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J.P. Morgan Early Look at the Market – Fri 10.6.17 **PLEASE DO NOT FORWARD THIS DOCUMENT**

J.P. Morgan Early Look at the Market – Fri 10.6.17
*PLEASE DO NOT FORWARD THIS DOCUMENT*

Morning Levels

Trading Update

Top Headlines for Friday

Identifying risks – what could go wrong?

Macro Update

Calendar of events to watch for the week of Mon Oct 9

Catalysts – big events to watch over the coming months

Opinion/Interesting-but-not-immediately-impactful/intra-day boredom reading

Full catalyst list

  • Mon Oct 9 – China Caixin services PMI for Sept (Sun night/Mon morning)
  • Mon Oct 9 – German industrial production for Aug. 2amET.
  • Mon Oct 9 – earnings after the European close: LVMH.
  • Mon Oct 9 – Columbus Day holiday in the US (equities will be open while fixed income is closed).
  • Tues Oct 10 – German trade balance for Aug. 2amET.
  • Tues Oct 10 – analyst meetings: TECD, Santander, WDAY, WMT
  • Tues Oct 10 – PG shareholder meeting
  • Tues Oct 10 – earnings after the close: CUDA
  • Wed Oct 11 – US JOLTs report for Aug. 10amET.
  • Wed Oct 11 – Fed minutes from the Sept 20 meeting (2pmET).
  • Wed Oct 11 – analyst meetings: KR
  • Wed Oct 11 – earnings before the open: BLK, DAL, FAST, OZRK.
  • Thurs Oct 12 – Eurozone industrial production for Aug. 5amET.
  • Thurs Oct 12 – US PPI for Sept. 8:30amET.
  • Thurs Oct 12 – analyst meetings: BOX, HPQ, LSCC, WDC.
  • Thurs Oct 12 – earnings before the open: C, DPZ, JPM, LNN, Sky PLC, Tata Consultancy.
  • Thurs Oct 12 – earnings after the close: EXFO
  • Fri Oct 13 – China imports/exports for Sept (Thurs night/Fri morning)
  • Fri Oct 13 – US CPI for Sept. 8:30amET.
  • Fri Oct 13 – US retail sales for Sept. 8:30amET.
  • Fri Oct 13 – US Michigan Sentiment for Oct. 10amET.
  • Fri Oct 13 – US business inventories for Aug. 10amET.
  • Fri Oct 13 – analyst meetings: SAFM
  • Fri Oct 13 – earnings before the open: BAC, DRFG, FHN, FRC, JBHT, Man Group, PNC, WFC.
  • Mon Oct 16 – China CPI/PPI for Sept (Sun night/Mon morning)
  • Mon Oct 16 – Eurozone trade balance for Aug. 5amET.
  • Mon Oct 16 – earnings before the open: SCHW
  • Mon Oct 16 – earnings after the close: BRO, IEX, NFLX, Rio Tinto
  • Tues Oct 17 – Eurozone Sept auto registrations. 2amET.
  • Tues Oct 17 – German ZEW survey results for Oct. 5amET.
  • Tues Oct 17 – US import prices for Sept. 8:30amET.
  • Tues Oct 17 – US industrial production for Sept. 9:15amET.
  • Tues Oct 17 – US NAHB housing index for Oct. 10amET.
  • Tues Oct 17 – earnings before the open: BMI, CMA, CSX, GS, GWW, HOG, JNJ, MS, Pearson, PLD, Remy Cointreau, UNH
  • Tues Oct 17 – earnings after the close: ADTN, BHP, CP, CREE, IBM, LRCX, NAVI.
  • Wed Oct 18 – US housing starts for Sept. 8:30amET.
  • Wed Oct 18 – US building permits fro Sept. 8:30amET.
  • Wed Oct 18 – US Beige Book. 2pmET.
  • Wed Oct 18 – earnings before the open: ABT, Akzo Nobel, MTB, NTRS, USB
  • Wed Oct 18 – earnings after the close: AA, AXP, BHE, CCI, CCK, EBAY, LLNW, SLG, TCBI
  • Thurs Oct 19 – China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning)
  • Thurs Oct 19 – US Leading Index for Sept. 10amET.
  • Thurs Oct 19 – earnings before the open: ADS, BBT, BK, DGX, DHR, GPC, KEY, Nestle, Pernod Ricard, PM, PPG, Publicis, RCI, Roche, SAP, SON, Thales, TRV, TSMC, TXT, Unilever, VZ, WBC.
  • Thurs Oct 19 – earnings after the close: ATHN, ISRG, LHO, MXIM, NCR, PBCT, WDFC, WERN.
  • Fri Oct 20 – US existing home sales for Sept. 10amET.
  • Fri Oct 20 – earnings before the open: Assa Abloy, BHGE, CFG, CLF, Daimler, DST, GE, GNTX, KSU, SLB, STI, SYF, TomTom, Volvo.
  • Mon Oct 23 – China Sept property prices (Sun night/Mon morning).
  • Mon Oct 23 – US Chicago Fed Activity Index for Sept. 8:30amET.
  • Mon Oct 23 – earnings before the open: HAL, HAS, ITW, KMB, STT, VFC
  • Mon Oct 23 – earnings after the close: ARNC, CR, OI
  • Tues Oct 24 – Eurozone flash PMIs for Oct. 4amET.
  • Tues Oct 24 – US flash PMIs for Oct. 9:45amET.
  • Tues Oct 24 – earnings before the open: AMTD, Anglo American, BASF, BIIB, CAT, CLB, CNC, FITB, GLW, GM, INFY, LLY, LMT, MAS, MCD, MMM, Novartis, PCAR, PHM, PNR, R, RF, SAH, SHW, SWK, WAT, WDR.
  • Tues Oct 24 – earnings after the close: AKAM, AMP, CMG, COF, DFS, ESRX, IRBT, T, TSS, TXN.
  • Wed Oct 25 – US durable goods for Sept. 8:30amET.
  • Wed Oct 25 – US FHFA home price index for Aug. 9amET.
