Markets have managed to bounce on very little news flow. Sentiment remains awful (fear greed indicator at 18/100, AAII % of Bulls  = 26%/AAII % of Bears = 42%) and positioning feels very light. This, along with month-end Pension fund rebalancing flows, is largely explaining why market are well bid. “Pain trade” is on the upside and positioning is key to understand why markets are bouncing for the moment. Volumes remain light and with Labor day ahead, technicals are meant to be supportive over the next days (month-end rebalancing + CTA) so it becomes difficult to be locally short (are we just going to melt up into the US long weekend for Labor Day?).

The Eurostoxx chart is showing that after holding the 200-day moving average we have now broken above the 100-day MA for the 1st time since the end of July.

Yields have somehow stabilized. The stockpile of negative obligations across all markets just hit a record $17 trillion, and could swell further for expansionary monetary policies and global recession fears.

Bloomberg Barclays Global Agg Neg Yielding Debt Market Value USD

Companies have issued more than €6.5Bln euros of new bonds in 2019 at negative yields. The street expects that it will soon be commonplace for European companies to stamp negative yields on new borrowings. Trading levels of companies with the same ratings as German industrial giant Siemens, single A, show they can basically borrow for free in euros. As shown in this chart, basically companies are being paid to issue new debt.

Bloomberg Barclays EuroAgg Corporate A ISMA Yield To Worst

ECB. Reuters article reporting from German press yesterday suggesting that ECB should be ready to disappoint. Nowotny, the outgoing Austrian National Bank governor, disclosed his discomfort about Central Bank intervention arguing that the ECB as in the past gone too far in seeking to meet market expectations and should be prepared to disappoint the market sometimes. This follows recent comments by ECB Vice President Luis de Guindos, who said the central bank must be critical of market expectations and base its decisions on macroeconomic data. So far, the rate future market is currently pricing 75% probability for a 10bps depo rate cut against 26% probability for a 20bps depo rate cut at the next ECB meeting, 12th September. Last evening ECB’s Knot also added that there is no need to resume QE program now and is reluctant to back tiering for negative rates. Interestingly, 10Y bund yield is far below the depo rate, -70bps, 30Y Italian BTP is lower than 2% (was 4% in January), while the 5Y-5Y euro inflation swap rate, measure for the market’s future inflation expectations, is closed to multi-year lows, 1.21 (was 1.60 in January).

In Italy, the PD-M5S government will need to win votes of confidence in both chambers of the parliament. With 216 and 111 MPs respectively, the M5S and PD would command a majority of 337 out of 630 seats in the Lower House but the parties would not command a majority in the Upper Chamber, where together they hold 158 out of 320 seats parties. However, to form a majority the coalition could likely rely on Senators from the so-called mixed group, which today also came out supportive of a mandate for former PM Conte. The market believes that the confidence votes would pass, despite the possibility that not all PD and M5S MPs and Senators vote in favor of the government. Italian 10Y bond yields have broken their all-time record lows at 1.03%

Macro-wise, sentiment among euro-area businesses and consumers unexpectedly rose in August, respite from an almost non-stop string of disappointing numbers and recession concerns. The European Commission’s index rose to 103.1 from 102.7 even if the surprise move still only lifts the measure to a two-month high.  A jump in May was more than wiped out over the following two months.


In US, we had the revision of Q219 US data, with GDP confirmed at 2% in line with prior estimate, higher personal consumption at 4.7% vs 4.3% consensus (one of the strongest GDP components in the past few quarters) and lower core personal consumption expenditures at 1.7% vs 1.8%. Interestingly, advanced goods trade balance a bit narrower than expected. As we said over the last few weeks, we believe that the sharp improvement and base in macro surprise data is encouraging.

Technically The Dax is back at the neck line of a potential reverse shoulder head shoulder bottoming formation at 11,850. So far the index has stalled here 5 times. there is obviously no guarantee that it will be different this time but if we eventually break above that level and close higher, it would confirm that formation. That would create a theoretical upside of 600 points, as that is the width of the base formation and could see the Dax trade back to 12,400.


Today is month’s end. Please find below the main events for the month of September.

A final note on Argentina. The new finance minister Lacunza surprised the market by making an announcement of extending the maturities of Argentina sovereign debt. Basically, the government is seeking to reprofile a total of $101Bln of debt, extending maturities of its short-term debt (hard, soft currency) and renegotiating with international investors long-term bonds and with IMF the maturities of its line of credit (so far Argentina received $44Bln from the IMF). Right now, IMF officials are discussing with the government to deliver or withhold a $5.3Bln installment due next month, out of the $56Bln line of credit, granted after getting the bailout last year. So far, the market has been very skeptical with Argentina, with bond spread widening to the most in 14 years, soaring inflation, local currency under strong pressure -35% vs USD year-to-date, and the Central bank being able to roll just over 10% of Treasury bills needed in the past few weeks (no confidence). In addition, the Central Bank had to intervene into the FX market to sustain the currency, depleting a huge amount of foreign currency reserves, more than $10Bln in six weeks only. Interestingly, swap traders see a 90% chance of Argentina defaulting over the next five yearsLast night, S&P has lowered the rating from B- to SD (Selective Default)