P announced it had cut its rating for Oman by one notch to BB. Moody's and Fitch still have the country rated Baa2/BBB. The sovereign bonds remain attractive, we calculate the: 5.375% 2027s are currently trading 3.3 notches cheap with expected return and yield of 15%, while the 6.5% 2047s are 3.7 notches cheap with a 32% expected return and yield. Moody’s is to review Saudi Arabia’s A1 rating this Friday; no change to the rating is expected.

This week will see final readings for October CPI in the UK and Germany tomorrow, followed by France and Eurozone on Wednesday and Thursday, respectively. Interestingly, the Retail Price Index (RPI) measure is expected to surge up to 4.1%yoy in October, the first time since December 2011. On Wednesday, Japan’s industrial production will be of interest as the previous month-on-month reading was surprisingly weak.  

Central bank chat could dominate this week, today we will hear from the Fed’s Harker, the ECB and Japan’s Kuroda. Trump and Tillerson are due at the US-ASEAN summit as their Asia trip comes to an end this week. Tuesday will be another exciting day as Fed Chair Yellen, the ECB’s Draghi, BOJ’s Kuroda and BoE’s Carney speak at an event hosted by the ECB panel. What could be of interest is any indication that Yellen could remain on the Board of Governors once she leaves her Chair position to Powell. Also on Tuesday, we will hear from the Fed’s Evans, Bullard and Bostic and ECB’s Coeure and de Galhau. Trump’s attendance at the East Asia Summit may garner some attention. Focus is expected to move the UK’s Brexit bill, on Tuesday and Wednesday, where we may see come give-up on the EUR 60bn leaving ‘fine’; the UK is officially expected to leave the EU at 2300 (GMT) on Mar 29, 2019; there is still a very long road of negotiations ahead, especially in term of trade deals. Wednesday will see a continuation of central bank chat, as the ECB’s Praet, Fed’s Evans, BoE’s Haldane, amongst others are due to speak.  We could also see the fifth round of NAFTA talks commence on Wednesday. UK retail sales readings for October could surprise to the downside on Thursday, while France’s unemployment reading may have tracked lower in Q3’17. The week will end with Draghi’s keynote address in Frankfurt, followed by the Fed’s Williams note.

The Weekly Update

A busy week saw Fed rhetoric broadly unchanged from the previous FOMC meeting; with a hike in December still on the table, despite ‘soft inflation’. Mr Trump announced his preference for Jerome Powell as the next Fed Chair; after Janet Yellen’s term ends in February. Powell already serves on the board as a governor and is expected to continue on the same monetary policy path; from February 2018. US unemployment numbers released on Friday showed continued strength in the labour market; unemployment edged lower to 4.1% (as a result of a shrinking workforce) but, average hourly earning surprised to the downside, falling to 2.4%. Broadly, robust economic data, including ISM prints continue to confirm ‘solid’ US growth; propping up the dollar higher. The yield on the benchmark 10-year US Treasury rallied 7bps to close the week at 2.33%, while the VIX (volatility) Index dropped to new all-time lows.

Meanwhile, the highly anticipated draft tax Bill, detailed a drop in corporation tax to 20% (with no expiry date) from 35%. Unfortunately, more personal tax reforms within the draft didn't get the market excited, and seemingly touched a nerve in terms of a bias towards higher earner; Chuck Schumer warned that the plan ‘exacerbates the unfairness and inequality in our tax code’. It seems there is still a long way to go and most expect the current ‘radical’ plan in its current form will not be passed. A data-light week ahead will be dominated by news flow from the Trump-administration’s first Asia trip and further developments on the tax plan draft; which the House is expected to vote on by the end of this week. Senate is expected to come up with its own version, working in coordination with the House to achieve a more aligned proposal with agreement anticipated by Christmas; this could help boost Trump’s current poor approval ratings. This week will also see the continuation of the Trump-administration's first official Asia trip, where North Korea, trade (US business) and investment will be high on the agenda. The entourage is currently in Japan, moving onto South Korea on Tuesday, China on Wednesday, Trump will then deliver his first ever APEC summit speech in Vietnam towards the end of the week and the trip comes to an end in the Philippines on the 12th.

The other big news last week was the BoE’s decision to hike rates by 25bps to 0.5%. The market was not sure what to make of the mixed message, however, read it as a dovish hike. The gilt curve rallied off the announcement, while sterling collapsed. Brexit talks will resume later this week, news reports point to Brussels’ infuriation as the UK ‘admits next round of talks will be talks about talks’. When asked whether Brexit would prevent the BoE from cutting rates Governor Carney said, ‘That’s an extreme possibility but it's a possibility’.

Meanwhile, Venezuela began the arduous task of restructuring its debt, as it attempts to avoid defaulting. Rating agencies reacted by slicing its already junk rating into ‘potential default’ territory. We expect to hear more this week and beyond; US sanctions will no doubt make unravelling Venezuela's debt (sovereign's $37bn, PDVSA’s $43bn and huge amounts of unlisted debt), and sourcing additional financing that bit trickier. We are not holders of Venezuela's debt.

Turning the Middle East, Fitch affirmed its rating for Saudi Arabia at A+, outlook stable. Fitch highlighted that the Kingdom’s  rating is supported by: ‘strong fiscal and external balance sheets, including exceptionally high international reserves, low government debt, significant government assets and strong commitment to an ambitious reform agenda’. Staying with Saudi Arabia, King Salman began his anti-corruption purge starting with the arrest of  Prince Alwaleed bin Talal, senior royal family members, cabinet ministers and other senior officials. Seen as credit positive we expect to see further developments through the week. The Kingdom’s bonds have held up well, off the back of the news and reports over the weekend of a blocked missile attack from Yemen; the sovereign bonds are off only 3-4bps currently.

Brent enjoyed a further rally last week, reports that Iraq’s Oil Minister Jabbar al-Luaibi said the country backs OPEC’s decision to support oil prices helped boost crude prices. The ongoing anti-graft probe in Saudi Arabia could continue to lend support to crude in the coming week. As could the news over the weekend, where Russia, Saudi Arabia, Uzbekistan and Kazakhstan agreed to work towards reducing global inventories.

This week kicks off with the final round of October PMIs in Europe. With limited data out of the US, focus could turn to the Fed’s Potter and Dudley who speak later today. German industrial production (IP) on Tuesday will be followed by September’s eurozone retail sales, and the October JOLTS job report out of the US. OPEC will present its oil outlook later in the day on Tuesday. Early-doors Wednesday we’ll get China's trade data dump, and fx reserve data (at some point during the week). China’s CPI and PPI data for October will be of interest on Thursday morning, followed by German trade data and UK IP. Friday will see the US’ monthly budget statement, a quiet day is expected as the bond market will be shut in the US ahead of Veterans Day on Saturday.

The Weekly Update

A combination of broadly stronger US data readings, excitement around the tax-plan and anticipation surrounding the Fed Chair position saw US Treasury yields track higher last week; the yield on the 10-year benchmark was up 4bps to 2.41%. The DXY (dollar) Index rallied 1.22% over the week, fuelled by the passing of a budget resolution on tax reform. In terms of US data, the Chicago Fed National Activity Index surprised to the upside, as did the preliminary durable goods print for September; which incidentally drove 10-year yields higher. The initial Q3’17 GDP estimate was at 3%, marginally lower than Q2’17.

