Oil prices send equities lower

Economics

US non-farm payrolls for September should confirm the recovery seen in August. The ISM service sector index for September is set to rise after the disappointing figure for August.

German unemployment data for September will most likely disappoint again while industrial production and orders saw small increases in August. The ECB is expected to keep monetary policy unchanged as is the Bank of England. We expect Japanese machinery orders to rebound in
August.

Foreign exchange

Euro/Dollar: The euro broke out of its June-September consolidation triangle, which is a bullish signal.

Dollar/Yen: Consolidation between a long-term downtrend line at 112.10 and the June-September support line that currently lies at 109.50. Fixed Income Yields changed a little over the week with a slight increase on the long end.

The short end was about unchanged as fears of rapid interest rate hikes by the Fed faded after the release of the PCE (Personal Consumption Expenditure) deflator suggesting less inflation. We have several key economic data releases over the week, especially the employment report in the US.

We expect no trend over the coming week with some risk to the upside for bond yields.

Equities

The sharp rise in oil prices, caused by the unrest in Nigeria and fears for the impact of hurricane Jeanne, drove markets lower last week.

In addition, Merck pulled down the Dow by revoking the blockbuster Vioxx. This week the first Q3 earnings reports as well as the non-farm payrolls figure will move the equity markets.

We remain cautious and still propose to limit the beta exposure and to move gradually towards more defensive sectors like Energy and Telecom.