We had an extreme sell-off yesterday, both in terms of magnitude of performance and volumes.

Ftse 100 had the biggest drop since January 2016, Eurostoxx 600 had the worst decline since the 6th of December 2018 (in the middle of melt-down) and Eurostoxx 50 had its 3rd worst 2nd day run since July 2016! The Eurostoxx future has lost already 5.4% from the open on Monday! Volumes were heavy across all sector but it was very macro-driven in the sense that the futures to cash ratio was 3.1x on the Eurostoxx, the highest in a non-roll period since Q4 2017. 7.5bn$ traded net on the bid vs offer on Eurostoxx futures over the last 2 days.

We think that the usual CTA and Macro actors have had their models suggesting to reduce the equity exposure. Since 2010, 2-day moves of this size are typically followed by a period of calm over the next 5 days: average return = +40bps, best = +1.6%, worst = -2.4%. And while position risk is lower now vs. Q4 of 2018 (HF gross/nets are much lower, clients own almost 2x the put delta) our view remains that markets might correct a further 4% to 5%.

Last night we had the news that Trump will impose a 10% tariffs on civil aircrafts and 25% tariffs on cheese, wine, Scotch whiskies, olives, butter, yogurt, pork products and some other industrial items from European Countries with start date due on October 18. This move, approved by WTO in response to the $7.5Bln illegal aid to Airbus, is likely to force the European Union to retaliate. We then see a strong risk that the situation might escalate, with the European Manufacturing Auto industry the next US target.

Macro-wise, it seems there is no peace in Hong Kong, even in marketing and retailing. Hong Kong Retail Sales declined 26% vs -17% consensus in August, with a similar result for the value of goods sold. With no doubts, Hong Kong clashes and protests against the police slammed tourism from China, -42% in August, while luxury goods and jewelry plunged as much as 50% (mainly bought by Chinese).

Today’s Macro data:

09:45 September Service/Composite PMI Italy

09:50 September Service/Composite PMI France

09:55 September Service/Composite PMI Germany

10:00 September Service/Composite PMI Eurozone

10:30 September Service/Composite PMI UK

11:00 August Retail Sales Eurozone

14:30 September Jobless claims US

15:45 September Service/Composite PMI US

16:00 September ISM Non-Manufacturing US

16:00 August Factory orders, Durable Goods US

Technically, if this was the end of the week then we would have our, potential, turning point in momentum (downwards) after the Demark Combo and Sequential exhaustion/sell signals (generated in August and September). If it is true, it does not bode well for Q4.

Eurostoxx weekly chart