  • Wed Oct 25 – US new home sales for Sept. 10amET.
  • Wed Oct 25 – earnings before the open: ALK, ALLY, ANTM, Antofagasta, AOS, BA, BAX, Dassault Systemes, DPS, FCX, FLIR, Fresnillo, HBAN, Heineken, IP, IR, KO, LEA, LH, Lloyds Banking Group, NDAQ, NSC, NYCB, Peugeot, TMO, TUP, V, WBA, WEC.
  • Wed Oct 25 – earnings after the close: ABX, ACGL, AFL, AMGN, CLGX, DLR, FFIV, FTI, KIM, LSTR, NOW, ORLY, PKG, PLXS, RJF, TSCO, UNM, VAR, XLNX.
  • Thurs Oct 26 – US wholesale inventories for Sept. 8:30amET.
  • Thurs Oct 26 – US advance goods trade balance for Sept. 8:30amET.
  • Thurs Oct 26 – US pending home sales for Sept. 10amET.
  • Thurs Oct 26 – earnings before the open: Aixtron, ALLE, ALV, Anheuser Busch, APD, Bayer, BMY, BSX, BWA, CCMP, CELG, CHTR, CMCSA, CME, Deutsche Bank, ENTG, EQT, F, HLT, MMC, NEM, Nokia, ODFL, Santander, Schneider Electric, UNP, UPS, WM, XEL.
  • Thurs Oct 26 – earnings after the close: AIV, ATEN, CB, CDNS, EXPE, FLEX, FTNT, GILD, GOOG, HIG, INTC, LPLA, MSFT, NATI, PFG, SYK, VDSI, VRSN.
  • Fri Oct 27 – China Sept industrial profits (Thurs night/Fri morning).
  • Fri Oct 27 – US Q3 GDP, personal consumption, and core PCE for Q3. 8:30amET.
  • Fri Oct 27 – US Michigan Confidence numbers for Oct. 10amET.
  • Fri Oct 27 – earnings before the open: B, MRK, PSX, SC, TRU, Volkswagen, WY, XOM.
  • Mon Oct 30 – US personal income/spending and PCE for Sept. 8:30amET.
  • Mon Oct 30 – US Dallas Fed index for Oct. 10:30amET.
  • Mon Oct 30 – analyst meetings: CSX
  • Mon Oct 30 – earnings before the open: HSBC
  • Mon Oct 30 – earnings after the close: AVB, CGNX, RE, RTEC, VNO
  • Tues Oct 31 – US Employment Cost Index for Q3. 8:30amET.
  • Tues Oct 31 – US Case-Shiller home price index for Aug. 9amET.
  • Tues Oct 31 – US Chicago PMI for Oct. 9:45amET.
  • Tues Oct 31 – US Conference Board Sentiment readings for Oct. 10amET.
  • Tues Oct 31 – earnings before the open: ADM, AET, Airbus, AMT, Barclays, BNP, CMI, ECL, GGP, K, MA, OSK, PFE, XYL.
  • Tues Oct 31 – earnings after the close: APC, CHRW, CXO, WFT, X
  • Wed Nov 1 – US ADP jobs report for Oct. 8:15amET.
  • Wed Nov 1 – US Markit Manufacturing PMI for Oct. 9:45amET.
  • Wed Nov 1 – US Manufacturing ISM for Oct. 10amET.
  • Wed Nov 1 – US construction spending report for Sept. 10amET.
  • Wed Nov 1 – US auto sales for Oct.
  • Wed Nov 1 – FOMC meeting decision. 2pmET.
  • Wed Nov 1 – earnings before the open: AGN, APO, CLX, EL, GRMN, HFC, Novo Nordisk, ORBK, Standard Chartered, TAP, TRI.
  • Wed Nov 1 – earnings after the close: ALL, BHF, BXP, CAVM, CSGS, FB, LNC, MANT, MET, MUSA, OXY, PRU, QCOM, ULTI, XPO.
  • Thurs Nov 2 – US nonfarm productivity and unit labor costs for Q3. 8:30amET.
  • Thurs Nov 2 – earnings before the open: ADP, AN, BCE, CI, Credit Suisse, DISCA, H, ICE, Royal Dutch Shell, Sanofi, Swiss Re, WRK.
  • Thurs Nov 2 – earnings after the close: AAPL, AIG, CBS, CRUS, FLR, HLF, RMAX, SBUX, UNIT.
  • Fri Nov 3 – US jobs report for Oct. 8:30amET.
  • Fri Nov 3 – US trade balance for Sept. 8:30amET.
  • Fri Nov 3 – US factory orders and durable goods orders for Sept. 10amET.
  • Fri Nov 3 – US non-manufacturing ISM for Oct. 10amET.
  • Tues Nov 7 – US JOLTs jobs report for Sept. 10amET.
  • Tues Nov 7 – US consumer credit for Sept. 3pmET.
  • Thurs Nov 9 – US wholesale trade sales/inventories for Sept. 10amET.
  • Fri Nov 10 – US Michigan Confidence preliminary numbers for Nov. 10amET.
  • Tues Nov 14 – US PPI for Oct. 8:30amET.
  • Wed Nov 15 – US CPI for Oct. 8:30amET.
  • Wed Nov 15 – US Empire Manufacturing for Nov. 8:30amET.
  • Wed Nov 15 – US retail sales for Oct. 8:30amET.
  • Wed Nov 15 – US business inventories for Sept. 10amET.
  • Thurs Nov 16 – US import prices for Oct. 8:30amET.
  • Thurs Nov 16 – US industrial production for Oct. 9:15amET.
  • Thurs Nov 16 – US NAHB housing index for Nov. 10amET.
  • Fri Nov 17 – US housing starts and building permits for Oct. 8:30amET.
  • Mon Nov 20 – US Leading Index for Oct. 10amET.
  • Tues Nov 21 – US existing home sales for Oct. 10amET.
  • Wed Nov 22 – US durable goods for Oct. 8:30amET.
  • Wed Nov 22 – US final Michigan Confidence numbers for Nov. 10amET.
  • Wed Nov 22 – FOMC 11/1 meeting minutes. 2pmET.
  • Fri Nov 24 – US flash PMIs for Nov. 9:45amET.
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US Futures, Global Markets Slide, Spooked By Trump Trade Comments

