Deal On, Deal Off: Futures Jump And Slide Amid Barrage Of Conflicting Trade Headlines

Stocks bounced around over the past 24 hours amid an optimistic/pessimistic headline barrage that triggered wave after wave of buying then selling then buying again, as the standoff between the world’s two largest economies expanded beyond trade, reducing the odds of a "phase-one" deal this year and forcing investors to shed risky assets.

The barrage of news, facts, rumor, innuendo, speculation and outright lies, started around noon on Wednesday, when Reuters reported that the trade deal could be delayed into 2020, while Global Times' EIC sniped periodically from his twitter account warning that China is ready for full-blown trade war. Futures then staged their latest miraculous comeback, gravitating around the "gamma gravity" of S&P 3,100 before the House passed the Bill of support for Hong Kong protestors just after 5pm, once again spooking futures, especially after Bloomberg reported that Trump would likely sign the bill. Futures then slid to session lows again before rebounding on a Bloomberg report that China's top trade negotiator Liu He was "cautiously optimistic" if "confused" at a dinner on Wednesday, even if Bloomberg failed to point out that due to the magic of time zones, the dinner took place some 12 hours earlier. A few hours later, around 2am, futures pushed to session highs after China's commerce ministry said that China will "strive to reach an initial trade agreement" with the United States as both sides keep communication channels open. The good mood lasted for about an hour, when senior Chinese diplomat Wawng Yi said China "resolutely opposes" US lawmakers passing the Hong Kong human rights bill. Then, pessimism quickly turned to optimism just after 5am when the WSJ reported that China invited US trade negotiators to Beijing for further talks. The burst higher quickly faded when algos read a little deeper into the article to find that the phone call invitation took place last week, long before all the latest turmoil took place. As the WSJ added "US negotiators said they would be willing to meet in person, but would be reluctant travel all the way to China, unless they make it clear that it would make commitments on IP protection, forced technology transfers and ag purchases." Needless to say, there was no trip.

All of this leaves us roughly where we started, with S&P futures virtually unchanged, as shown in the summary below.

And as the WSJ's Lingling Wei summarized this ping-ponging back and forth, this is what the main impasse is currently:

  • China resisting US request to guarantee ag purchase;
  • China balks at stronger language on IP and tech without guarantee on tariff rollback, while U.S. doesn't want to agree to tariff move until they get Chinese commitment.

Or as another twitter commentator summarized, "Both sides are locked in a game of chicken, and the clock is ticking towards Dec. 15th."

"The cracks in equity market sentiment widened a little further yesterday, although this setback remains modest in the context of the index gains enjoyed so far in Q4," said Ian Williams, economics & strategy research analyst at Peel Hunt.

So with November almost over, and a December 15 tariff hike looming without any plan for a meeting between Trump and Xi in place, let along agreement on a deal, where does all this leave us? As Reuters puts it, investors had hoped for a U.S.-China trade deal by mid-November but the absence of one, and Washington’s bill to support protesters in Hong Kong, has brought progress grinding to a halt. With U.S. President Donald Trump seen as likely to sign the bill, Deutsche Bank said this "could risk progress toward a phase one trade deal."

On the other hand, since neither news nor fundamentals matter, European shares and US equity futures bounced back from day lows in late morning trade as fresh reports emerged that China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing... only for it to be later revealed that the invitation took place last week.

In any case, the trade-sensitive German blue-chip index was down 0.2%, recovering from a 0.9% fall, after the Wall Street Journal reported Beijing hopes the round of talks can take place before next Thursday's Thanksgiving holiday in the United States. Thyssenkrupp AG shares tumbled, after the steelmaker said it was suspending dividend payments and warned of deepening losses; the move helped the Stoxx 600 fall to its lowest intraday level since Nov. 1; basic resources, financial services and technology lead the drop, dropping as much as 1%.

U.S. S&P 500 futures were marginally down, having dropped as much as 0.6% in Asian trade (see chart above). The S&P 500 had hit a record high as recently as Tuesday on trade deal hopes, but Washington’s move on Hong Kong derailed the rally.

Earlier in the session, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1% to a near three-week lows, with Hong Kong's Hang Seng tumbling 1.6% while Japan's Nikkei dropped 0.5%. Chinese mainland shares dropped 0.3%. Asian stocks retreated for a second day, led by technology firms, as the House passage of a bill supporting Hong Kong protesters stoked concern that trade talks between Beijing and Washington would collapse. Japan’s Topix edged lower for a third day as electric-appliance makers and pharmaceutical companies weighed on the gauge. The Shanghai Composite Index dropped, dragged lower by large insurers and banks. India’s Sensex fluctuated, with gains in financial stocks offsetting concerns about slowing economic growth.

