C 220-162

GS 217 – 166

JPM 143 – 111

MS 260-199

WFC 143-111

This is the first time, in the history of the FTSE 100, that 4 consecutive falls of triple digits have been registered.

Buy some Isle of Man if you like, rated AAA and yielding a juicy 4.4% on their 34s. The only problem is that there is just GBP185m outstanding. The same small issuance problem holds for the likes of J&J, ADP, Exxon, Imperial Oil, Luxembourg, Switzerland, etc., all of which are AAA.

Fine. But to add anyone else in is fishy. Australia? it has 26% debt/GDP and had no financial institutions go bust in the crisis, which we should not forget as a marker for our tail risks if the banking system gets collapsed by the ECB balance sheet (via sovereign default). Australia is surely a paragon of financial virtue, and has high rates it could collapse if needed. Sweden? they also have sub 30% debt/GDP once its asset sales go through. Norway? it gets the fiscal gold medal, they have the world’s greatest cyclically adjusted primary budget surplus of +8.9%. Compare this to the world’s worst, Japan, at -6.7% (beating the USA, which is only -6.2%, only the 3rd worst in the world on that metric).

We are sure you have read a lot of notes by now. We also suspect that the vast majority of them are identical: Monday will see weaker global stocks, weaker bunds, stronger periphery FI, Gilts split between weak equities versus weak bunds, and UST opinions split. I agree with all of that, apart from the last two (on Gilts & USTs), where I am a buyer given the risk off trade is the one that counts.

This is *the* indicator to watch. Just because the ECB is buying some BTPs fixes little. It means we have to be circumspect in selling BTPs, the ECB has limitless pockets and the market is running small inventory. So please be respectful of Harvinder’s lower yield BTP targets. But the market is telling you that it changes NOTHING on ANYTHING ELSE.

The MIB is asserting that even this socialisation of debts is not able to enable euphoria for more than an hour. Even the post summit euphoria (should that be EURphoria?) lasted longer than this (one trading day)! It is as if the market is starting to realise that action does not work, so each ECB hit leaves increasingly short-lived euphoria.

1) Sell equities (eg, Germany, Italy), stay short France FI, buy bonds; long of Gilts, Scandis, AUD, and, yes, USTs. This is a duration world. Stay long (eg 10s).

2) Pair trades should continue to have France as the short (very telling they are now underperforming bunds), this will stay a healthy bet. Note that on a day when bunds are selling off and everything is rallying against bunds, France is the only EMU country with widening spreads to bunds today (10yr Netherlands -3bp, 10-yr Finland -2bp, 10-yr Austria -6bp, 10-yr France +3bp), it is now on the radar of investors, a theme we understood was started to build last week. We are happy to stay short.

3) Long BTPs for now if you wish, but this is a microcosm affected by official buying, do not let it put you off having/holding/adding to solid anti-risk portfolios.

4) Next stop this week is FOMC, BoE inflation report (dovish, ‘we stand ready to provide boost via QE5 if it were to become necessary’ type thing, that’s the UK we are discussing just to be clear). And then the glorious 12th, not just the start of Scottish grouse shooting, but the first proper August data, Michigan confidence, a number that has *plummeted* and was a harbinger of lower yields for July (RBS & consensus see no positive respite for this). I still think confidence data does not get the attention it should (last month’s plunge only elicited -5bp off 10s, the way the mkt is poised/frightened, imagine what multiple of that it would do if repeated).