US index futures and European shares slumped on Tuesday in a volatile, illiquid session punctuated by some headline confusion, while gains in Asian equities were limited after President Donald Trump said he still intends to go ahead with raising tariffs on China imports from 10% to 25% and that it was highly unlikely he would accept China’s request to refrain from the increase, just days before meeting with his counterpart Xi Jinping.

While ES losses were modest, it is worth noting that earlier in the session, S&P futures swung sharply, gaining as much as 0.5%, then falling back into negative territory, after algos misinterpreted comments from China foreign ministry spokesman Geng Shuang. As we reported earlier, during a media briefing Geng first said that Presidents Trump and Xi agreed to reach mutually beneficial agreements, sparking a vicious rally in futures. Just moments later, however, futures erased gains when Geng later said he was referring to a phone call on Nov. 1. The result was the following:

Following these fireworks, contracts on the Dow, S&P and Nasdaq pointed to a drop at the opening, while Treasuries and the dollar held steady before the Fed’s top two officials were set to speak in the next 48 hours.
European equities gave up initial gains and posted small losses as basic resources and travel names underperformed, with the Stoxx Europe 600 Index edging modestly lower (-0.1%), led by raw materials producers, while bonds rose across Europe and the euro currency edged lower. The pound weakened as traders mulled prospects for parliamentary approval of the Brexit deal, which Trump said could jeopardize Britain’s ability to strike a trade pact with the U.S.
Earlier in the session, Asian markets were mostly positive as the region took impetus from the performance on Wall St, where all majors finished with firm gains on return from the Thanksgiving weekend and with retailers buoyed on the back of Black Friday and Cyber Monday sales. ASX 200 (+1.0%) and Nikkei 225 (+0.6%) were lifted from the open with Australia led higher by tech and financials, while a pullback in USD/JPY limited the upside for the Japanese benchmark. Elsewhere, Hang Seng (-0.2%) and Shanghai
Comp. (+0.1%) were mixed with China somewhat dampened by Trump’s hardball tactics ahead of the meeting with Chinese President Xi at this week’s G20, in which he suggested an intention to proceed with raising tariffs on China imports from 10% to 25% and also warned to place tariffs on the remaining USD 267bln of Chinese imports if they fail to reach a favourable outcome for the US. Furthermore, a slowdown of Chinese Industrial Profit growth and concerns in the Hong Kong property sector also contributed the cautiousness in Chinese markets.
In addition to today's 8:30am ET comments from Fed vice chair Clarida, trade remains firmly in investors’ minds before leaders of the two biggest economies meet in Buenos Aires at the end of the week. Trump's comments that it is likely the US will slap tariffs on the remaining Chinese imports and raise tariffs on existing tariffed products have weighed on optimism for U.S. stocks, which climbed on Monday amid hopes a strong start to the holiday season thanks to record online sales will keep growth on track.
Meanwhile, Fed speakers will be closely watched for any indications of a change in Fed thinking over continued rate hikes. Today Fed vice chair's New York speech at 8:30am will be the main attraction, while Chair Powell’s speech on Wednesday will be parsed for any hints on prospects for a pause in rate increases next year after traders reduced expectations for the pace of monetary policy tightening.
Elsewhere, emerging market currencies weakened and their shares traded little changed. Bitcoin steadied near $3,700 after plunging 14 percent Monday.
In overnight political news, US Special Counsel Mueller's office said former Trump campaign manager Manafort lied to FBI and Special Counsel in violation of plea agreement.
In commodities, Brent (+0.2%) and WTI (Unch) are nursing initial losses as focus starts turning to the G20 summit over the weekend where markets may get initial hints of what to expect at the Dec 6th OPEC meeting in Vienna. The Saudi Crown Prince, Russian President and US President are to meet, possibly on the side-lines to decide the future of the global oil market. Talk around the market notes that Prince Mohammed Bin Salman may not able to defy US President Trump’s aim for lower oil prices after the White House stood behind the prince in regard to the killing of journalist Khashoggi. Nonetheless, traders will be watching the summit closely, while in the nearer-term, today will see the release of the weekly API where forecasts see headline crude stockpiles printing a drawdown of 0.6mln barrels.
Gold is trading relatively flat as the dollar holds steady following comments from Trump that overnight that he still intends to raise Chinese import tariffs to 25%; these comments come ahead of this week’s G20 summit. Additionally, US-China trade pessimism has caused copper prices to fall for the 3rd consecutive session due to demand concerns. Iron ore futures have dropped to their lowest level in over 4 months, dropping by 5% over concerns that steel prices are to remain pressured by slower demand.
Expected data include Conference Board Consumer Confidence. Bank of Nova Scotia, Couche-Tard, and Salesforce are among companies reporting earnings.
Market Snapshot
Top Overnight News from Bloomberg
Asian equity markets were mostly positive as the region took impetus from the performance on Wall St, where all majors finished with firm gains on return from the Thanksgiving weekend and with retailers buoyed on the back of Black Friday and Cyber Monday sales. ASX 200 (+1.0%) and Nikkei 225 (+0.6%) were lifted from the open with Australia led higher by tech and financials, while a pullback in USD/JPY limited the upside for the Japanese benchmark. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (+0.1%) were mixed with China somewhat dampened by Trump’s hardball tactics ahead of the meeting with Chinese President Xi at this week’s G20, in which he suggested an intention to proceed with raising tariffs on China imports from 10% to 25% and also warned to place tariffs on the remaining USD 267bln of Chinese imports if they fail to reach a favourable outcome for the US. Furthermore, a slowdown of Chinese Industrial Profit growth and concerns in the Hong Kong property sector also contributed the cautiousness in Chinese markets. Finally, 10yr JGBs were uneventful as prices took a breather from its extended but gradual uptrend and with today’s 40yr auction largely ignored despite increases in the b/c and accepted prices.
Top Asian News - Hong Kong’s Home Market Suffering Worst Declines Since 2016 - Day Two Rebound in Asia Stocks Closes an Eye on Trade Rhetoric - Genting Malaysia Says Fox World Lawsuit Won’t Impact Operations
European cash indices gave up initial gains (Eurostoxx 50 -0.1%) following a relatively flat open after pre-market gains in index futures were short-lived. Equity futures staged a pre-cash open rally after it was reported that a Chinese Foreign Ministry spokesman was quoted as stating that US President Xi and US President Trump had agreed to mutually beneficial agreements. However gains in futures markets were pared after it was later reported that this was in reference to a November 1st phone call and thus was viewed as stale by the market, particularly considering the hardball interview by Trump in the WSJ yesterday ahead of this week’s G20 summit. On an index basis, the SMI lags its peers (-0.5%) with Credit Suisse (-1.7%) lower following a broker
downgrade at Credit Suisse. In terms of sector specifics, performance is relatively mixed with slight underperformance in material names in-fitting with recent price action in the complex. To the upside, utility names modestly outperform, albeit the moves thus far across the board are relatively small in terms of magnitude. Individual movers this morning include Dialog Semiconductor (-1.4%) amid Apple-inspired losses (post-Trump threat of potential tariffs on iPhones and laptops), Apple share are down 1.7% pre-market. Elsewhere, Rexel (+1.9%) are firmer following a broker upgrade at Credit Suisse, Thomas Cook (-24.5%) shares are notably underperforming following a disappointing trading update, dragging Tui (-4.2%) lower in sympathy.
Top European News
In FX, the DXY was overall bid vs G10 counterparts with the aid of the GBP weakness due to the latest Brexit developments. Moreover, Citi’s rebalancing model points to modest USD buying vs. peers going into month end, while Nordea also notes tomorrow’s HIA which is the cut-off date if companies wish to convert foreign currency into USD along with SOMA that happens to fall on Friday as well. The index is currently hovering above 97.000 within a narrow range around the big figure.
In commodities, brent (+0.2%) and WTI (Unch) are nursing initial losses as focus starts turning to the G20 summit over the weekend where markets may get initial hints of what to expect at the Dec 6th OPEC meeting in Vienna. The Saudi Crown Prince, Russian President and US President are to meet, possibly on the side-lines to decide the future of the global oil market. Talk around the market notes that Prince Mohammed Bin Salman may not able to defy US President Trump’s aim for lower oil prices after the White House stood behind the prince in regard to the killing of journalist Khashoggi. Nonetheless, traders will be watching the summit closely, while in the nearer-term, today will see the release of the weekly API where forecasts see headline crude stockpiles printing a drawdown of 0.6mln barrels. Gold is trading relatively flat as the dollar holds steady following comments from Trump that overnight that he still intends to raise Chinese import tariffs to 25%; these comments come ahead of this week’s G20 summit. Additionally, US-China trade pessimism has caused copper prices to fall for the 3rd consecutive session due to demand concerns. Iron ore futures have dropped to their lowest level in over 4 months, dropping by 5% over concerns that steel prices are to remain pressured by slower demand.
