Global Market Commentary

Week commencing 8th October 2018

USA

In last Tuesday’s hawkish speech, the Federal Reserve governor, Jerome Powell, spoke of a ‘remarkably positive outlook’ for the US economy, pointing to growth in the real economy and labour market.
His analysis was bolstered by the latest macroeconomic data releases on Friday which showed strong growth in the labour market and service sector. While payroll data fell just short of expectations, the 3.7% unemployment rate was taken by many as a signal of near full-employment.
Despite this positive news, the yield curve continues to flatten with the long segment pulled down by continued trade tensions and the struggling Eurozone economies.

Eurozone

The flattening yield curve in the USA is mirrored across Europe, albeit to a lesser degree. As a result, the transatlantic spread, the difference between US and German 10-year bonds, has widened.
With the continued uncertainties in Italian politics, the European market is weighted towards safe-haven bonds such as German bonds.
Last week, Quantitative Easing bond purchases by the European Central Bank halved from €30 billion to €15 billion.

Auctions

Thursday was the busiest day in the primary market. France sold €8.86 billion of OAT at maturities of 2028, 2034 and 2048. This was slightly below the target of €9 billion.
The same day, Spain raised €5.1 billion from bonds maturing in 2021, 2028 and 2029, as well as a linker bond.