Good Morning,

The turbulence in financial markets that had been characteristic just more than a week ago have somewhat faded over recent sessions, aided in part by helpful signals from the major central banks. Some Fed officials have voiced their intentions of being less keen to head for a rates normalisation process for the time being while reports indicate that the ECB is pondering the purchases of corporate bonds.

In fact, the ECB said that it had purchased slightly over €1bn worth of covered-bond purchases last week in its latest attempts to revive the euro-area economy. This series of bond purchases was the third time in six years that the ECB felt the need to intervene as the bank’s goal of staving off deflation and revive the economy was given another push.

Meanwhile, recent activity data has been supportive to markets, with Chinese and eurozone activity numbers coming in above expectations. Despite this fresh round of surprisingly worrying data, investors remain cautious, as this week’s FOMC meeting and next week’s ECB meeting will likely dictate market sentiment heading into the New Year. While St Louis Fed President James Bullard put the subject of a ‘tapering’ delay as a plausible scenario, analysts still indicate the likelihood of an imminent end to QE3.

In the meantime, there were no great surprises over the weekend as the AQR results were published on Sunday afternoon. So far, markets have taken the outcome of the results in their stride with financial bonds leading the gains throughout the large part of yesterday’s session. Earnings season is showing good progress- however, most companies will wait to see evidence of sustainable economic growth before actually positioning themselves in such a manner so as to take advantage of a possible recovery. Investors are still worried about European credit fundamentals and economic growth.

In China, short-term growth momentum seems to have stabilised, with September industrial production growth accelerating to 8% y-o-y and the HSBC flash PMI up slightly to a three-month high. Still, due to the continued investment slowdown, the economy remains vulnerable. Elsewhere, Japanese Prime Minister Shinzo Abe has been dealt a blow with the resignation of two female cabinet ministers, after claims of misappropriation of public funds. With the Japanese economy being stubbornly slow to recover, coupled with an uncertain global outlook uncertain, the decision on whether or not to proceed with the second VAT hike scheduled for October 2015 is becoming a more plausible scenario.

Despite being a close call in the run-up to last weekend’s second round of elections in Brazil, Dilma Rousseff remains in power for another term, pledging to its electorate to revive growth in the world’s second-largest emerging market. Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth, faces the challenge of pulling the economy out of recession while capping annual inflation running above the top of the central bank’s target range. Her attempts to revive the economy by reducing taxes and increasing subsidized taxes subsidizing lending resulted in spiralling inflation and a wider budget deficit, which has ultimately placed the country’s investment grade status in jeopardy.

On a final note, Ukrainian parties embracing closer European ties are currently in the process of forming a coalition after sweeping aside the Russian-leaning political forces that hail from the nation’s war-torn eastern side of the country. President Poroshenko stated Prime Minister Yatsenyuk’s party will be involved in negotiations, with the coalition expected to be formed within the next week and a half. Indications point towards a two-thirds constitutional majority for Pro-European parties, as voting took place over the weekend in what could be described as a fragile truce in eastern Ukraine’s seven-month crisis.

Have a nice day!