Looking at the day ahead, we’ll get various house price data points including the September FHFA house price index reading, Q3 house price purchase index reading and September S&P CoreLogic house price data. On top of that we’ll get the November consumer confidence survey which is expected to slip nearly 2pts to 135.8 in light of the recent wobbles in the equity market. That is, however, in the context of the 18-year high that the index reached last month. Away from the data, there will be plenty of focus on Fed Vice-Chair Clarida’s speech in New York today at 8.30am ET, especially around the topics of how he characterizes recent volatility in markets and the prospects for domestic and global growth. Fellow Fed officials Bostic, Evans and George will also speak while the ECB’s Nouy, Costa and Mersch also speak at various stages. It’s worth also noting that starting today and continuing until Thursday, the three top candidates to take over from Merkel as head of the CDU will hold panel debates.
US Event Calendar
DB's Jim Reid concludes the overnight wrap
We took our three year old Maisie to the building site that is our new house over the weekend and this may have been a mistake as over the last two days she keeps on asking us why our new house is broken. She was particularly upset that a lot of windows and walls were missing and said she doesn’t want to live there as it would be too cold. Meanwhile Daddy’s bank account feels broken this morning as there was talk yesterday that one of our big suppliers might be about to call in the administrators. They have a healthy deposit of ours so it’s very annoying. It’s fair to say that costs are escalating from all angles and the EMR may need to still be running from an old people’s home in 50 years time to fund this.
From broken houses to slightly less broken markets. Given that the two Mondays prior to yesterday had seen moves of -1.66% and -1.97% for the S&P 500, yesterday reversed the trend as better news percolated through on some of the negative stories that have dominated of late. The S&P 500 closed last night +1.56% with the DOW and NASDAQ also up +1.46% and +2.06% respectively. The NYFANG index advanced +3.72%, despite Apple’s underperformance (initially down -1.18% before rebounding to close +1.35%) as the US Supreme Court signalled its willingness to hear a class action lawsuit over its app store pricing. Financials really led the way with the S&P Banks index rallying +2.30% for its best day since July. They had their European counterparts to thank for that, with the STOXX Banks index (+2.91%) seeing its best single day performance since July 2017. The broader STOXX 600 closed +1.23% and DAX +1.45%.
Italy was the main catalyst as sentiment improved on the potential for more positive negotiations with the European Commission. As we reported yesterday, the weekend saw less confrontational remarks from Salvini and Juncker. In addition, Salvini said yesterday that the government is “not getting stuck” over the decimals in the deficit target while fellow Deputy Premier Di Maio confirmed that “if, as part of the negotiation, we need to reduce the forecast deficit slightly, that’s not important to us.” Di Maio went on to say that “the issue is not the conflict with the EU on a deficit of 2.4%, what’s important is that not even a single person is kept out of the core measures.” Prior to this, we also had headlines on Bloomberg suggesting that an official for the League had said that the Government was looking at a new deficit target of 2.2% to 2.3%. Late in the evening, political leaders Conte, Salvini, and Di Maio released a joint statement after their meeting, confirming their less confrontational tone and again deemphasising the decimal place of the deficit number.
As we go to print headline are coming through from Italian finance minister Castelli that the deficit target is “almost certain” to be 2.2%. The question on everyone’s lips is what is the compromise number that the European Commission could realistically accept? A deficit in the 2.2% area is still unlikely to satisfy the EC, however a willingness to negotiate might be seen as the Italian government being aware of the implications of its actions. The Commission could even accept a somewhat vague framework as a rationale to defer a formal decision on Italy until into 2019, potentially alleviating some of the near-term event risk for Italy-linked
assets.
Before all this news the FTSE MIB closed yesterday up +2.77% while Italian Banks (+4.83%) had their best day since June. Two- and ten-year BTPs rallied -11.2bps and -13.8bps respectively – albeit off their yield lows for the session. Speaking of Italy, the ECB’s Peter Praet said yesterday that there has been very limited spill-over from a tightening of financial conditions in Italy to the broader Euro Area, but that conditions in Italy are “unsustainable” and “so something will have to give.” Praet’s general tone outside of this was constructive. His comments suggested that QE will finish in December as widely expected, but also that the ECB will have to clarify was it meant by “reinvesting for an extended period of time.” Praet also confirmed that guidance is “a very strong expectation” but also noted that “downside risks have increased noticeably.” This was notable as the Council has previously said that risks are “balanced.” Praet’s speech raised the anticipation levels for Draghi, who spoke in the afternoon. While his speech was virtually a copy and paste from his last on November 16th, he was later quoted as saying that “world growth momentum has slowed considerably” which is much stronger language compared to that used in the past. The December 13 ECB meeting will be key, and our economists still expect the Governing Council to announce the end of QE. Incoming data will dictate the evolution of policy, but we still expect growth and inflation to progress sufficiently to allow for an interest rate hike in September 2019.
Praet and Draghi are scheduled to speak again this week, on Wednesday and Thursday, respectively. We’ll also get several consequential communications from Federal Reserve officials, with speeches scheduled today for Vice Chair Clarida, tomorrow for Chair Powell, and Friday for NY Fed President Williams. The bottom line so far is that he doesn’t think there is sufficient evidence to ratify the market’s dovish interpretation of recent Fed communications, though that could change depending on what the Fed leadership says about the neutral rate, financial conditions, and global growth. So an important couple of speeches today and tomorrow from Clarida and Powell.
This morning in Asia markets are largely higher with the Nikkei (+0.88%), Shanghai Comp (+0.42%) and Kospi (+0.84%) all up while the Hang Seng (+0.01%) is trading flat after erasing earlier losses. Sentiment seems to have been impacted by US President Trump’s rhetoric, after an interview with the WSJ, that he will likely push forward with plans to increase tariffs on $200 billion of Chinese goods. He also suggested that the US would likely impose tariffs on the remainder of Chinese imports ($267bn) if the trade talks on the sidelines of the G20 fail. So the pressure builds ahead of the summit. Futures on S&P 500 (-0.18%) are pointing towards a softer start.
Back to yesterday, Bund yields edged up +2.1bps yesterday with the Italy news more important than any ECB slowdown worries. That move for BTPs and Bunds means the spread between the two yesterday was -15.9bps tighter and now at the tightest level in nearly three weeks. Meanwhile Treasury yields also backed up +2.0bps and are now sitting at 3.06%. Oil had a part to play in that with Brent and Crude bouncing +3.13% and +2.54% respectively – despite the news that Saudi Arabia had again raised its oil output – perhaps with hopes that the oversupply condition will be addressed at the G20 this week or the OPEC meeting next week. Tensions between Russia and the Ukraine over the weekend seemed to have less of an impact.
Not hurting the decent day for equities yesterday was news of a merger in the Greek Banking sector, however a sub-index of Greek banks did give up an early morning surge of as much as +11.57% to finish flat. A pretty substantial move and retracement! In the US, the auto sector advanced +3.98% for its sixth best day of the year, after General Motors announced a broad new restructuring plan. It plans to cut over 14,000 jobs and close five North American manufacturing plants next year, barring an agreement with its unions. GM’s share price rose +4.79% to a four-month high.
Elsewhere on Brexit, Donald Trump has suggested PM May's Brexit agreement could threaten a US-UK trade deal. He told reporters the withdrawal agreement "sounds like a great deal for the EU" and meant the UK might not be able to trade with the US. The PM’s office insisted the deal is "very clear" the UK would be able to sign trade deals with countries around the world.
To the day ahead now, where this morning in Europe we’ll get November confidence indicators in France and Italy followed by the CBI’s retailing reported sales data in the UK for November. In the US this afternoon we’ll get various house price data points including the September FHFA house price index reading, Q3 house price purchase index reading and September S&P CoreLogic house price data. On top of that we’ll get the November consumer confidence survey which is expected to slip nearly 2pts to 135.8 in light of the recent wobbles in the equity market. That is, however, in the context of the 18-year high that the index reached last month. Away from the data, there will be plenty of focus on Fed Vice-Chair Clarida’s speech in New York today at 1.30pm GMT, especially around the topics of how he characterizes recent volatility in markets and the prospects for domestic and global growth. Fellow Fed officials Bostic, Evans and George will also speak this evening at 7.30pm GMT while the ECB’s Nouy, Costa and Mersch also speak at various stages. It’s worth also noting that starting today and continuing until Thursday, the three top candidates to take over from Merkel as head of the CDU will hold panel debates.
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Futures Falls On Chip Carnage As World Await Brexit Verdict

