The uncertainty continues for China/US trade talks, but this time because China canceled the talks. It didn’t help sentiment that some core markets (China and Japan) were closed for public holidays which always hits trading volumes. The Hang Seng opened weaker and just appeared to flat-line for the balance of the day, closing down around -1.6%. The SENSEX resumed its negative tint, closing down 1.5% today, but more alarmingly is that the INR continues to drift with it – late in US trading is nudging the 73 handle again! The capital flow continues to flee emerging markets and looks to be heading back to the core. Key highlights for this week are still the FED, the Italian Budget, the absolute level of the USD and probably the overdue focus for global (but probably more so European) Bond Markets. The US Dollar strength is the concern for many emerging market issuers as much probably remains unhedged. The HK on and off-shore markets should certainly be an Asian focus. Derivative offerings that have been made upon EM currencies use and so will eventually impact all deal participants. The Asian safe-haven Yen is teetering around the recent lows (112.85) and will be very closely watched for Quarter end levels.

Even though it were quiet trading conditions, core European markets were lower across the board. Headlines over the weekend that the UK may announce a snap November election
were quickly denied but did not stop GBP from recovering some of the late Friday losses. Last seen was Sterling playing around +0.4% higher on the day at the 1.3130 level. The Euro is also benefiting as talk that the US Dollars bounce has gone far enough, Draghi mentions inflation uptick and rumors that the ECB is likely to end QE by Christmas. This was the talk in the Bond Market as we watched both core and periphery spreads widen to US Treasuries even with lower than estimated economic data (IFO). With bonds and stocks both softening in afternoon trade, the mood is conservative with money being taken off the table everywhere. There is a strong chance this accelerates pushing spread back towards US yields. Most core indices down around -0.4% with the Euro backing off of earlier highs.