Later today personal income, personal spending and the Fed’s favoured PCE readings will grab market attention. PMI and ISM follow on Wednesday, followed by the FOMC meeting, where the rate decision will be announced on Thursday. All eyes will turn to October’s employment prints, which will be an interesting set of data, following the weak hurricane-affected September readings; market expectations are for +312k jobs, unemployment unchanged at 4.2% and a dip in hourly earnings on a mom and yoy basis. Away from economic data, this week we expect to hear more on the tax-overhaul, and budget debate. Also, Trump may select the Fed chair (effective next year), ahead of his Asia trip which commences on Friday; Politico reports suggest it will be between Fed Governor Jerome Powell and Stanford University economist John Taylor. The former is expected to continue on the current policy path, while a hawkish Taylor believes rates are too low.

Elsewhere, China’s 19th National Communist Party Congress came to a close on Wednesday, officially marking the beginning of President Xi Jinping’s second term as party general secretary (and points towards a likely third!). Xi furthered Deng Xiaoping’s reforms and ideology of the 1980s surrounding his “theory on socialism with Chinese characteristics”. How exactly “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” will look, only time will tell. But, further to Xi securing more influence for himself, there was the unavoidable rhetoric for the pursuit of “more balanced economic growth”. The idea of more balanced growth across demographics and regions is an important one. It signals that Xi now feels more able to confront the established and privileged elite and that the nation must now strive beyond “prosperity for some so as to achieve prosperity for all”. The ebbing crackdown on corruption should continue and special attention towards western and central Chinese states should help address these long marginalised provinces.

The renminbi weakened marginally over the week; on the back of a strong dollar. There was not much in the way of key economic data prints for China last week; industrial profits gained year-on year in September. Tomorrow we see the official PMI releases with the Caixin manufacturing reading later in the week.

Elsewhere, the ECB left rates unchanged, and announced that it will reduce its monthly asset buying programme by half, to EUR 30bn, from January 2018. Following the announcement, ECB President Draghi said the decision ‘reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim on account of the increasingly robust and broad-based economic expansion’. He did however add that ‘domestic price pressures are still muted overall’. The benchmark ten year German Bund rallied off the back of the announcement and the euro took a nosedive, falling 1.5% against the US dollar over the week; playing right into Draghi’s hands. The actual Q3’17 GDP reading and unemployment figure will be released on Tuesday. We also have the Bank of England meeting on Thursday with a 25bp rise in rates widely expected.

On the the new issue front, China’s first USD denominated offering, in over 13 years, was a roaring success. Over 11 times oversubscribed, the USD2bn two tranche deal, issued out of Hong Kong unfortunately left very little on the table; the 5-year tranche priced at only 15bps above USTs, while the 10-year was issued at just 25bps over. We calculate that both deals were expensive on a relative value basis, thus we did not add to our portfolios. The bonds are also not rated by the three major rating agencies, although they have rated China A1/A+; so an implicit rating can be used to price the bonds; which we have calculated as ~3 and ~3.75 notches expensive, respectively.

We did, however, add the a 30-year (amortising) bond from state-owned Abu Dhabi Crude Oil Pipeline (ADCOP). Rated AA, the bond was issued at a yield of 4.6%, using our proprietary Relative Value Model, we calculated that the bond is over 6 notches cheap. This deal was particularly interesting as we think the long-end of the Abu Dhabi Government curve is attractive in its own right. We calculate the Abu Dhabi Government 4.125% 2047’s yield is close to 4.2% and is trading over 4 credit notches cheap. As regular readers are aware, we feel quasi-sovereign issues from creditor nations remain compelling investments.

The Weekly Update

Last week US 10-Year Treasury yields rose 11bps with a level move up across the curve and global equity markets pushed new highs on slightly improved global economic outlooks. The renminbi (CNH) weakened from 6.57 to 6.62 partly due to the dollar strengthening with the DXY Index moving 0.66% to 93.70. The Merrill Lynch Fund Managers’ survey reported average cash balances were down to 4.7%: their lowest in 28 months. With this recurring ringing of “new all-time-highs” markets this week reminisced the 30th anniversary of Black Monday.

China’s 19th National Communist Party Congress began last week and continues through to the middle of this week. It looks like only President Xi and Premier Li will remain on the Standing Committee with Xi handed his second five-year term at the closing of the meeting on Wednesday 25th. Furthermore the PBOC governor announcement  looks set to name Gui Shuqing, currently Chairman of the CRBC.

Over the weekend Abe’s gamble turned into a landslide victory causing the NIKKEI to rocket beyond 21,700, continuing 16 months of solid performance whilst the yen was pushed down given that the win removes some of the fear of the BoJ easing policy; Abenomics gets a new lease of life as Haruhiko Kuroda (or at least a like minded candidate) is expected to be reappointed as the Bank of Japan Governor. Touching 114 the Japanese yen stands at a 100 day low.

The fourth round of NAFTA negotiations ended last week; it was clear that the previous December target was unfeasible considering the "strong differences that remain" and that the "new proposals have created challenges". But it was agreed to extend the talks into the first quarter of 2018. On news of this, the Mexican peso rallied almost 2% from its weak point a couple of days earlier. The prior 7% depreciation of the peso over the past month was a sharp retracement of the bullish sentiment the markets had during the first half of the year; and amongst various causes was triggered by Trump's characteristic uncompromising and hard-line position on NAFTA. The agreement pertains to $1.2 trillion in annual trade between the US, Canada and Mexico: particularly vulnerable is the auto industry which has various back-and-forths between Mexico and the US across the various production stages. Mexico arguably has the best source of cheap labour for such production with an autoworker's salary less than $4 per hour; that is just 12% that of an average worker north of the border. This is one of the major sticking points with the US obviously wanting to sign a series of international labour agreements to increase the minimum wage of autoworkers.

In the week ahead the ECB announces its rates decision on Thursday and is expected to offer an update on its QE programme but leave both deposit and refinancing rates unchanged. There is the possibility here for both the targeted duration and the scale of the QE (currently €60bn) to be reduced. The US Q3 GDP read on Friday is expected around 2.5 - 2.7% according to Bloomberg economists survey and the Atlanta Fed GDPNow model respectively. This is weaker than the 3.1% growth in Q2 but would be taken to be resilient given the effects of natural disasters during the period. If the read is closer to the NY Fed’s estimate of just 1.5% it may cause markets to reevaluate the quarter. There is also the possibility that we will hear Trump’s choice for the next Fed Chair with John Taylor, Janet Yellen and Jerome Powell being the most worthy and likely candidates.

Also this week, alongside earnings season at full flow, key data releases include: Chicago Fed National Activity Index; EC Consumer Confidence; numerous PMIs across all major markets; CPI from Mexico, Russia, Japan and Australia; some GDP data from Mexico, Korea, UK and US; and US durable goods and new home sales.

The Weekly Update

Away from the Turkey-US tensions last week, one of the main focus points for markets was the FOMC minutes, which confirmed expectations that interest rates could still be increased once more this year, despite the notable dovish tone. Lacklustre inflation remains a continual nag, as such the CPI data was watched very closely on Friday; both the headline and core numbers missed expectations. Off the back of weaker inflation readings US Treasuries rallied, with the yield on the 10-year benchmark down 9bps to 2.27%, and the DXY (dollar) Index fell 0.76%, pretty much wiping out any gains made during the previous week.

Jolts Jobs also disappointed to the downside, in August, while retail sales in September came in broadly in-line with market expectations. Meanwhile, frustration spread across the Trump-administration due to lack of development with the proposed tax-plan. Yellen said she expects inflation to move towards the 2% target next year. The fiscal policy shift, which was aggressively priced in post-Trump’s nomination, remains a ‘source of uncertainty’ she said, adding that the Fed maintains its ‘wait and see attitude’. Later today we will get the Empire Manufacturing release for October, markets expect this to have fallen. US import and export price indexes could also be interesting on Tuesday, followed by building and housing starts, and the Fed Beige book release on Wednesday.

