Week in review & notable trends (US) US equities at new all-time highs on upbeat employment report Both the S&P500 and NASDAQ finished the week higher marking fresh all-time highs as the July nonfarm payrolls and average hourly earnings came in better-than-expected. As a result, VIX fell to its lowest levels since Jul-14 and the SPX ly vs. 1m ATMf implied vol spread rose to its highest level in almost four years on lower short dated vol. Across other asset classes, the USD finished with gains against other major currencies, while Treasury yields rose across the curve, which partly explained the outperformance (underperformance) in Financials (Utilities) (ie., +1.7% and -2.7%, respectively). Most companies (86% as of 5-Aug) in the SPX have reported Q2 results and the blended (actual + estimated) yoy earnings decline for Q2-2016 now stands at -3.5%, less than the expected decline of -5.5% as of 30-Jun. Analysts expect CY16 earnings decline of - 0.3% which would mark the first time SPX has reported two consecutive years of earnings decline since 2008. Earnings growth is now expected to resume in Q4-16. Chart 11: The SPX vol term-structure steepened materially on lower shorter dated implied vol with the lyr-1m ATMf implied vol spread reaching its highest level in almost 4 years With SPX rallying on a stronger-than-expected July jobs report, 30% SPX implied vol took a further leg down, especially in the 25% shorter end of the vol curve. Indeed, SPX 1m ATMf implied vol 209% | ended the week at 9.1 vol pts, within striking distance of its 2- ber vy. | oy) WN year lows. 15% , | ad 10% wey ¥" wy Y Nagy y 1 ad 1 Wa On the other hand, longer dated ATMf implied vols did not fall i nearly as much causing a material steepening in the vol term 5% ’ le la structure. For instance, the lyr-1m implied vol spread reached 0% its highest level since 27-Sep-12 (6.4 vol pts). -5% NN OO OO MO DAFT Twowowo wo wo oO WO SPSSESER ESE RE SE RES q2usea2u5S5 42uU 5 42U 5 4 mum Spread A-B ———SPX ty