As we head into an autumn fog of uncertainty one contrast stands out to me...
US 10-year rates have edged up again (78bp), back to the top of the post-March range, while the long bond (30-year) has moved up further, steepening the yield curve again. Contrast this with Germany where the 10-year has moved to its lowest (-62bp) level since March. It would seem unlikely that both are right. UK 10-year rates are stuck at the same level that they were five weeks ago, 18bp.
Credit markets continue to function well with corporates seeing strong demand for their offerings. Ranging from Heathrow Funding, Enel, Pensions Insurance Corp and Just Group to a higher coupon issue from Rolls Royce, who had to pay up for their sub investment grade issue. Demand for European supranationals at the recent European Commission offering was nothing short of extraordinary, apparently reaching €233 billion for the 10- and 20-year maturities (negative yield at 10 years, barely positive at 20). Possibly, we might be seeing some sort of blow-off here.
After the set-back at the beginning of September, stock markets resumed more ‘normal service’ with US stocks up, though only marginally, led by the NASDAQ, while European and UK stocks drifted down and the Japanese market was flat. While the ‘usual suspects’ continued to weigh on the market, big oil led the fallers again (there could be a disconnect here, the oil price has picked-up a shade) and banks fell again despite some respectable results. But there are some signs of a change in leadership in US stocks as a number of industrials featured among the leaders, notably Caterpillar, Cummins and Deere & Co. In Europe, LVMH led a resurgence in the luxury good sector as they reported a return to double-digit sales growth in fashion and leather goods, led by Louis Vuitton and Christian Dior; Hermes, Kering and Moncler rose in sympathy.
Maybe the US markets are coming to terms with the possibility of a Biden presidency and, naturally enough, relief to be moving away from the ‘danger zone’ of a close Election result. The US dollar has been steady at the lower levels after the summer sell-off. UK and European economic prospects are blighted by the resurgence in COVID-19 and ensuing uncertainty, not to mention the last minute haggling over Brexit terms, which dominate daily moves in sterling.