Last week, the IMF bumped up its global growth forecasts to 3.6% in 2017 and 3.7% in 2018 (from 3.5% and 3.6%, respectively) as a result of further economic expansion in China, the US, eurozone and Japan. The Fund suggested that policymakers should take advantage of the current benign global economic environment to boost growth within their economies, as a protective measure against the next financial downturn. The IMF warned that wealthier nations should consider keeping monetary policy loose until inflation firms up. The Chief economist, Maurice Obstfeld said it best: ‘A closer look suggests that the global recovery may not be sustainable -- not all countries are participating, inflation often remains below target with weak wage growth, and the medium-term outlook still disappoints in many parts of the world’.

The IMF’s forecasts for China growth is 6.8% this year and 6.5% for 2018. Over the weekend the PBoC governor Zhou said he expects growth at 6.9%. He also highlighted concerns over corporate debt, adding that the central bank's priority is to deleverage and manage financial risks. Last week, the National Bureau of Statistics suggested that growth will come in higher than the government’s 6.5% target; this is not unexpected. A pick-up in manufacturing, along with significant policy shifts - including RRR cuts - coupled with China’s sustained high pace of growth and evolving economic structure have been cited as some of the reasons for sustained economic expansion. According to the Bureau’s Head, Ning Jizhe, Chinese President, Xi Jinping’s new development philosophy and supply-side reform have driven economic growth’ with the new economy accounting for just under 15% of GDP.

Exports and import data for September showed a marked improvement, suggesting foreign and domestic demand remains resilient. FDI also surprised to the upside, rising to the highest yoy level in two years; likely supported by robust hi-tech sector and manufacturing growth. Stronger FDI will also support the renminbi which had a strong week, the offshore currency was up 1.25% against the dollar. China’s 19th Party Congress kicks-off this week, recent stronger data will no doubt set a positive tone to the pivotal gathering. The Q3’17 GDP reading will be watched closely on Thursday; market expectations are for +1.7%qoq and +6.8% yoy. Retail sales, industrial production and fixed assets follow will also be released on Thursday; with all three readings expected to remain within range.

This week we may hear more from China on the USD2bn two-tranche deal; 5- and 10-year maturities, to be listed in Hong Kong. Interestingly, this is the first time the country has considered issuing dollar denominated debt in around 13 years; we therefore expect substantial demand for the highly rated A1 paper. With China’s domestic debt market the world’s third largest, at USD 9tn, we suspect the move to issue international bonds is to establish its own international yield curve; as part of opening up its bond market to foreign investors.

The IMF downgraded U.K. growth citing Brexit downside pressures. Last week the fifth round of talks ended with mixed reviews: Michel Barier said that insufficient progress and a state of ‘deadlock’ over the bill had been reached, adding that the EU would be able to cope with all eventualities, but a ‘no deal’ would be ‘very bad’ for the UK. PM May is to restart talks in Brussels later today, when she meets with Junker and Barnier; ahead of the EU summit.

Also this week, the deadline for the Catalan independence falls later this morning; we heard that Catalonia's President, Puigdemont wrote a letter to Rajoy where he stuck by the region’s right to declare independence. He added, ‘Our proposal for dialogue is sincere, despite all that has happened, but logically it is incompatible with the actual climate of growing repression and threat.’ Elsewhere, the IMF are said to be tallying up a deal to rescue Venezuela, despite the country (Hugo Chávez) cutting ties with the Fund and the World Bank back in 2007; according to those in the know, a restructuring of bonds and ~USD30bn annual injection are being discussed, North Korea's threat to launch another ballistic missile this week will undoubtedly result in a risk-off tone across markets. Markets will also be tuning in to the Japanese elections, this coming weekend.

The Weekly Update

The broader risk-on sentiment last week saw the S&P Index rally to new all-time highs, while the VIX Index, a measure of volatility traded below 10 through the week and closed at new lows on Thursday. The tone was driven by stronger US data and further hawkish comments from Fed members including: the pencilling in of a December hike and more positive outlook on US inflation (albeit it still below 2%), off the back of stronger growth. Employment numbers for September were not expected to rock the boat on Friday, due to the divergence of estimates resulting from the hurricane disruptions. However, despite the non-farm payroll figure actually coming in at -33k, unemployment upwardly surprised at 4.2% (from 4.4%) and average hourly earnings rose to 2.9% yoy. US Treasury yields spiked higher, to  2.4% off the ‘stronger’ report, however, simmered to 2.36% by close on Friday; after renewed US-North Korea tensions. Meanwhile, the dollar bounced 0.78%, measured by the DXY Index over the week. The probability of a hike in December climbed to 78.5% by the end of the week.

We expect a quiet start to this week as the US celebrates Columbus Day (equity markets are, however, open). Tuesday will see the Jolts Job openings (a constituent of GDP). On Wednesday the September FOMC minutes will be released; any change to rate hike forecasts will be of interest. PPI follows on Thursday and CPI readings out on Friday will grab some attention, as markets expect the yoy reading at 2.3% for September: driven by the pick-up oil prices, resulting from hurricane-damaged oil refineries. Retail sales estimates for September also appear more positive, compared with the disappointing August readings; the increase in motor vehicle purchases after damage to cars and trucks during the hurricanes to be a large driver of the positive numbers. The week will end on sentiment prints and business inventories. We could also hear more on the US tax proposal as the House passed a budget resolution last week, with a 219:206 majority vote. NAFTA talks will continue, with the fourth round expected to start on Wednesday. On Thursday Trump is scheduled to announce future policy on Iran; could be contentious given his previous comments regarding the current nuclear agreement. Fed chat will also be followed closely. Meanwhile, the IMF and World Bank will host their annual gathering to discuss matters including: economic development, finance and poverty.

Elsewhere, politics closer to home dominated newswires. The pro-Spain rally in Barcelona over the weekend saw the chances of a Catalonian independence declaration diminish. We expect to have more of an idea on the developments on Tuesday. Meanwhile, in the UK, PM May’s leadership came into question following her address at the Conservative Party Conference; infighting within the conservative party over the weekend has also put a strain on Brexit developments. Sterling suffered a ~2.5% fall against the dollar last week. Today will see the beginning of the fifth round of Brexit talks; this could be somewhat interesting after Germany and France warned that further clarity from the UK is required in order for negotiations to continue.

It was a quiet week for China with the country celebrating National Day holidays. This morning we saw the softer Caixin PMI composite and services readings for September, however, FX reserves bounced in September. The FDI yoy print later this week will be of interest as will the import and export data dump on Friday. Ahead of that the Chinese Communist Party’s 18th Central Committee will meet on Wednesday for the last time before the highly anticipated Party Congress, which kicks-off on October 18. Elsewhere in Asia, candidates running for Japan’s October 22 general election will officially kick-off their campaigns.

In terms of new issues, we added the 30-year Abu Dhabi sovereign bond: part of a three-tranche deal launched last week. Priced at a spread of 130bps over Treasuries, we calculated this Aa2 rated bond’s expected return and yield at ~17%, with over 4 notches of cushion. This is the first long-dated bond that the Kingdom has issued and as such, we saw significant demand for the deal; overall the USD10bn deal was 4 times oversubscribed. As the bond is rated investment grade by at least two rating agencies we expect it will be held across a number of indices. Not that that would influence us to hold such an issue, as we are not tied to any benchmarks, rather we have our own internal constraints which include limiting our investable universe to countries with NFA scorings of 3 and above. Abu Dhabi, for example, has a very high 7 star rating, and is investment grade; thus slots into our universe comfortably.

