Yesterday we had a decent bounce across all equity markets with an outperformance of Europe thanks to the $ strength and continue rotation in market leadership, away from Growth into Value and Defensives. The move of the € (new lows for the year, breaking 1.09) was pushed by the very weak German CPI data (-0.1% in September) and presumably by month-end/quarter-end flows. We should continue to benefit from higher markets (and low volumes) even today for a fresh start of Q4.

The risk-on mode and $ strength has further hammered Gold price which is now down nearly 6% from September’s highs and not far from 1450, the 1st significant level where we would start accumulating again.

China was closed from today for the Golden week, Xi made a big speech, but no clues over the trade-deal.

The WTO is expected to reveal the amount of EU goods the US can target (Reuters suggest it to be around $7.5bn) this week, and as soon as today. Bloomberg article suggest that EU is fed up with the US approach and is weighing a more aggressive stance considering imposing $4bn in retaliatory tariffs. Interesting to see how Airbus reacts when the details are released, a lot already in the price.

The escalation of riots in Hong Kong seems to be increasing as China is entering in the golden week today (Chinese market closed until the 7th October) with a massive celebration, marking the 70th anniversary of Communist party in China. In the past few days, we saw protesters in Hong Kong burning a tube station and almost 50 injuries on the street. When will the first casualty come? We reckon the situation is tougher than many think here, as China won’t probably concede more freedom. A new massive protest in Hong Kong is scheduled for today.

Italian Government approved a budget framework for 2020, Def, which sets a deficit target of 2.2% of GDP and aim to increase growth of 0.6%. Rather than improving 0.6%, then the structural deficit will worsen by 0.1% in 2020, while debt will increase to 132.5% in 2019. According to Sky24, it seems that the European Union asked Italy to increase taxes on real estate (so called IMU).

Macro-wise today we will have the important US data on ISM (likely to show continued contraction in the manufacturing sector in the US) and we’ll be watching closely for any signs of weakness in the US Payroll data on Friday (note August was pretty soft and market has just looked past it). Yesterday we had a bad set of data in the UK, with the revision of Q2 GDP at -20bps, the first quarterly contraction in seven years. Among the main reasons, global slowdown and Brexit along with UK manufacturing posting its biggest drop since 2009, -2.8%. Brexit-related factory closures hit auto output, something we will again see in the next quarters. Interestingly, Brexit is creating real distortions in the Country’s account and trade balance; Imports and Exports fell respectively by 11% and 6%, after having posted opposite results in Q1, while Britain account deficit was cut by a quarter, narrowing to 4.6% GDP.

The Leading German Economic Institutes revised 2019 German GDP growth forecast to 0.5% from 0.8% YoY

In terms of flows, Global Equity Outflows registered -$22.042B last week. Global equity outflows are now up to -$230B Ytd.

Money Market Funds registered +$36B worth of weekly inflows. This is massive. Money market, fear factor. Now up to +$443B ytd or $550+ annualized. Similarly, gold funds registered the largest weekly inflow in 3 years.

If you compare flows on Equities, Bonds and Cash, the result is that unsurprisingly the Equity market is holding well despite all the bad news.