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Weekly Stories by Fathom

After the long weekend, investors came back to manage a flurry of corporate bond issuance (35b) in the past 2 weeks and after the August drought. Some decent deals have come out in IG but the big picture is that liquidity is slowly draining as the US treasury has exhausted the markets with huge issues.

We have seen a huge switch from RRR to T bills in the past quarter (700b swing), and reserve managers (correctly, in my opinion) slightly increased the maturity profile of MM funds.

Undoubtedly the most significant macro move of the past week has been the USD strength across all currencies (DXY at 104.7 pivot) due to a) the market assigning lower probabilities of a recession in the US for 2024, hence rates higher for longer and 10y real rates at 2% b) a string of disappointing macro data from the EU and timid central banker action in Antipodeans and Asia. Of course, short-term action makes sense, but GS odds of 15% are way below my acceptable threshold, especially given the gradual softening of employment and activity data.

ECB speakers are timid and the market correctly prices a September hold as the current economic situation is a typical stagflation environment that cannot be addressed with monetary actions.

The other big global move is that of oil, which has climbed 25% in the past 2 months as OPEC+ keeps the lower supply quotas in an already tight market. The recent move reignites fears of energy feeding into higher CPIs in q4, hence is no room for relaxing the tight monetary regime. Anyways, the higher real rates are negative for equities and we are still in a seasonally weak period, so risk positioning should be moderate.

In terms of corporate developments, the only thing that I found interesting was the stake that Saudi Telecom built-in Telefonica (10%), a passive but big investment with the price unchanged. Today we had another big placement in LSE by the former private owners of Refinitiv (2.7b , neutral). The EU indices are taking a disproportional hit from the weakness in Luxury goods, due to China's consumption fears and from the auto sector that gradually loses global market share vs. the China EV incumbents. The German auto show was representative of this trend in terms of new models and impressions.

On the cue of big IPOs/SPOs that will hit the market with overvalued shares, we added last week the rumored huge placement of Aramco (50b) that already has put a cap on the performance of XLE (should have been 5-8% higher).

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