Also, last week, was the landmark meeting between Saudi Arabia’s King Salman bin Abdulaziz and Vladimir Putin; where everything from oil markets, investment and arms deals, to the Syrian war were discussed. The delegations penned $3bn worth of energy deals with the possibility of a collective $1bn energy investment fund and a $1bn Sibur plant in Saudi Arabia. Fostering friendship with Russia has become increasingly essential for Saudi Arabia given the increasing influence Russia has garnered across the Middle-East in recent years: not just through their involvement in the Syrian War but through a decade of actively building ties across the region. The talks should be an economic and political win for both players, furthering Russia’s strength in the region and bolstering Saudi Prince Mohammed’s “Vision 2030” economic transformation programme. Oil markets will be looking for any signals related to the crude production cut deal struck last December and news of extending the oil pact between the Saudi-led OPEC cartel and Russia.

The Weekly Update

A mixed week across asset markets was once again driven by geopolitics and central bank rhetoric. Yellen’s seemingly hawkish tones last week drove Treasury yields higher, this was furthered compounded by the proposed ‘revolutionary’ US tax plan. What concerns us is the tax plan’s eventual effect on the debt ceiling; we expect to hear more on this by year-end. Nonetheless, the yield on the 10-year US Treasury was up 8bps and the dollar gained momentum; the DXY Index closed the week 0.98% higher. Meanwhile, we heard further mixed messages from Fed members with those in acceptance of lowly inflation calling for further hikes, while others remained concerned of hiking too quickly with lacklustre price pressures. The futures market, however, received a wake-up call after Fed Chair Janet Yellen’s address, where she reiterated that a December hike is clearly a possibility. Gold unsurprisingly nosedived last week, meanwhile, Brent gained for its 5th straight week, closing at $56.79pb.

Mixed US data went pretty much unnoticed last week, this included: a very weak Chicago Fed reading and poor home sales month-on-month print for August, mixed sentiment in September, but a better than expected Dallas Fed September reading and positive pick-up in durable goods orders. The main data focus last week, however, was the third estimate for US Q2’17 GDP, which was upgraded to 3.1%yoy, and PCE deflator reading for August which did little to ease concerns over lacklustre US inflation, at 1.4%. This week will see a number of PMI and ISM readings for September; markets expect ISM manufacturing to have fallen in September to 58. This will be followed by the ADP reading for September on Wednesday and trade balance print and factory orders in August on Thursday; should be an interesting reading after the disappointing print in July. The much watched employment numbers end the week; interestingly, markets are looking for only 85k jobs created in September, most likely due to the hurricane disruptions. Away from data, we expect to hear more on tax reform and the Fed Chair selection is expected to start sooner than some had expected.

It was an exciting week for policymakers in China last week as they head towards the Party Congress this month. The State Council approved measures to centralise SOE financing funds: further progress in curbing the country’s non-financial debt burden and improving efficiency and transparency. Later in the week we heard that as of next year the Council is looking to target a cut in the reserve requirement ratio (currently ~17%), by 0.5-1.5% for banks providing financing packages for micro, start-up, agricultural businesses and small enterprises; in a bid to ‘boost employment, generate new growth opportunities and invigorate the economy’. The cabinet also extended the VAT exemption policy on micro companies (sales less than RMB 30,000) for a further three years. After the excitement of the industrial profits reading, up 24%yoy in August, and better than expected official PMI readings (manufacturing PMI hit five-year highs) we expect the week ahead to be pretty quiet as China enjoys a week-long National Day holiday.

Elsewhere, Brexit negotiations continued last week. EU’s Bexit negotiator Barnier did not inspire confidence warning that little in the way of ‘sufficient progress’ has been made; sterling had a rocky week as a result. With time fast running out, we expect to hear more on the developments in the coming weeks, although it appears that any trade deal discussions are currently out of arm's reach. We hope for some more clarity from the UK Conservative Party Conference this week. Datawise, the final reading for UK growth in Q2’17 missed market estimates, coming in at 1.5% yoy, meanwhile business investment in the second quarter surprised to the upside. Markit PMIs could  be of some interest this week.

Over the weekend the highly contentious Catalan plebiscite went through despite warnings from Madrid. There was a respectable turnout of voters, who unfortunately witnessed the distressing scenes of violence. With ~90% voting for independence, no doubt this will be an ongoing headline this week as Madrid throws constitutional laws at any independence announcement. The euro opened on the weaker side against the dollar this morning;  the currency could come under further pressure this week if the situation drags on as most expect. Today sees the final revisions to European manufacturing PMIs for September and August’s unemployment rate.

The Weekly Update

US-North Korea tensions continued to evolve last week, exacerbated by Trump’s bold comments at his first ever address at the UN General Assembly. Last week Trump also proposed a further set of sanctions on North Korea and Chinese president, Xi Jinping, ordered Chinese banks to cease all dealings with entities operating in North Korea. According to sources, Chinese banks have been told to halt all new financial services provisions to North Korean customers and wind down current loans. In a historic move, we heard that China will look to limit LNG and oil supplies to North Korea almost immediately, and stop importing the nation’s textiles (Pyongyang's second largest export). With threats coming from North Korea of a further H-Bomb launch into the Pacific, tensions are expected to remain heightened this week.

Away from the ‘Rocket Man’-’Mentally Deranged U.S. Dotard’ insults the big news was the FOMC meeting, where all was pretty much as expected. The Fed maintained short-term interest rates at 1-1.25% and officially divulged more information on the balance sheet unwind, which will commence in October. This has been well telegraphed in the lead-up to the meeting, in order to avoid shocking financial markets. What did surprise some market commentators however, is the fact that a December hike has been left on the table, despite the ‘mystery’ lacklustre inflation. In fact, the central bank’s inflation (PCE) forecasts were downgraded to 1.5% in 2017 (from 1.7%) and 1.9% in 2019, with the 2% mark pushed out to 2019. The long-run Fed Funds rate once again trended lower, to 2.75%, from 3% last December.

Later today we’ll see the August Chicago Fed National Activity Index release, which could be interesting after the disappointing July print. On Thursday, the Q2’17 GDP (third) reading could grab attention, markets have revised their expectations slightly, to 3.1%. Personal consumption and core PCE qoq releases follow. Friday will see the August PCE readings (Fed’s favoured inflation numbers), the consensus shows a marginal pick-up on the PCE deflator reading to 0.3%mom and 1.5%yoy. We expect to hear more on the US’ tax reform proposal in the upcoming weeks; this week the ‘group of six’ are reportedly meeting to formulate a tax plan to kickstart the process with Congress. Over the weekend we heard that a cut to 20% is being discussed, despite Trump calling for a 15% rate.

Elsewhere, citing an increasing debt burden, S&P downgraded China’s long-term rating by one notch to A+, bringing it in-line with the other two main rating agencies (A1 and A+); this is the rating agency’s first downgrade to the country since 1999. Market reaction was muted post the announcement, which suggests asset classes already priced in the downgrade. The reaction was definitely starkly different from the sell-off witnessed after Moody’s downgraded China in May. Off the back of this downgrade, expectations are for policymakers to implement supportive policies, if necessary, ahead of the highly anticipated party congress in a couple weeks. Over the weekend, authorities announced further property tightening measures including: banning sales of new and existing properties in several large cities, and increasing the mortgage rate for first-time buyers in Beijing by 5-10%. Another quiet week in terms of data will see the industrial profits reading for August on Wednesday, Q2’17 balance of payments reading on Thursday and Caixin manufacturing PMI on Friday.

