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Michael Metcalfe, State Street

State Street comments on global market sell-off


The top team at State Street Global Markets has commented on last night’s (10 October) global market sell-off.

Michael Metcalfe (pictured), global head of macro strategy at State Street Global Markets; Sophia Ferguson, senior portfolio manager for active fixed income and currency at State Street Global Advisors; and Antoine Lesné, head of EMEA strategy and research for SPDR ETFs, have all offered their views.

Metcalfe says: “Hopes that Q4 would provide an easy end to the year for investors were always going to be optimistic. It was notable that even as US equity markets hit record highs last month – in turn helping measures of business and consumer confidence through, or in line with, cyclical highs investors were becoming increasingly cautious.

“Investors reduced their holdings of risky assets in August and September, which took our investor confidence index to its lowest level in more than five years at the end of last month. Investors were apparently concerned that all the good news was in the price and price action so far in Q4 has vindicated that caution.

“It is becoming clear that in the face of full employment and at target inflation, better US economic news will now be met with a less accommodative Fed intent on getting rates to neutral and possibly more. Meanwhile, outside of the US, the potential political pitfalls of Brexit, the Italian budget and the US-China trade dispute, continue to restrain sentiment.”

Ferguson says: “It is interesting that we have not seen a more significant move in US 10-year breakeven spreads. Breakevens have struggled to widen along with yields, which suggests that the move has not been led by a rise in inflation expectations, but rather a move in real yields. We will be watching the core print closely today to see if there is any indication of forthcoming acceleration, but we remain sceptical as to how much wage increases will feed back through to broader inflationary pressure in the economy.”

Lesné says: “Europe is catching up on yesterday’s brutal session in the US with core euro sovereigns rallying and equities falling.

“Trading volumes overnight were huge, with the US market seeing the bulk of assets changing hands. For our largest exposure in US equities for example, yesterday’s volumes were 3.1 to 3.2 times the average of the past 30 days, with close to USD60 billion changing hands yesterday in our flagship product alone. We also saw large flows though the ETF secondary market, which typically functions as the shock absorber for market volatility. 

“That said, while we are mindful of the potential momentum that may gather around this sell-off, the fundamentals are not flashing red yet.”

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