Go overweight in telecoms and energy

Economics

Economic data for the Eurozone will be key this week. Industrial production likely weakened in August while inflation slowed in September.

French household spending should have remained firm in September. We expect US CPI for September to creep up in line with gasoline prices.

The Philadelphia Fed index is expected to make a comeback in October. The Japanese Tertiary index for August is set to rebound in line with industrial production and household spending.

Foreign exchange

The euro/dollar price is trapped in a consolidation range between 1.2460 and support at 1.2175.

The dollar/yen price fell below its June-September support line which is a bearish sign suggesting further losses ahead.

Fixed Income

As we expected, yields were quite stable over the past week. Longer maturities were again marginally lower compared to short maturities lead to a further small flattening of the curve.

We expect no trend in the coming days. Moody's and S&P affirmed their A+/A1 rating on Carrefour. After Moody's, it was Fitch's turn to downgrade GM's and GMAC's (and affirm Ford's) ratings. Both companies are on our Focus List.

Equities

Last week, sentiment on the equity markets turned more negative day by day. Main reason still was the focus on the oil price evolution.

In addition, good results were more than offset by a cautious to sometimes pessimistic outlook. The insurance sector was hit hard after Elliot Spitzer extended the allegations in a suit against Marsh & McLennan.

We still recommend to reduce the beta exposure by overweighting sectors like Telecom and Energy and reduce cyclicals and high beta sectors.