Stocks in Europe faded early gains and S&P futures fell after a mixed session in Asia as chip stocks were taken to the woodshed on poor guidance from Nvidia and Applied Materials sparked fears that the chip bull run is over, while investors wondered whether China and America can de-escalate their trade war after mixed signals by US officials just days before the G-20 summit.

The euro failed to rebound while the sterling halted its biggest drop in 2 years after some of the most dramatic 24 hours yet in the Brexit process and another turbulent week for world markets. With reports of a UK leadership coup still rife and fear that the country could crash out of the EU without an agreement, cable struggled to rise above $1.28.

Meanwhile traders around the world were waiting for an outcome from the ongoing Brexit saga: “If and when a vote on the withdrawal agreement occurs is uncertain. Whether the withdrawal bill is passed by both houses of Parliament is uncertain,” Joseph Capurso, a senior currency strategist at CBA, said in a note. “Whether the Prime Minister resigns or is challenged for the leadership is uncertain. And, whether there is a second referendum and/or an election is uncertain.”
Fears over political turmoil in the UK and Italy dragged Europe's Stoxx 600 back into the red, set for its first weekly drop in three, trimming Friday’s gain as AstraZeneca's drop weighed on the gauge after a cancer-drug setback while telecom names were outperforming. Utilities started the session lower in the wake of yesterday’s ECJ decision which deemed the UK’s scheme for ensuring power supplies during the winter months as a violation of state aid rules. Other individual movers include Vivendi (+4.2%) sit at the top of the Stoxx 600 after posting impressive Q3 sales metrics and announcing a potential sale of part of their Universal Music Group division. Elsewhere, AstraZeneca (-2.3%) and Shire (-1.3%) have been seen lower throughout the session after both posting disappointing drug updates.
Not helping sentiment, ECB head Mario Draghi said the bank still plans to dial back its stimulus at the end of the year, but acknowledged the economy had hit a soft patch and inflation may rise more slowly than expected. “If firms start to become more uncertain about the growth and inflation outlook, the squeeze on margins could prove more persistent,” Draghi told a conference.
Earlier in the day, Asian shares ended the session in the red (MSCI Asia -0.2% to 151.52), led lower by declines in Japan, even as China and Hong Kong rose after initial reports the United States might pause further China tariffs were denied by Commerce Secretary Wilbur Ross who damped hopes of any imminent trade deal with China. The Nikkei fell 0.6% pressured by a drop in the USDJPY after China Mofcom began an investigation into alleged dumping of machine tools by Japanese firms. The Hang Seng (+0.3%) and Shanghai Comp. (+0.4%) swung between gains and losses after continued liquidity inaction by the PBoC which skipped Reverse Repos for a 16th consecutive occasion.
S&P futures were hit on fresh slowdown concerns, this time out of the semiconductochip space, after Nvidia gave a dire sales forecast, projecting a 20% drop in revenue while a disappointing outlook from Applied Materials indicated the chip industry is holding off on expansion plans in the face of a murky outlook for electronics demand. The chipmaking sector saw another bout of selling in Asia, wiping at least $11.2 billion in market value amid signals that demand for servers, personal computers and mobile is falling.