Over in Europe, German elections took place over the weekend, Angela Merkel was re-elected for a fourth term, but her party witnessed its worst election outcome in ~70 years. The euro has started the week on the back foot, expectations are for the currency to remain under pressure as coalition discussions continue through this week. September German IFO readings released this morning disappointed which did little to temper sentiment. Eurozone confidence prints for September will be released on Thursday, followed by CPI on Friday. Meanwhile, Theresa May’s address in Florence last Friday was pretty much a  non-event, as her Brexit blueprint was thin on detail. What did grab market attention was Moody's one notch downgrade to the UK’s long-term rating, to Aa2. The final reading of UK’s Q2’17 GDP on Friday will be of interest; expected at 0.3%qoq and 1.7% yoy.

The Weekly Update

Markets witnessed improved sentiment last week; the S&P index closed at all-time highs on Friday. US Treasury yields rose last week, with the 10-year up 15bps, at 2.20%. The US dollar ended the week on the front foot; the DXY Index was up 0.57%. Meanwhile, oil rallied, Brent rose 3.42%; OPEC production reportedly fell further in August and figures suggest global demand is picking up.

Key US data included inflation readings for August; PPI was softer-than-expected and CPI surprised to the upside, at 1.7%yoy. The week ended with a stronger-than-expected Empire Manufacturing reading, but, retail sales disappointed, having broadly fallen in August; the sales control group reading (a component of GDP) was down 0.2%. There's not much in terms of key economic data releases, so focus this week will be on FOMC meeting on Wednesday. We do not expect any material change to interest rate policy (as inflation remains below target), however, an announcement regarding the timing of the balance sheet unwind is anticipated.

We may also receive more colour regarding the Republican-only tax reform ‘template’ this week. Existing home sales releases for August should be of interest ahead of the central bank meeting (especially after July’s weak mom print), and the week will end with the three Markit PMI readings. The annual UN General Assembly may garner some attention on Tuesday, especially after North Korea launched another missile last week - over Japan in retaliation to what it termed ‘illegal and lawful’ US Sanctions. Over the weekend, US Secretary of State said ‘our military option will be the only one left’ if diplomatic efforts with North Korea fail. He did however add that ‘we seek a peaceful solution to this’.  

China spending and activity data prints were broadly softer in August, we maintain our expectations for growth in H2’17 to come in-line with the PBoC’s 6.5% growth target. Meanwhile, the renminbi re-traced some of its gains from the previous week in response to the stronger dollar and regulatory adjustments. The offshore currency is still up against the dollar this month. The only bit of data that may be of interest this week is China’s FX settlement release.

UK inflation surprised on the upside at 2.9%yoy with the core reading at 2.7%, PPI readings also beat market expectations. Inflation data was released ahead of the BoE policy meeting, where, as expected, the CB maintained policy. However, the meeting minutes suggest that the majority of committee members back a rate hike in the near future if the economy continues to perform as expected, with all members agreeing that markets are underpricing future rate hikes. It seems the only spanner in the works could be the ongoing Brexit negotiations. Sterling enjoyed a ~3% rally against the dollar and 3.75% against the euro over the week. While 10-year Gilts spiked 32bps to end the week at 1.305%. This week markets expect softer retail sales figures for August, there is not much else in terms of key data. We expect focus to shift to Theresa May’s Brexit speech in Florence, on Friday, where she is expected to ‘underline the government's wish for a deep and special partnership with the EU once the UK leaves’, according to her spokesman.

Staying with the EU, we heard further hawkish tones from the ECB last week. Also last week, S&P upgraded Portugal to investment grade (BBB-) citing an improved budget deficit. We would still not invest in the country as we assign Portugal only a 1 star NFA ranking. The main event in Europe this week will be the elections in Germany, on Sunday.

The Weekly Update

Another turbulent week across asset markets saw 10-year US Treasuries (UST) test the 2% level, falling to year-lows of 2.014% intra-day on Friday. The risk-off run followed a number of headwinds including: heightened geopolitical tensions, relatively dovish notes from the Fed, and the relentless devastation resulting from the hurricanes. The yield on the benchmark 10-year fell 12bps closing the week at 2.05%, testing the 2% level. Meanwhile, the dollar had a torrid week, falling a further 1.58%.

The Chinese renminbi was the talk of the town last week after it witnessed a one-way rally against the dollar heading beyond the 6.5 level; the offshore renminbi gained 1.03% against the greenback last week and is up 7.42% so far this year. The recent gains have wiped out the falls against the greenback witnessed last year (2016); when markets speculated that policymakers were losing their grip on the currency and in fact allowing it to depreciate to increase export competitiveness. It appeared the relentless dollar weakness is forcing Chinese corporates (who aren't fully hedged) to sell their dollar holding to buy the renminbi. We maintain our view that the currency is undervalued and continue to expect long-term, steady appreciation of the renminbi. We say steady appreciation as we heard at the end of the week that the PBoC announced the removal of the 20% reserve requirement on fx forward trading; the reserve requirement was introduced back in October 2015 to prevent market players from taking further speculative bets on the renminbi's depreciation. This move, effective today, goes to show that policymakers are less keen on intervening directly (e.g. using fx reserves as a tool), rather allowing the renminbi to be more market-driven.

The Weekly Update

Geopolitics commanded market focus once again last week as North Korea launched another two ballistic missiles. The first was launched over Japan - on the 107th anniversary of the ‘Japan-Korea Annexation Treaty’- with the second, a purported hydrogen bomb, resulting in an earthquake with a seismic magnitude of 6.3. We expect US-North Korea tensions to remain elevated this week.

US Treasury yields rallied to year lows during the week, however, sentiment reversed into the end of the week off the back of broadly positive data out of the US, Europe and China, amongst others; the 10-year UST benchmark ended flat over the week, at 2.167%. The dollar also collapsed, to year lows, during the week but picked up pace into Friday's close, up 0.08%. Following the ‘dovish’ and relatively unexciting Jackson Hole Symposium, where little in the way of new policy information was divulged, markets once again turned to US data releases; where the week ended with the closely watched employment data dump. Before that however, the second estimate for Q2’17 US growth was released at 3%qoq annualised, revised up from 2.6%. However, the next key reading, the PCE deflator disappointed at 1.4% yoy. Friday ended with a slew of data including employment and ISM readings. As with the previous 6 rounds of non-farm readings for August, the most recent continued to disappoint. It appears however that markets are less concerned with the employment side of the Fed’s dual mandate, while inflation continues to cause concern. One thing of note was that average hourly earnings dipped both on a month-on-month and year-on-year basis; which certainly won’t encourage the inflation outlook. The ISM readings for August, however, surprised to the upside; the manufacturing index bounced to 58.8.

One could open this week’s outlook commenting that markets may be more active with the summer behind them, however, it feels as if this past couple of months has kept most investors on their toes. Expect a quiet day today, however, with the US out celebrating Labour Day. The final readings for July factory orders and durable goods will be of interest on Tuesday, especially as the market is calling for a fall in the former, by -3.2% (versus +3% in June). This will be followed by Markit PMIs, ISM data and the Fed’s Beige Book on Wednesday. The rest of the week is pretty quiet in terms of key economic data. However, as Congress returns from its recess on Tuesday, markets will be looking for further updates on the US’ tax reform, budget and the debt ceiling debate in the coming weeks.