Meanwhile, investors who had sought the safety of government bonds, the yen and gold in early trade shifted back from those positions after China reportedly invited U.S. negotiators for talks. German government bond yields bounced back from two-week lows, while the 10-year U.S. Treasuries yield rose to 1.7551% off three-week lows touched earlier in the day.

In FX, the Bloomberg Dollar Spot Index reversed modest gains to drop 0.1% on the day, still up 0.1% on the week so far after the optimistic comment’s by China’s chief trade negotiator. The Chinese yuan meanwhile cut some losses after hitting three-week lows, and were last trading at 7.0210 to the dollar in onshore trade. The Japanese yen, which rallied almost 1% from more than five-month lows, was flat against the greenback. The euro gained slightly and was last trading at $1.1083 ahead of the release of minutes of the European Central Bank's most recent policy meeting.

“Our short-term strategy remains fairly cautious, as markets are very narrowly driven — every positive piece of news in trade negotiations sends markets higher, while any disappointment sinks,” said Marija Veitmane, Senior Strategist at State Street Global Markets. “This makes it very hard for investors to build positions in risk trades.”

In commodities, oil prices dipped, paring some of the 2% gains made on Wednesday after a better-than-expected U.S. crude inventories report and as Russia said it would continue its cooperation with OPEC to keep the market balanced. Global benchmark Brent futures dropped 0.4% to $62.08. U.S. West Texas Intermediate (WTI) crude futures were down 0.4% at $56.73 per barrel in early Thursday trade. Spot gold gains to trade 0.2% lower at $1,468.91 per ounce as of 1127 GMT.

In geopolitics, US Defence Secretary Esper said US does not regret taking high road on halting joint drills, while he added that North Korea's response was not positive and that he hasn't heard of reports to withdraw troops from South Korea.

Turning to the day ahead, we’ll get the Philadelphia Fed’s business outlook for November, existing home sales and the leading index for October, and weekly initial jobless claims. Finally, the OECD will be releasing their economic outlook, and we’ll get earnings from Thyssenkrupp and Macy’s. Back on this side of the Atlantic, the opposition Labour Party will be launching their election manifesto today.

Market Snapshot

  • S&P 500 futures little changed at 3,110.25
  • STOXX Europe 600 down 0.7% to 401.20
  • MXAP down 0.7% to 163.42
  • MXAPJ down 1.1% to 520.98
  • Nikkei down 0.5% to 23,038.58
  • Topix down 0.1% to 1,689.38
  • Hang Seng Index down 1.6% to 26,466.88
  • Shanghai Composite down 0.3% to 2,903.64
  • Sensex down 0.2% to 40,565.32
  • Australia S&P/ASX 200 down 0.7% to 6,672.91
  • Kospi down 1.4% to 2,096.60
  • German 10Y yield unchanged at -0.346%
  • Euro up 0.1% to $1.1086
  • Italian 10Y yield fell 4.4 bps to 0.855%
  • Spanish 10Y yield rose 0.6 bps to 0.431%
  • Brent futures down 0.4% to $62.15/bbl
  • Gold spot down 0.2% to $1,468.85
  • U.S. Dollar Index down 0.1% to 97.80

Top Overnight News from Bloomberg

  • U.S. President Donald Trump is expected to sign legislation passed by Congress supporting Hong Kong protesters, setting up a confrontation with China that could imperil a long-awaited trade deal between the world’s two largest economies
  • China’s chief negotiator, Liu He, told one of the attendees at Wednesday night’s dinner that he was “confused” about the U.S. demands, but was confident the first phase of an agreement could be completed
  • U.S. House clears legislation showing support for pro-democracy protesters in Hong Kong by requiring an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status, defying objections from China
  • Labour leader Jeremy Corbyn will urge voters in the U.K. election to take down bankers and billionaires who “profit from a rigged system.” Corbyn will launch an all-out assault on the wealthiest people in Britain on Thursday, when he unveils an election manifesto
  • U.K. Prime Minister Boris Johnson blew the lid off his Conservative Party’s biggest election tax-cut pledge so far, in a chaotic and disjointed announcement in which he repeatedly got the details wrong
  • European Central Bank is nearing a decision to launch a review of its policy strategy, chief economist Philip Lane said Wednesday, as officials struggle to boost inflation despite years of massive stimulus
  • U.S. envoy Gordon Sondland said Rudy Giuliani demanded a quid pro quo from Ukraine by holding up a White House meeting unless the country’s leader announced investigations that would benefit Trump politically
  • Former Israeli military chief Benny Gantz failed to muster enough support in parliament to form a government and dislodge Prime Minister Benjamin Netanyahu, bringing the nation closer to its third election in a year
  • Oil jumps the most since the first of the month as American crude stockpiles at a key storage hub shrank by the most since August
  • U.K. government borrowing is on the rise even before the winner of next month’s election opens up the spending taps
  • Oil and gas companies operating in Norway raised their investment forecast for next year, thanks to more projects and also higher costs on some developments
  • Indonesia’s central bank left its key interest rate unchanged at 5% on Thursday after four straight cuts but reduced the proportion of funds banks must hold in reserve, a move to stimulate Southeast Asia’s largest economy
  • Former U.S. Secretary of State Henry Kissinger said the U.S. and China were in the “foothills of a Cold War,” and warned that the conflict could be worse than World War I if left to run unconstrained