Also falling after hours were shares of AMD and Intel, dragging Nasdaq futures lower.
"It started with Apple, then Nvidia ... Since performances of these companies set the tone for the global tech and chip industries, related Japanese stocks will likely be sluggish for a while,” said Takatoshi Itoshima, a strategist at Pictet Asset Management.
The Bloomberg Dollar Spot Index was little changed after Fed Chairman Powell flagged his concern over potential headwinds for the U.S. economy, while the pound staged a modest rebound on reports that some pro-Brexit ministers decided to stay in their governmental posts. The pound gained as U.K. Prime Minister Theresa May defied demands to quit and amid reports her environment secretary wouldn’t resign, following the resignation of several ministers Thursday. The yen rallied as trade stress simmered, with investors trying to gauge whether China and the U.S. can de-escalate their dispute.
Also under water was the cryptocurrency Bitcoin, which hit a one-year trough overnight. It had tumbled 10 percent early in the week when support at $6,000 gave way. It was last changing hands at $5,500 on the Bitstamp platform.
Treasuries were steady while 10-year yields on German bonds were set for their biggest weekly fall in three weeks, in a sign that the Brexit uncertainty and worries about Italy’s finances, continued to support demand. Italian bonds edged higher even as European Commission Vice President Valdis Dombrovskis said in an interview with Il Sole 24 Ore that the country’s government was openly defying EU budget rules. Emerging-market currencies consolidated recent gains while oil prices extended their rebound.
Oil prices rose, helped by a decline in U.S. fuel stockpiles and the possibility of a cut in OPEC output. Brent (+1.3%) and WTI (+1.1%) are both in the green and continuing their rebound seen yesterday with WTI hovering around USD 57.00bbl. Energy newsflow remains light, post-yesterday's DoE report, however, Iraq’s North Oil Co. have announced that they have resumed Kiruk oil exports heading towards the Turkish port of Ceyhan. Looking ahead, the main highlight on the calendar will be the Baker Hughes rig count. Elsewhere, natural gas futures are relatively steady after their 19% decline yesterday which came in the wake of a 20% increase the day before.
In geopolitical news, US Republican and Democrat Senators filed a bipartisan bill seeking to suspend arms sales to Saudi Arabia in response to war in Yemen and killing of journalist. North Korean Leader Kim inspected test of new high-tech tactical weapons, according to Yonhap citing North Korean state media
Today's data include October industrial production and capacity utilization. Viacom is among companies reporting earnings
Market Snapshot
Top Overnight News
Asia-Pac stocks traded indecisively as the region lacked fresh catalysts and as uncertainty regarding Brexit and US-China trade played on investor’s minds. ASX 200 (-0.1%) and Nikkei 225 (-0.6%) were choppy with outperformance of tech and mining names in Australia overshadowed by a lacklustre broader market, while the Japanese benchmark was subdued by mild flows into the JPY and after China Mofcom began an investigation into alleged dumping of machine tools by Japanese firms. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (+0.4%) swung between gains and losses after continued liquidity inaction by the PBoC which skipped OMOs for a 16th consecutive occasion, while participants were also tentative amid ongoing trade uncertainty after conflicting reports regarding the next round of China tariffs being placed on hold which USTR Lighthizer later denied. Finally, 10yr JGBs were mildly higher with prices underpinned amid an indecisive tone seen in stocks and with the BoJ also present in the market for JPY 680bln of JGBs in the belly to super-long end.
Top Asian News - China’s Kindergarten Crackdown Is the Latest Disaster for Stocks - Modi Is Said to Enlist Tata for Jet Airways Rescue Ahead of Vote - Philippines Shuts 3 Miners, Suspends 9 Others After Review - Indian Central Bank Board to Discuss Surplus Funds Transfer
European equities trade relatively flat (Eurostoxx 50 +0.2%) in the wake of mixed trade headlines overnight for the US and China. Performance across European indices is relatively equal whilst focus once again falls on the FTSE 100 (U/C) which remains at the whim of Brexit-inspired fluctuations in the GBP. Once again, potential upside for the index is being capped by losses in domestically focused banking names (RBS -3.0%, Lloyds -2.1%) as Brexit uncertainty continues to dampen investor sentiment. In terms of sector specifics, most sectors are trading higher with mild outperformance seen in telecom names. Utilities started the session lower in the wake of yesterday’s ECJ decision which deemed the UK’s scheme for ensuring power supplies during the winter months as a violation of state aid rules. Other individual movers include Vivendi (+4.2%) sit at the top of the Stoxx 600 after posting impressive Q3 sales metrics and announcing a potential sale of part of their Universal Music Group division. Elsewhere, AstraZeneca (-2.3%) and Shire (-1.3%) have been seen lower throughout the session after both posting disappointing drug updates.
Top European News
Currencies:
In commodities, gold (+0.2%) is trading relatively flat after hitting new weekly highs of USD 1218.39/oz earlier in the session; following uneventful overnight trade. Elsewhere, Shanghai Zinc prices have risen due to London Metal Exchange stockpiles falling to decade-low levels. Brent (+1.3%) and WTI (+1.1%) are both in the green and continuing their rebound seen yesterday with WTI hovering around USD 57.00bbl. Energy newsflow remains light, post-yesterday's DoE report, however, Iraq’s North Oil Co. have announced that they have resumed Kiruk oil exports heading towards the Turkish port of Ceyhan. Looking ahead, the main highlight on the calendar will be the Baker Hughes rig count. Elsewhere, natural gas futures are relatively steady after their 19% decline yesterday which came in the wake of a 20% increase the day before.
US Event Calendar
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"A Sea Of Red": Global Stocks Plunge With Tech Shares In Freefall

While there was some nuance in yesterday's pre-open trading, with Asia at least putting up a valiant defense to what would soon become another US rout, this morning the market theme is far simpler: a global sea of red.

Stocks fell across the globe as worries over softening demand for the iPhone prompted a tech stock selloff across the world, while the arrest of car boss Carlos Ghosn pulled Nissan and Renault sharply lower. Even China's recent rally fizzled and the Shanghai composite closed down 2.1% near session lows, signalling that the global slump led by tech shares would deepen Tuesday, adding a new layer of pessimism to markets already anxious over trade. Treasuries advanced and the dollar edged higher.
S&P 500 futures traded near session lows, down 0.6% and tracking a fall in European and Asian shares after renewed weakness in the tech sector pushed Nasdaq futures sharply lower for a second day after Monday's 3% plunge and crippled any hopes for dip buying. News around Apple triggered the latest bout of stock market selling, after the Wall Street Journal reported the consumer tech giant is cutting production for its new iPhones.
Europe's Stoxx 600 Index dropped a fifth day as its technology sector fell 1.3% to the lowest level since February 2017, taking the decline from mid-June peak to 21% and entering a bear market. Not surprisingly, the tech sector was the worst performer on the European benchmark on Tuesday, following Apple’s decline to near bear-market territory and U.S. tech stocks plunge during recent sell-off. The selloff was compounded by an auto sector drop led by Nissan and Renault after Ghosn, chairman of both carmakers, was arrested in Japan for alleged financial misconduct. The European auto sector was not far behind, dropping 1.6 percent, and the broad European STOXX 600 index was down 0.9 percent to a four-week low.
“Most of Europe had a red session yesterday and that has been compounded by the news on Apple and tech stocks overnight, The overall climate is risk off,” said Investec economist Philip Shaw. “Beyond stocks, the Italian bonds spread (over German bonds) is at its widest in about a month now, and Brexit continues to rumble on - uncertainty is very much hurting risk sentiment,” he added.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 percent, with Samsung Electronics falling 2 percent. In Japan, Sony Corp shed 3.1 percent. Japan’s Nikkei slipped 1.1 percent, with shares of Nissan Motor Co tumbling more than 5% after Ghosn’s arrest and on news he will be fired from the board this week.
Meanwhile, as noted yesterday, the CDS index of US investment grade issuers blew out to the widest level since the Trump election, signaling renewed nerves about the asset class.

