Good morning!

Yesterday the markets had to digest the outcome of the Fed meeting and to gauge the probable result of the Scottish independence referendum. As investors have been hoping, the latter concluded with the defeat of the naysayers, which will likely prompt positive returns for the UK stocks today; indeed, as we are writing, the FTSE 100 futures point to a 1.052% gain today even as the Eurostoxx 50 is expected to open lower. The resolution of this political risk with far reaching potential economic costs could also impact the pricing of the safer assets and might add to the upward pressure in US treasury yields. After the Federal Reserve revised upwards its estimate for end-2015 interest rates, the US government notes yields increased, with the shorter end of the curve underperforming by most in line with the greater sensitivity to the monetary policy decisions. That is, the 5 year-rates spiked by more than 10 bps in the aftermath of the meeting to 1.86% currently, while for the 10-year tenor the yield stands now at 2.65%. Even so, the high yield market was rather resilient given that the USD yields remain fairly attractive on a relative basis as investors around the world strive to find assets with sizable enough yields. Nevertheless, the latest data on fund flows showed that investors withdrew money from the retail high yield funds before the US policymakers met; the outflow over the latest week stood at USD1.2 billion and marked the third consecutive week of negative flows after August already strained the market.

The US equities had a strong session and the S&P500 surpassed the record level set earlier this month reflecting confidence in the economic outlook after another week of below-expectations unemployment claims; the latest figure put such claims at 280,000, below even the most optimistic forecasts collected by Bloomberg and marked the second-lowest reading since 2000. In contrast to the developed markets’ performance, the emerging markets were less resilient in the aftermath of the Fed policy meeting especially as a new bout of weak Chinese data pointed to insecure fundamentals and possible portfolio outflows.

In Europe, the results of the first TLTRO auction were announced and the uptake proved to be much lower than expected; banks applied for EUR82 billion, while analysts were expecting between EUR100 billion and EUR300 billion according to Bloomberg’s survey. The weak interest would have normally sparked concerns that the measure will fail to boost lending and, by extension, growth but in turn investors find relief in the fact that this shortfall might prompt ECB to take another step and engage in sovereign bond purchases. Given that today’s economic calendar is weakly populated, markets will probably be driven by speculations on what the TLTRO outcome entails for economy and the monetary policy. Also, on the geopolitical front, we note that France announced that it will follow US in launching air strikes in Iraq. Meanwhile, the European Bank for Reconstruction and Development warned that the Ukrainian/Russian crisis is impacting the growth outlook of Eastern Europe. In the same vein, evidence is mounting that Russia’s economy is weakening as a consequence of its political ambitions; the data published this week showed that investments shrank by more than expected and retail sales growth weakened as a result of the depreciating rouble and declining confidence.

Have a nice day!