Tax reform announcements will grab market focus especially after Treasury Secretary Mnuchin - who along with Trump wishes to see corporate taxes cut to 15%, - warned ‘this is our once-in-a-generation opportunity to deliver real tax reform…I don’t want to be disappointed by Congress – do you understand me?’ Also, as has been well publicised, Mr Trump has been tweeting threats of a government shutdown if funding for the infamous ‘wall’ is not agreed. However, it has been reported, over the weekend that the president will instead look to seek funds for the tropical storm Harvey relief programme. During the week S&P warned ‘failure to raise the debt limit would likely be more catastrophic to the economy than the 2008 failure of Lehman Brothers and would erase many of the gains of the subsequent recovery’. US trade relationships and agreement could also come into play this week after it was reported over the weekend that Trump discussed pulling out of the trade agreement with South Korea, later adding that the US is looking at ‘stopping all trade with any country doing business with North Korea’.

Elsewhere, the renminbi rallied to a 15-month low against the dollar last week. As of Friday's close, the offshore currency has appreciated 4.39% against the greenback on a spot basis so far this year; and 9.52% on a total return basis. The currency has continued to trade stronger against the CFETS basket last week, suggesting that the renminbi’s appreciation has less to do with dollar weakness. In the coming week, as the US-North Korea tensions remain heightened, the renminbi could witness further safe haven flows; being a large net creditor. Also, the dollar yield may witness further downward pressure, increasing the USD-RMB yield differential; further increasing the appeal of the Chinese currency.

On the data front, the official readings for China’s manufacturing PMIs surprised to the upside in August, the Caixin Manufacturing PMI reading for August also beat expectations, released at 51.6, well in expansionary territory. In another thin data week, the composite and services PMI’s will be announced on Wednesday followed by fx reserve data later on in the week; expected to have grown to USD 3,095 bn.

Over in Europe, the euro continued to ‘overshoot’ rocketing past the 1.200 mark against the dollar last week. Although it closed the week at 1.186, it is still up 12.77% against the greenback so far this year. Eurozone core inflation at 1.2% is hardly going to cause a stir at the ECB meeting this Thursday. Lacklustre global inflation is expected to remain a market theme into the end of the year.

The Weekly Update

Last week witnessed another dramatic week in the White House. Mr. Trump managed to offend a number of Americans with his handling of the unfortunate incident in Charlottesville, with the last bullet in the foot resulting in the disbandment of his business councils which were initially set up to advise Trump on economic policy and agenda. Although the expectedly dovish notes from the FOMC July minutes were ‘blamed’ for the move lower in the dollar and US Treasury yields on Wednesday, it appears the market is becoming increasingly concerned about the US presidential administration. Incidentally, White House’s chief strategist, Bannon resigned on Friday. US Treasury yields were marginally higher over the week at 2.195%, despite trading as high as 2.28% mid-week. Going back to the Fed, the much talked about lowly inflation continues to split central bank opinion; the market is not pricing in a high chance of a Fed hike this year as a result, and expectations for the balance sheet unwind are unchanged, a September announcement is expected.

There were a number of key US data releases for July and August, which were unfortunately overshadowed by the in-house politics. Retail sales gained pace in July (alongside an upward revision in June), the control group reading, a component of GDP, was up 0.6%, versus expectations for +0.4%. Empire manufacturing also surprised to the upside at 25.2 in August, from 9.8 previously. Housing starts and building permits on the other hand disappointed, with single- and multi-family homes (apartment buildings) leading the decline. Despite ongoing turbulence in the US, business sentiment remains robust. Today kicks off with the Chicago Fed National Activity Index; which had spiked higher in June, Markit PMIs follow on Wednesday and Friday July durable goods orders will be of interest.

Elsewhere, the IMF revised its growth forecasts for China to 6.4%, from 6.0%, through to 2020. The IMF estimated that government, corporate and household debt could increase to 300% of GDP by 2022, from 242% in 2016 adding, ‘Given strong growth momentum, now is the time to intensify these deleveraging efforts’. Chinese debt to GDP ratios are frequently used to support a negative outlook for the renminbi, with some observers citing the country’s debt at 250% of GDP currently; which is indeed high. However, these ‘estimates’ are also misleading they do not take account the assets on the other side of the balance sheet. On the previous basis, the US debt to GDP ratio is 331% of GDP. If one focusses solely on government debt, the figures look very different. Using IMF forecasts for 2022, China’s government debt will stand at 58.9%, which is far lower than most other countries. The Chinese renminbi was relatively flat over the week. As of Friday’s close, we calculate that the carry on the offshore currency stands at 3% year-to-date, with total return at 7.40% against the dollar.

With a pretty thin data week ahead, focus will fall on the Jackson Hole gathering, starting on Thursday; it will be interesting to see if ECB President Draghi will discuss QE, especially there have been a number of conflicting reports. We may have more of an idea where Super Mario stands in regard to tapering and the ‘euro overshoot’ on Wednesday, when he speaks at a symposium in Lindau, Germany. Fed Chair Yellen is said to be discussing financial stability at Jackson Hole, on Friday. Also later today Trump will discuss America’s strategic path ahead in Afghanistan and South Asia; almost 16 years after the war started. Of course the US-North Korea situation will be monitored closely this week as both sides undergo military drills.

The Weekly Update

Geopolitical tensions between the US and North Korea ramped up last week; silver (+5.2%), gold (+2.4%), the yen (+1.37%), Swiss franc (+1.13%) and US Treasuries were the main beneficiaries of the risk-off market tone last week. The yield on the 10-year UST fell 7bps to 2.19%. The dollar (DXY Index) on the other hand came under pressure, falling 0.51% over the week. Equity markets broadly fell over the week, and the VIX (volatility) Index spiked ~55% over the week; and hit an intraday high of 17.28 on Friday. Meanwhile, the renminbi, considered a ‘hedge’ by some, was the top performing EM currency against the dollar last week; CNH gained 0.88%.

Elsewhere, further dovish tones from Fed members dominated newswires. The general theme appears to be for a break in rate hikes this year, and a focus on unwinding the massive balance sheet as a tightening tool. Inflation, or lack of, remains on members’ lips, as it continues to ‘surprise to the downside’ Bullard said, adding that rates should be left where they are for the time being. He went on to say that he is ‘ready to get going in September’ for balance sheet tightening which he expects will be ‘very slow’ with little impact on the markets. Kashkari, also concerned about lowly price levels highlighted that the Fed wishes to ensure investors have faith in the central bank stating, ‘it actually matters that investors believe the Fed can achieve its goals, because then if there’s a future crisis and we really need people to believe in us, we’ve earned and established that credibility.’ In terms of data, the JOLTS reading bounced to an all-time high in July, breathing some life into the dollar. PPI releases broadly disappointed, with -0.1%mom core print missing expectations, the 1.8%yoy reading also fell from June levels. A bounce in the consumer confidence readings saw the dollar spike higher on Thursday, as did the monthly budget statement; where the budget deficit was better than expected in July, at USD 43bn. The much awaited CPI releases for July remained soft, further underscoring concerns over when the Fed’s 2% target will be met.

This week will see import and export indexes for July, and Empire Manufacturing later today, the latter is expected to come in slightly higher in July. Retail sales will grab market attention, especially as previous June readings had disappointed. Housing starts and business permit prints, followed by the FOMC minutes from last month’s meeting will be released on Wednesday; we expect the minutes will remain sharply unchanged. Sentiment and confidence readings on Thursday and Friday could be interesting, as they remain largely mixed.