Exactly two months after the S&P hit all time highs, stocks have been caught in a vicious decline and continue to struggle for support as some of the technology companies that helped drive the S&P 500 to a record high earlier this year tumbled amid a slowdown in consumer sales and fears over regulation, many of them entering a bear market.
At the same time, a more gloomy macro outlook is emerging, with Goldman chief equity strategist David kostin overnight recommending investors hold more cash even as it reiterated its base case of S&P 3000 in 2019.

Ray Dalio disagreed, and said that investors should expect low returns for a long time after enjoying years of low interest rates from central-bank stimulus.
“The easy days of long, global bull markets where you can invest in a tracker for five basis points -- I say this as an active fund manager -- and watch the thing go up, I think those days are gone,” Gerry Grimstone, chairman of Barclays Bank PLC and Standard Life Aberdeen PLC, said in an interview on Bloomberg Television. “It’s going to be a move back to value investing, and back to the Warren Buffett-style of investment.”
In the latest Brexit news, UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. Meanwhile, Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May, the FT reported. In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. The Telegraph also reported that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal.
Sky News reported that the UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement.
In rates, Treasuries rose, driving the 10-year yield down to its lowest level since late September, ahead of Thanksgiving Thursday. Italian government bond yields jumped to one-month high on Tuesday and Italian banking stocks dropped to a two-year low, hurt by risk aversion and concerns over the Italian budget. Euro zone money markets no longer fully price in even a 10 bps rate rise from the European Central Bank in 2019, indicating growing investor concern about the economic outlook in the currency bloc.
In FX, the Bloomberg Dollar Spot Index whipsawed in early London trading even as it stayed near a more than one-week low on concern cooling global growth will slow the pace of Fed rate hikes, keeping Treasury yields under pressure. At the same time, the pound stabilized as Theresa May appealed to business leaders to help deliver her Brexit deal, and evidence mounted that a plot to oust her as U.K. Prime Minister is faltering.
The euro slid as Italian bonds dropped, pushing the yield spread to Germany to the widest in a month; the currency had opened the London session higher, supported by corporate buying in EUGBP. The yen rallied to a month-to-date high as Asian stocks followed a U.S. equity slide while the New Zealand dollar got a boost from a jump in milk production; the Aussie was on the back foot even after the RBA said Australia’s unemployment rate could fall further in the near term. India’s rupee rallied a sixth day after the central bank signaled a compromise with the government in their dispute over reserves.
Bitcoin extended its drop below $4,500 for the first time since October 2017.
WTI crude oil futures hovered around $57 a barrel after oil prices lost steam as fears about slower global demand and a surge in U.S. production outweighed expected supply cuts by the Organization of the Petroleum Exporting Countries. Brent crude slipped 0.9 percent to $66.21 per barrel.
In other overnight news, BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. Japanese PM Abe says the next initial budget is to have measures to address sales tax.
India's Finance Ministry sources expect that the RBI will stand pat on rates at its meeting next month.
RBA Governor Lowe states that steady policy is to be maintained for 'a while yet' and it is likely that rates will increase at some point if the economy progresses as expected.
Expected data include housing starts and building permits. Best Buy, Campbell Soup, Lowe’s, Medtronic, Target, TJX, and Gap are among companies reporting earnings.
Market Snapshot
Top Overnight News
Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-2.1%) and Hang Seng (-2.0%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while JD.com earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction.
Top Asian News - BlackRock Doesn’t Expect Significant Growth Slowdown in China - China Stocks Lead Global Losses as Tech Rout Hits Fragile Market - Stock Traders in Asia Keep Finding New Reasons to Hit ’Sell’ - World’s Largest Ikea to Open in Manila as Company Bets on Asia
Major European indices are largely in the red, with the SMI outperforming (+0.1%) which is being bolstered by Novartis (+1.0%) following their announcement of a joint digital treatment with Pear Therapeutics for substance abuse disorder. The DAX (-0.7%) is lagging its peers, weighed on by Wirecard (-5.0%) following a disappointing change to guidance forecasting as well as weak sentiment across IT names after the FAANG stocks entered bear market territory on Wall St. In particular, the Stoxx 600 Technology sector (-1.9%), dropped to its lowest level since Feb 2017. Meanwhile, Deutsche Bank (-2.5%) are in the red due to reports that the Co processed payments for Danske Bank in Estonia.
Top European News
In FX, the DXY index remains technically prone to further downside pressure having closed below another Fib support level yesterday and testing the next bearish chart area around 96.050-10 ahead of 96.000 even. However, a more concerted bout of risk-off trade/positioning saved the DXY and broad Dollar from steeper declines as the tech-induced sell-off in stocks intensified, and jitters over Brexit alongside the Italian budget returned to the fore.
NZD/AUD - The Kiwi is bucking the overall trend and outperforming in contrast to this time on Monday, with Nzd/Usd rebounding firmly to 0.6850+ levels and Aud/Nzd retreating through 1.0650 to just south of 1.0600 following overnight data showing a hefty 6.5% y/y rise in NZ milk collections for October. Conversely, the Aud/Usd has slipped back under 0.7300 again, and close to 0.7250 in wake of RBA minutes underscoring no rush to hike rates and subsequent affirmation of wait-and-see guidance from Governor Lowe. In fact, he asserts that the jobless rate could decline to 4.5% vs 5% at present without inducing wage inflation, while also underlining concerns about the supply of credit.
JPY/CHF - Both benefiting from their more intrinsic allure during periods of pronounced risk aversion and investor angst, as Usd/Jpy probes a bit deeper below 112.50 and a key Fib at 112.46 that could be pivotal on a closing basis with potential to expose daily chart support circa 112.16 ahead of 112.00. Meanwhile, the Franc has inched closer to 0.9900 and over 1.1350 vs the Eur that remains burdened with the aforementioned Italian fiscal concerns.
GBP/EUR - Almost a case of déjà vu for Sterling and the single currency as early attempts to the upside vs the Greenback saw Cable and EuUsd revisit recent peaks around 1.2880 and 1.1470 respectively, but a combination of chart resistance and bearish fundamentals forced both back down to circa 1.2825 and 1.1425. In terms of precise technical/psychological levels, 1.2897 and 1.1445 represent Fib retracements, ahead of 1.2900 and 1.1500, while the Pound has remained relatively unchanged and unresponsive to largely on the fence pending Brexit rhetoric from the BoE in testimony to the TSC on November’s QIR.
In commodities, gold has stayed within a USD 5/oz range and traded relatively flat throughout the session moving with the steady dollar ahead of US Thanksgiving. Similarly, copper traded lacklustre breaking a 5-day rally because of a subdued risk sentiment stemming from ongoing US-China trade tensions; with Shanghai rebar adversely affected from these factors. Brent (-0.1%) and WTI (+0.2%) are following a relatively quiet overnight session, while recent upticks in the complex resulted in WTI reclaiming the USD 57/bbl and Brent edging closer to USD 67/bbl. This follows comments from IEA Chief Birol that Iranian oil exports declined by almost 1mln BPD from summer peaks. Looking ahead, traders will be keeping the weekly API crude inventory data which is expected to print a build of 8.79mln barrels.
