Markets have continued to trade sideways and volumes on Friday were in-line thanks to the November expiry. US stocks are up six consecutive weeks, during which S&P has rallied more than 5% bringing the first ever close over 3,100. Dow was flat Tuesday (0.00% change, for first time since 2014), almost happened twice in one week with Thursday’s 0.01% close. This is significant being that a 0% change on the Dow has only happened 3 times since 2000.

It’s clear the market is in “monitoring mode” not “reacting mode”. Our concern is that the catalysts that have fueled the S&P for the last 100pts (Trade Phase 1 progress, better Earnings, slightly improved Data) are all largely priced in. Despite the S&P at all-time highs, we really haven’t gotten any resolved good news. US-China trade has yet to be sorted out, the US 2020 election remains a risk, UK election getting closer.

The Put/Call ratio has gone below 0.5, one of the latest readings over the last few years.


Tough weekend in Hong Kong with several riots, many injured or arrested. A commentary in China’s people’s daily said there is no room for compromise with demonstrators. Police warned live ammunition may be used in the future. In addition, a court has found that the mask ban is unconstitutional.

The People’s Bank of China cut the interest rate on its seven-day reverse repurchase agreements to 2.5% from 2.55% and injected Yuan 180Bln ($26Bln), in an effort to boost investor and market confidence.

A self-explanatory statement from US guru Ray Dalio about US-China relations; “There is a trade war, there is a technology war, there is a geopolitical war, and there could be a capital war. How that is approached is going to determine our futures”.

The budget committee of the German lower house of parliament signed off on plans to spend €362 billion in 2020, slightly higher than previous year but definitely without containing the so much-discussed new fiscal debt provision, strongly suggested by Mr. Draghi as well. In the end no fiscal stimulus so far.

The European Investment Bank adopted strategy to end funding for fossil fuel energy. Europe’s plans to become first climate-neutral continent. Ursula von der Leyen, the incoming president of the European Commission wants the institution to become a climate bank and help unlock €1 trillion to shift economy toward cleaner energy.

Macro-wise, mixed Macro on Friday. On one hand, October US industrial production came lower at -80bps vs -40bps consensus, the lowest decline since April. On the other Retail sales jumped 30bps vs 20bps consensus, although the quality of the beat is low, showing that consumer spending is decreasing (strongest part of US GDP). In Hong Kong, the Government revised down its economic growth forecast to -1.3% in 2019, first year contraction since 2008, while Q3 GDP came at -3.2% in line with consensus.

The HK Economy is clearly in a recessionary patch. An interesting stats shows that some leading Swiss Luxury Watch Makers, such as Panarai, are already betting that mainland China will replace Hong Kong as the next hub for luxury goods. So far, sales of jewelry, watches etc plunged 45% in September in Hong Kong. 

Along with the Organization for Economic Cooperation and Development gauge of purchasing power parity, several brokers are turning cautions on the Swiss Franc, which look to many overvalued against the dollar. Interestingly, futures positioning has turned increasingly bearish since this summer. We actually believe that some consolidation could be happening only in case of an effective and solid agreement between US and China.

Net short positioning CHF



The European Q3 earnings season is almost over with better-results although, as already discussed, the bar of consensus was sharply lowered ahead of the season. To sum up, the worst has been avoided with flattish YoY EPS growth, 1% higher than expectations in October, but 2019 earnings revisions continue to be negative with 53% of companies reporting Q3 results containing a downgrade. Overall Defensives such as Healthcare, Utilities are leading the upgrades while Cyclicals such as Materials and Discretionary are lagging.