Elsewhere, although China’s exports and imports dipped slightly in July the  readings remain robust and had little impact on markets. CPI was marginally softer on July at 1.4% yoy and PPI was unchanged at 5.5%, so again nothing to write home about. The stronger than expected fx reserve reading in July, however, nudged the renminbi higher. Key activity data from China featured this morning: retail sales, fixed assets and industrial production releases all softened last month, there are thus concerns that Q3’17 growth may dip slightly. However, policymakers have reiterated they are willing to accept that softer growth, around 6.5%. There is little more in the way of key data releases for the rest of the week. However, geopolitical concerns with neighbouring North Korea and India may continue to hold market focus.

The Weekly Update

There was little excitement across markets as the ‘summer’ holidays kicked off in true British style; with rain. There were a couple of events of note, first was the BoE policy meeting, the central bank held rates and appeared more dovish than markets had expected; sterling tumbled 1.14% and 10-year Gilt yields fell 4bps over the week. The sharp move lower came off the back of revised growth forecasts; the BoE trimmed this year’s growth to 1.75%, from 1.9%, with a marginal downgrade to 1.6% for 2018. Exports are expected to be the main driver of growth and consumption the drag; resulting from sluggish wage growth. The BOE’s Carney noted that the demise of sterling was to blame for the sharp upturn in CPI readings, and the central bank expects inflation will peak at 3% by October, before moderating to 2.2% by 2020. Industrial and manufacturing production and construction releases for June may be of some interest this week, with the latter the only reading expected to see a positive reading. Also, Brexit uncertainties remain with Carney noting, ‘the assumption of a smooth transition to a new economic relationship with the EU will be tested.’

The other ‘major’ event was the US employment data dump; where 209k jobs were added in July, employment dropped a tenth to 4.3%, and average hourly earnings grew slightly to 2.5%. Having fallen ahead of the employment report, US Treasury yields witnessed a spike after the more positive data; settling 3bps lower over the week, to 2.26%. While the Fed can be considered to have reached its maximum employment goal, the price stability objective is proving much trickier with the Fed’s favoured inflation measure (personal consumption expenditure) languishing below the 2% goal. Opinion is split among committee members, with some viewing the softening in inflation as transitory and others concerned that progress towards the objective may have slowed, thus softness could persist. To us, this implies a cautious and gradual approach to any further rate rises and downside risk to the ‘dot plot’. The dollar finally enjoyed a rally after the stronger employment data was released, ending the week up 0.30%, measured by the DXY Index.

Today is a pretty quiet day in terms of key US economic data releases, Tuesday’s JOLTS job openings reading for June will be watched closely. On Thursday we’ll see a number of PPI data releases, followed by the monthly budget statement and CPI readings will grab market attention on Friday; market expectations are for an increase in core prices, to 1.7%yoy. The Fed’s Bullard and Kashkari will speak today, with Dudley following on Thursday and Kaplan and Kashkari speak on Friday. The market will be looking for further clues on Fed tapering.

Elsewhere, as US-China trade concerns ramped up last week, with no further updates on Friday as Trump’s White House address regarding China’s trade and intellectual property practices was cancelled. Meanwhile, in what was a data thin week for China, there were a number of headlines stating that the PBoC could widen the currency's trading bands, from 2% to 3%; as the currency has easily traded within the 2% band, since the fixing mechanism was reformed back in 2015, the widening impact may be limited. A government advisor mentioned that the move to widen the bands ‘may just be a gesture to express the commitment to long-term market reform.’ This week’s data prints were kicked-off by better than expected fx reserves, which came out this morning at USD 3,080.7tn in July. Imports and exports and trade balance numbers will take centre stage on Tuesday, and CPI and PPI readings are expected to come in at 1.5% (unchanged) and 5.6% (marginally higher) on Wednesday.

Last week the bond market witnessed rare issuance from Iraq. The USD 1bn, 5-year deal, came to the market at a yield of 6.75%, very attractive levels for those on the hunt for yield; so much so that the bond was reportedly 7 times oversubscribed. The deal was also brought to the market by high tier global investment banks: Citi, Deutsche Bank and JPMorgan. Although the country sits on the world's 5th largest hydrocarbon reserves and has an NFA score of 3 stars, this issue is not one for us. For starters most readers will be aware that we favour investment grade bonds across our portfolios; this bond is rated B- by Fitch, and S&P rates the country B-. Next, using our proprietary Relative Value Models, we calculate that this bond at issue was actually expensive. Issued at a spread of 493.10bps over Treasuries, that may seem like sufficient cushion for what most would call a war-torn and highly unstable country’s debt. However, we calculate that bonds with a similar rating and duration trade at ~557bps over; implying that the bond was priced 0.60 credit notches expensive. We expect little in the way of new issuance over the next few weeks with most of the market out on holidays.

The Weekly Update

Although no change to the Fed Fund Rates was expected to be announced last week, markets did appear slightly uptight ahead of the FOMC meeting; mostly in anticipation for an update on the balance sheet unwind. The message was that if the economy remains on its current trajectory, the central bank will look to commence the unwind of its balance sheet ‘relatively soon’; we interpret this as a September announcement with a taper move in October, currently. The only significant change to language was that inflation is now running ‘below’, from ‘somewhat below’, the Fed’s 2% target. The Fed’s favoured PCE core reading for Q2’17 came in at only 0.9%qoq, from a downwardly revised 1.2% first quarter. The Fed’s Kashkari stated that he has been in favour of slowly reducing the balance sheet despite his concerns over inflation.

US Treasuries sold-off after a bout of better than expected Markit PMIs and confidence data earlier in the week, remained largely flat ahead of the FOMC meeting, rallying off the more dovish picture, eventually moving higher towards the end of the week. The benchmark 10-year, closed 5bps higher last week, at 2.29%. The dollar remained relatively flat in the days leading up to the FOMC gathering, but collapsed thereafter. Stronger data on Thursday, including improved durable goods (due to a pick up in aircraft orders) and bloomberg consumer confidence, and a bounce back into positive territory of the Chicago Fed Activity Index, saw a slight bounce up in the dollar. Growth in the second quarter was stronger at 2.6%, but missed expectations, with the employment sector remaining a drag; mostly resulting from poor wage growth. This coupled with continued in house politics over the healthcare and tax reform once again saw the greenback struggle to find its feet; with the DXY index falling 0.64% over the week.

Later today we have the July Chicago purchasing managers index, and pending home sales readings. A pretty data heavy Tuesday kicks-off with personal income and spending; the former expected to come in unchanged at 0.2%. The Fed’s favoured PCE prints follow, with softer than previous ISM manufacturing expected in the late afternoon. The ADP employment change for July will hit the screens on Wednesday, +190k expected. This will be followed by Markit services and composite PMIs, and factory and durable goods orders. The all important employment data takes centre stage on Friday, where markets are looking for an additional 180k jobs in July, unemployment to have fallen to 4.3% and average hourly earning up marginally to 0.3%mom. With ‘recess’ upon us for the next month or so, markets should remain fairly balanced, with few surprises from a central bank perspective; that is after Wednesday’s BoE meeting. The upcoming debt ceiling deadline in the US will however grab some attention; particularly as Mr. Trump attempts to push forward with his growth-driven spending reforms.