Asian equity markets declined across the board with risk sentiment rattled by increased trade pessimism after source reports noted the US-China phase one deal may not be completed this year and US President Trump suggested China is not stepping up to the level he wants. In addition, the House passage of the Hong Kong rights bill which President Trump is expected to sign, added another front to the trade uncertainty. ASX 200 (-0.7%) and Nikkei 225 (-0.5%) traded negatively with Australia dragged by underperformance in trade sensitive sectors such as tech, materials, and industrials, while Tokyo exporters suffered the ill-effects from safe-haven flows into the domestic currency. Hang Seng (-1.6%) and Shanghai Comp. (-0.3%) were also downbeat on the trade-related doubts and with China media outlets continuing to voice their backlash to the US ‘interference’, while the losses in Hong Kong initially snowballed as all components in its benchmark index briefly resided in the red, although there was mild relief following comments from Chinese Vice Premier Liu He who was cautiously optimistic about reaching an agreement and remained confident despite being confused regarding US demands. Finally, 10yr JGBs were underpinned by the early safe-haven demand although gains were later capped as advances in T-notes stalled around the 130.00 level and with the BoJ only in the market today for Treasury Discount bills.

People's Daily commentary stated the Hong Kong Human Rights and Democracy Act is a piece of wastepaper that interferes in China's internal affairs, while China Global Times tweeted that the US Senate's move on Hong Kong bill will hurt US investments in Hong Kong and may lead to retaliation citing an expert. Elsewhere, CNBC's Yoon tweeted that China will double down on attacks of US Congress after the House passed legislation supporting Hong Kong protesters, while she suggested both China and the US will not want to link the Hong Kong bill to current trade talks and also tweeted the Chinese feel the US is the one that needs to make the next move with tariff rollbacks to show sincerity, make deal “balanced” and give Beijing face.

Chinese Premier Li said China's economy maintained stable performance this year and that China will keep macro policies stable, while it needs to use all possible means to lower real interest rates. Premier Li added China will stick to its reform agenda and that both foreign and domestic companies will be treated as equals regardless of ownership structure.

Top Asian News

  • Bankers Say Hong Kong’s Rich Are Ensuring Their Cash Can Escape
  • Czech Tycoon’s Home Credit Cancels $1.5 Billion Hong Kong IPO
  • China Still Has Room for Monetary Policy, Ex-PBOC Head Zhou Says
  • India to Privatize Oil Refiner, Ship Owner in Big Sales Push

Major European bourses (Euro Stoxx 50 -0.7%) are lower across the board but off worst levels, as hopes for a prompt US/China phase 1 trade accord fade on a series of negative developments. However, global equities were lifted off overnight lows on more upbeat comments from Chinese Vice Premier Liu, who said he is cautiously optimistic about agreeing a Phase One deal with US and remains confident but confused about US demands, whilst the WSJ report on China inviting US negotiators for a meeting also aided sentiment. Sectors are mostly in the red, barring Telecoms (-0.1%), with the more defensive Utilities (+0.2%) and Consumer Staples (-0.2%) holding up slightly better. In terms of notable movers; Tobacco names Imperial Brands (+0.8%) and British American Tobacco (+3.0%) received a boost from the news that US regulators have dropped a plan to sharply reduce nicotine content in cigarettes, with the former affected by ex-divs. Topping the Stoxx 600 chart is Centrica (+8.2%), who maintained its FY outlook, which some desks noted is a positive turn around after a series of downgrades to its outlook. Conversely, the notable Stoxx 600 loser is Royal Mail (-16.2%), who warned that revenue and cost headwinds could possibly result in a break-even or loss-making position for UK business in 2020-21 whilst warnings that its transformation plan to expand its parcels business internationally was behind schedule. Another laggard is ThyssenKrupp (-10.3%), sinking post-earnings on the news that the Co. will not achieve its medium-term targets set for 2020/21, with a weak economy weighing on margins, thus its peers Salzgitter (-1.4%) and ArcelorMittal (-2.2%) are lower in sympathy. Elsewhere, Fiat Chrysler (-1.8%) is under pressure after General Motors yesterday filed a racketeering lawsuit against Fiat Chrysler and three former executives, asserting that it bribed UAW officials to get more favourable contract terms. A Fiat Chrysler spokesperson said that the Co. believes GM is trying to disrupt its merger with PSA (-0.6%), who opened lower in sympathy but have since come off worst levels. Separately, LVMH (-1.1%) upped its offer for Tiffany & Co. to USD 130/shr the previous USD 120/shr offer, prompting Tiffany to open its books and thus upping the chances of a deal, according to sources. Finally, Sanofi (+1.6%) sharply reversed early losses on the news that the Co. is mulling options for its USD 30bln consumer health unit.

