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Italy Remains In Recession As Germany Avoids Triple-Dip By Smallest Possible Margin

The key event overnight was the release of European Q3 GDP data, which saw Germany averting a recession by the narrowest of margins when following a -0.2% drop in Q2 economic growth, Germany grew by the smallest amount possible in Q3, or 0.1%, in line with expectations, thus averting two consecutive quarters of decline, the technical definition of a recession. The French economy likewise posted a modest increase in Q3, although one wonders how aggressively the data had to be fudged for a country whose PMIs all indicate a -1% or greater contraction. Italy however was less creative with its use of "hookers and blow", and continued its recession with a 3rd negative print, contracting at -0.1% as expected, while Portugal also missed third quarter growth estimates.

China's Industrial Output Growth In 2014 Worst In Over A Decade

Having told the world that it will not be undertaking system-wide rate cuts or stimulus - focusing more on idiosyncratic safety nets - last night's data from China is likely to have the PBOC frowning.  Fixed Asset Investment (lowest growth since Dec 2001) and Retail Sales (lowest growth since Feb 2006) missed expectations, but it was the re-slump in Industrial Production (after a small 'huge-credit-injection-driven' bounce in September) that is most worrisome as China's 2014 output is growing at its slowest since at least 2005. As Michael Pettis previously noted "China will be no different... growth miracles have always been the relatively easy part; it is the subsequent adjustment that has been the tough part." Of course, this is not the 'soft-landing' so many bulls have expected, which, if enabled by moar credit, as Pettis warned "will inevitably lead to a very brutal hard landing."

Oilpocalypse Now Sends Small Caps To Worst Day In 3 Weeks

WTI Crude plunged another 3.75% to as low as $74.06 today - the lowest since Sept 2010 and dropping at the fastest rate of collapse since Lehman. Airlines popped and Energy stocks dropped 2.7% (now worst sector of the year) but Small Caps were the worst performing major index of the day (turning first around 1030ET and dropping most in over 3 weeks). The S&P tested back into the red for the week but was VWAP-rescued twice. AAPL once again bid saved the Nasdaq. Treasury yields slid lower all day (down 2-3bps across the complex) but remain up 4-5bps on the week. The USD weakened very marginally (still up 0.25% on the week) led by EUR strength. Gold and silver were flat but copper tumbled back below $300 - its lowest close in a month (near lowest close since Jul 2010). HY Credit diverged bearishly this afternoon as stocks ramped to VWAP. VIX rose for the 3rd day in a row, back over 14. Dow record close, Russell biggest drop in 3 weeks.

If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle", Says Deutsche

Suddenly it is not just the shale companies that are starting to look impaired as a result of tumbling energy prices. According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized. "

Global Stocks Rise, US Futures At Fresh Record On Latest Reduction Of Growth Forecasts

The relentless regurgitation of the only two rumors that have moved markets this week, namely the Japanese sales tax delay and the "surprise" cabinet snap elections, was once again all over the newswires last night in yet another iteration, and as a result the headline scanning algos took the Nikkei another 1.1% higher to nearly 17,400 which means at this rate the Nikkei will surpass the Dow Jones by the end of the week helped by further reports that Japan will reveal more stimulus measures on November 19, although with US equity futures rising another 7 points overnight and now just shy of 2050 which happens to be Goldman's revised year-end target, the US will hardly complain. And speaking of stimulus, the reason European equities are drifting higher following the latest ECB professional forecast release which saw the panel slash their GDP and inflation forecasts for the entire period from 2014 to 2016. In other words bad news most certainly continues to be good news for stocks, which in the US are about to hit another record high (with the bulk of the upside action once again concentrated between 11:00 and 11:30am).

The 1937 Recession

This Austrian School interpretation of events fits the facts rather better than the monetarist account.  The lesson for policymakers today is uncomfortable.  For, on this view, if there is a parallel with the 1930s, the damage has already been done.  It was done when the Fed allowed funds available for investment in capital markets to balloon, not this time through unsterilized gold inflows but through its QE experiment. 

The St.Louis Fed Explains Why Banking Panics Are More Likely Under A Gold Standard

The U.S. and many other economies left the gold standard more than 40 years ago, yet advocates periodically call for its return, saying that it would curtail or prevent inflation. In these brief clips from the St. Louis Fed video series, David Andolfatto, a vice president and economist explains the gold standard noting "most economists believe a return to the gold standard would not be a wise policy," and "under the gold standard, banking panics are more likely to occur," and then pointing out somewhat stunningly that "however, the fiat system employed by the Federal Reserve has been largely successful in maintaining low inflation and price stability." Enjoy...

US Futures Drop As USDJPY Algos Take Profit On Headline Confusion

With the USDJPY repeatedly hitting 116.00 as a result of the same pair of headlines hitting either Reuters, the Nikkei or Sankei every 6 or so hours for the past 3 days, namely that Japan will delay its sales tax hike by almost two years, and that Abe is preparing early elections, perhaps the algos realized they were pricing in the same event about 4 times in one day, and unable to break the 7-year-high resistance level, slid dropping nearly 100 pips to just over 115 at least check, which may well be today's "tractor" level, which in turn has also dragged down both European stocks and US futures. But the thing that made the vacuum tubes really spark is that at a press conference yesterday in Beijing, Abe was quoted as saying that he "has never made any reference to the dissolution of parliament", this came after the chief cabinet secretary Suga saying that the decision on whether or not to go to the polls would be Abe’s only.

Dollar Profit-Taking Keeps Futures Flat In Quiet Session

Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on. That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.

China Aims For Official Gold Reserves At 8500 Tonnes

"China should accumulate 8,500 tonnes in official gold reserves - more than the US... Gold is money par excellence in all circumstances and will help support the renminbi to become an international currency as gold forms the very material basis for modern fiat currencies"

And The Biggest "Source Of Equity Demand In Recent Years", According To Goldman Sachs, Is...

Spoiler alert: it's not the Fed, even though the portfolio rebalancing channel courtesy of a $4.5 trillion Fed balance sheet certainly assured that the artificially inflated bubble in stocks, as a result of the Fed's own purchases of bonds, is unlike anything seen before (and to all those debating whether the bubble is in bonds or stocks, here is the answer: it is in both). The answer, according to Goldman's David Kostin is the following: "From a strategic perspective, buybacks have been the largest source of overall US equity demand in recent years."