The commodity market enjoyed a bounce last week, with the likes of Brent Crude gaining 9.3%. Metals continued to perform well off the back of stronger growth prospects in China. Copper was a stand out performer last week, up 5.35%. One of our favoured holdings in Southern Copper 7.5% 2035’s has rallied to 4-year highs this month. The Baa2/BBB+ bond continues to offer exceptional risk-adjusted expected returns of around 14.5% with an attractive yield of 5.25%, and 3.3 notches of credit notch cushion. The US company is headquartered in Phoenix Arizona with mining activity predominantly undertaken in Peru and Chile.

Elsewhere, the offshore renminbi gained 0.3% against the dollar over the week. Economic data releases continue to firm up growth stability, with industrial profits up 19.1% in June. This jump in profits will no doubt allow policymakers room to clean-up the country’s debt; one of the main agendas stated at the financial work conference. Some other good news came from rating agency, Moody’s who upgraded its outlook for China’s banks to stable. Yulian Wan, a Moody’s analyst noted that the upgrade reflects ‘our expectations that non-performing loan formation rates will be relatively stable at current levels’, adding that the ‘government's adoption of more coordinated policy measures to curb shadow banking will help mitigate asset risks for banks, and address some key imbalances in the financial system’. In what is a very light data week for China, this morning opened with PMI readings for July which were marginally softer than expected, but remained in expansion territory; adverse hot weather, and floods in southern China resulted in slower production. The only other data releases this week are the Caixin PMI prints.

As we usher in August, a historically quiet time, we suspect geopolitical concerns will continue to plague markets. The likes of North Korea launching another ICBM, Trump’s strong comments to China, ongoing Sino-US trade struggles, and Russia's response to US sanctions, are amongst some of the key events we will be monitoring this week.

The Weekly Update

A broadly positive week across asset markets witnessed volatility collapse; the VIX Index traded near all-time lows through most of last week, and on Thursday the Merrill Lynch Move Index dived to its lowest level since it was first published in 1988. The Move Index measures the volatility on one-month UST options based on the 2,5,10 and 30-year benchmarks; the Index has fallen ~34% so far this year. With the upcoming central bank summer lull approaching, asset markets once again clung onto any indications of monetary policy tweaks last week; muted inflation pressures remained the overriding theme.

The ECB surprised the market with a relatively dovish statement, leaving both rates and QE unchanged; with Draghi stating that recent data prints have confirmed a strengthening economy. Following the mini taper-tantrum post-Sintra, Draghi appeared to blame the market for its over-interpretation over his comments on ‘reflation’, he stated that although risks are broadly balanced, inflationary pressures remain weak. The all important QE taper was not addressed, however, Draghi said tightening too early could jeopardise recovery; stating the central bank must be persistent, patient and prudent. The Jackson Hole gathering in late-August may bring some more colour, in the meantime markets are looking for a September taper announcement - at the earliest - in preparation for a Q1’18 move. The more cautious tone did not slow the euro’s continued assault against the dollar; rallying to a two year high. So all-in-all pretty much a non-event in terms of new information, in-line with the earlier BoJ meeting, where the central bank maintained its policy stance off the back of painfully low inflation; and once again pushed expectations for a pickup in inflation to 2%, into FY’19. Should be interesting to see what the BoE says next week, after the ‘disappointing’ June CPI reading; 2.6% versus expectations for +2.9%; it seems the ‘Brexit-effect’ is making hard work of predicting inflation going forward.

This week’s data flow was kicked off with Japan’s preliminary manufacturing PMI reading for July, down from June’s level, but remaining in expansionary territory, at 52.2. Later we will also get the initial PMI releases for the eurozone. There is not much in the way of key data until Q2’17 final UK GDP on Wednesday, on Friday job sector prints and CPI will be watched closely in Japan, and eurozone confidence reports will be of interest, especially after the recent bullish sentiment in the region.

This morning we heard that the IMF has cut its forecasts to UK growth this year to 1.7% resulting from recent ‘tepid growth’, adding that ‘The ultimate impact of Brexit on the United Kingdom remains unclear.’ The Fund’s economic counsellor, Maurice Obstfeld went on to say that although global growth recovery is firmer, as a result of stronger expansion from the likes of China, the US’ growth downgrade is significant. Growth forecasts for the world’s largest economy were markedly cut to 2.1% for 2017 and 2018, from 2.3% and 2.5% respectively, ‘because near-term US fiscal policy looks less likely to be expansionary’.

Staying with the US, the Russia-Trump developments coupled with the Trump-administration’s inability to get the latest iteration of the healthcare bill passed did little to help the dollar back on its feet. Doubts over whether the president will be able to move forth with his fiscal reform agenda have somewhat increased. As such the DXY Index continued its relentless slide to year lows, falling 8.2% ytd by Friday's close, and US Treasuries enjoyed a bounce with the 10-year benchmark yield falling 10bps to 2.24%. A pretty heavy data week ahead kicks-off later today with the Markit PMIs, along with existing home sales. On Tuesday the main bit of data will be the Conf. Board consumer confidence reading, which the market expects will have slipped slightly in May. Thursday will see some property sector data, and the July FOMC meeting, where no rate hike is expected, however, markets will be listening closely to any taper chat. Chicago Fed National Activity Index will grab some attention on Thursday afternoon, especially after the weak reading in May. Then on Friday the second quarter GDP figure will be of interest, expected at an annualised 2.6% qoq, and of course the Fed’s favoured Core PCE reading will garner some attention. Political events will be watched closely this week, starting with Trump Jr. and Kushner’s testimony in front of the Senate intelligence committee, over Russia’s alleged involvement in last year’s US election.

Also last week, the US-China Comprehensive Economic Dialogue (CED) appeared ‘unfriendly’ with no joint statement released, and the closing news conference was called off. Separate statements were released later, with both countries stating a willingness to work constructively and cooperatively. As the world’s two largest economies strive to re-mold their trade-relationship in an attempt to prevent a trade war, the one bit of good news was that after a decade of toing and froing, the US will now be able to ship rice to China; the largest producer, consumer and importer of the commodity. Further trade developments will no doubt be watched closely by the market in the coming week.

Back to China, economic data releases remained robust, taking a number of market makers by surprise. China’s economy expanded by 6.9% yoy H1’17, against market expectations for 6.8% growth, industrial production and retail sales numbers also surprised to the upside. Stronger domestic demand coupled with the stable manufacturing sector, off the back of a marginal pick-up in global growth conditions, have helped maintain stability amid the government’s push to deleverage, in support of the real economy. The renminbi remained stable against the CFETS basket, and strengthened against the dollar over the week helped by strong macro data, increasing fx reserves, and recent comments from the president reiterating the need to keep the exchange rate basically stable at a reasonable equilibrium level.  We continue to view the renminbi as being undervalued and expect longer term appreciation against the broadly weaker dollar, especially as market confidence in the renminbi appears to be strengthening, with devaluation expectations shrinking. Markets will also be looking to further updates on the government's public sector deleverage push, where last week President Jinping stated that local governments and state-owned enterprises will come under scrutiny to reduce borrowing.

As for our portfolios, the risk-on sentiment helped boost positions across the board. A rally in crude coupled with improved sentiment - off a positive rating report by S&P - saw holdings in the sovereign and quasi-sovereign space receive a boost. The Middle Eastern region also benefitted from the the stabilisation of oil prices; the Qatar curve had a bias of strength at the long-end, thus flattening. Our sovereign and quasi-sovereign holdings are trading at year-to-date averages, and continue to offer attractive risk adjusted returns, with ~4 notches of credit cushion. This week, we expect markets will be keeping a close eye on the developments within the region, after the announcement last week that Qatar had made changes to its anti-terror rules.