On today's light data calendar, in the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.
US Event Calendar
DB's Jim Reid concludes the overnight wrap
With the sell-off of the last 24 hours we have now traded through the last of our YE 2018 top level credit spread forecasts as US HY widened 6bps to +424bps (YE 2018 forecast was 420). We still think US HY is the most expensive part of the EUR & US credit universe but as discussed above, last night we’ve become more optimistic on all credit in the near-term after what has been the worst week of the year. Credit massively under-performed equities last week but equities caught up on the downside yesterday. The sell-off was underpinned by the FANG names selling off, an accounting scandal emerging at Nissan, oil swinging around and the US housing market spooked by weak data.
Just on the market moves first, the NASDAQ and NYFANG indexes slumped -3.03% and -4.28% yesterday, registering their fourth and third worst days of the year, respectively. Facebook and Apple fell -5.72% and -3.96% respectively, as the sector remains pressured amid a slew of negative PR and the spectre of stricter government regulation. Over the weekend, Apple CEO Tim Cook said in an interview that “the free market is not working” and that new regulation is “inevitable”. This negatively impacted highly-valued social media companies. Twitter and Snapchat traded down -5.02% and -6.78% respectively. The tech sector was further pressured after the WSJ reported that Apple had cut production orders in recent weeks for the new model iPhones, with chipmakers broadly trading lower and Philadelphia semiconductor index shedding -3.86%. The S&P 500 and DOW also slumped -1.66% and -1.56% respectively while in Europe the STOXX 600 turned an early gain of +0.71% into a loss of -0.73%. In credit, cash markets were 2bps and 11bps wider for Euro IG and HY and 2bps and 6bps in the US. CDX IG and HY were, however, 3bps and 11bps wider, respectively. Elsewhere, WTI oil first tested breaking through $55/bbl yesterday, after Russia stopped short of committing to supply cuts, before recovering to close +0.52% at $56.76.
Bond markets were relatively quiet, with Treasuries and Bunds ending -0.4bps and +0.6bps, respectively, albeit masking bigger intraday moves. BTP yields rose +10.6bps to 3.597%, within 10 basis points of their recent closing peak, as rhetoric between Italian officials and their European peers continued to intensify. Finance Ministers from Austria and the Netherlands separately spoke publicly about their concerns, and expressed their hope that the European Commission will loyally enforce the fiscal rules. Italian Finance Minister Tria tried to calm conditions by framing the disagreement as relatively minor, though he also accused the Commission of being biased against expansionary policies, which he argued are needed to avert a macro slowdown.
Back to credit, as we highlighted yesterday, the recent weakness in the asset class has become a talking point for broader markets and while our view is now that value is starting to emerge, there are an increasing number of idiosyncratic stories plaguing the market. There were a couple more examples yesterday with the aforementioned story about Nissan removing its chairman after being arrested for violations of financial law. This caused Renault’s CDS to widen +25.0bps (equity down -8.43%), while Vallourec bonds dropped 15pts after falling 11pts on Friday as concerns mount about the company’s rising leverage in the wake of recent results. Like we’ve see in equity markets, it does feel like credits are now getting punished with sharp moves in the wake of negative headlines Certainly something to watch, but as we said above, credit is now much more attractively priced than it has been for some time.
From steel tubing to Downing Street, where we’ve actually had a rare temporary lull for Brexit headlines over the last 24 hours, although behind the scenes it does look we’re getting closer to the threshold for a confidence vote in PM May with the Times yesterday reporting that “senior Brexiteers” had told reporters that they had “firm pledges” from over 50 MPs to submit letters. As a reminder, 48 are needed to trigger the process. Looking further out, yesterday DB’s Oliver Harvey published a report arguing that there is still a path towards an orderly Brexit based on the existing Withdrawal Agreement should May survive a confidence vote. This path is provided by the political declaration on the future economic relationship. The latter has yet to be negotiated, and as the EU27 and UK recognise in the joint statement, the existing temporary customs arrangement (TCA) already provides a basis for a future economic relationship. Oli argues that the UK should push for the political declaration on the future relationship to explicitly commit the UK to a form of Brexit that might be described as “Norway plus.” The temporary customs arrangement would become permanent, but under the governance framework of UK membership of the EEA and EFT. The UK should tie the political declaration on the future relationship to the good faith clause in the existing Withdrawal Agreement, meaning that if negotiations were not pursued on these lines after the transition period had begun, the UK could withhold payments from the EU27. This would help to allay concerns from across the political divide that the UK would be “trapped” in a sub optimal customs union with the EU27.
Meanwhile, to complicate matters, Bloomberg has reported that the EU is mulling over issuing a series of separate statements on Brexit on Sunday, in addition to the Withdrawal Agreement and the Political Declaration. This comes after pressure from some EU countries not to appease any additional UK demands. Elsewhere, the SUN has reported that the PM May has drawn up a secret plan to scrap the Irish backstop arrangement in an attempt to win over angry Tory Brexiteers after a meeting with them yesterday. However, if a mutually agreeable solution couldn’t be found over the last couple of years, it seems tough to imagine one was finally found yesterday afternoon. We’ll see.
Further adding to the complexity of where Brexit heads, last night the DUP abstained on the UK finance bill, which implements the budget. This stops short of their prior threat to actively vote against the legislation, but is still a surprise and signals that further political turbulence between PM May and the DUP is likely. The bill only just scraped through. Sterling finished +0.14% yesterday and this morning is trading flattish (+0.02%) in early trade.
Sentiment more broadly in Asia is following Wall Street’s lead with almost all markets trading in a sea of red. The Nikkei (-1.25%, with Nissan Motors down as much as -5.41% and Mitsubishi Motors -6.71%), Hang Seng (-1.84%), Shanghai Comp (-1.63%) and Kospi (-0.96%) are all down along with most other markets. Elsewhere, futures on S&P 500 (-0.29%) are extending losses as we type.
Back to yesterday, where as we mentioned at the top, weak US homebuilder sentiment survey data played its part in the moves for markets. The November NAHB housing market index tumbled to 60 from 68 in October after expectations had been for just a 1pt drop. That’s the lowest reading since August 2016 and biggest one-month drop since February 2014. The details weren’t much better and falls into line with the expectation of a softer outlook for housing. As you’ll see in the day ahead we’ve got more housing data in the US today so worth keeping an eye on even if the October data for starts could be distorted by Hurricane Michael.
As far as the day ahead is concerned, we’re fairly light on data today with Q3 employment stats in France, October PPI in Germany and November CBI total orders data in the UK the only releases of note. In the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.
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