Risk assets are wobbling a bit as there is still plenty of worry flooding through the system; Jerome Powell certainly thinks so and reiterates ‘the path ahead continues to be uncertain’.

As the US Election draws closer, another potential cause of volatility, it looks as though the result is likely to be drawn out and contested in some quarters not least because apparently a majority of Biden supporters are postal voters. The Federal Reserve has stated that it will hold rates where they are until inflation exceeds its 2% target, i.e. no move until the recovery is well established.

The EU continues to grapple with second waves but maintains a united front. Encouraging numbers continue to come out of Germany as manufacturing leads their rebound and recent IFO survey numbers were solid. Brexit negotiations limp on but it’s hard to see a satisfactory deal coming out of the woodwork at this stage so we face potential disruption, what a mess. Still the fallout of a proverbial ‘hard’ Brexit seems less significant now than the disastrous effects that economies have suffered due to the pandemic. A small concession has been achieved with the EU agreeing to let London clear EUR denominated derivatives for 18 months.

Rishi Sunak has implemented measures to limit the impact from the ending of his furlough scheme, extended business loans and postponed his autumn budget, probably a sensible move as coming up with any valid forecasts is nigh on impossible. I am sure the experience of just how quickly his last budget was completely overtaken by events has made him wary but he continues to impress at being up to the task of Chancellor in these extraordinary times. Andrew Bailey still needs to become fully established as BoE Governor but has again poured cold water on any expectations of negative rates. Short Sterling futures had moved to discount negative rates (i.e. trading above par), but saw a reversal and put option trading referencing them reached an all-time high.

The new issue market returned to life after the August lull but the initial issues were to be avoided and most are trading wide of reoffer. Lately, we have seen some better quality issues and an inaugural green bond from Burberry. The trend for issuance of paper with ESG credentials seems well established, and there doesn’t seem to be any particular spread concessions although coupons linked to targets are becoming more prevalent.

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