Top European News

  • U.K. Budget Deficit Widens Before Election Spending Bonanza
  • Bouygues Is Said to Seek Partners for $2.2 Billion Fiber Work
  • Gazprom Unit Offers $3.3 Billion of Gas Giant’s Shares Today
  • CMA Opens Investigation Into Hasbro, Entertainment One Deal

In FX, the broad Dollar and Index have drifted off overnight highs in early EU trade in wake of upbeat comments from China’s MOFCOM, who reaffirmed determination to reach a Phase One deal whilst dismissing rumours of disagreements in discussions. This follow comments from Chinese Vice Premier overnight who expressed cautious optimism regarding a deal. However, markets are gathering focus around the Hong Kong Human Rights bill, which was almost unanimously passed by the House overnight, with sources stating that US President Trump plans to sign the bill, which could be on his desk as soon as today. The bill could potentially imperil the trade deal between the two nations and is facing fierce backlash from Chinese officials. DXY remains below 98.00 (having shown little reaction to the FOMC Minutes) and has dipped under its 21 DMA and WMAs both coinciding around 97.86-87 to a session low of 97.80. The CNH meanwhile remains little changed on the day, albeit choppy as it balances trade optimism with potential ramifications from the HK bill. USD/CNH trades near the bottom of its current 7.0350-0530 range having earlier dipped below its 100 DMA (7.0428). CNH then saw a mild bout of strength amid sources reports noting that China last week invited US negotiators for further talks.

  • AUD, NZD, JPY - All modestly firmer and moving in tandem to the weakening USD as conflicting trade sentiment provide little to move on, although late source reports on China inviting US negotiators underpinned the antipodeans and influence mild outflow in the JPY. AUD climbed off overnight lows (0.6785) to reclaim 0.6800+ status ahead of its 50 DMA at 0.6812 (with AUD 1bln expiring at strikes 0.6800-10) whilst its Kiwi counterpart remains above 0.6400 (0.6424 current intraday high) having earlier tested the figure to the downside. Similarly, safe-havens remain firmer; USD/JPY trades just above 108.50 (current intraday range 108.30-66) looking ahead to a barrage of option expiries at 108.25-35 (1.7bln), 108.40-50 (2.7bln) abd 108.65-75 (1.3bln), whilst technicians will be eyeing resistance and support 108.74 (21 DMA) and 108.27 (50 DMA) respectively.
  • EUR, GBP - Once again, Sterling and the Single currency move in lockstep to the Dollar with little on the domestic front to spark individual movements ahead of the Labour manifesto release later today. Cable took out touted offers at 1.2945 ahead of more at 1.2950 with around 1bln in options expiring at 1.2955-65 and a further 1.8bln around 1.2990-1.300. Meanwhile, EUR/USD eclipsed its 100 DMA at 1.1087-88 in early trade with the next level to the upside its 21 WMA at 1.1094. Large options expiries for the pair reside at 1.1090 (1.4bln) and 1.1100-10 (1bln) for today’s NY cut, with little fireworks expected from the ECB Minutes.

In commodities, the crude complex is modestly lower on Thursday morning, reflective of the markets cautious tone following a litany of mixed US/China trade updates, although in the context of yesterday’s post bullish EIA Inventory data upside the moves are relatively small. Front month WTI and Brent contracts are subdued under 57/bbl and modestly above USD 62/bbl, some way off yesterday’s USD 57.40 and USD 62.80/bbl highs. In terms of crude specific news flow; the Norwegian Q4 oil investment survey revealed that 2019’s figure was revised slightly higher NOK 183bln, while the 2020 figure came in at NOK 182.7bln. Although lower than their expectations, Nordea notes that “the survey did not yet cover some big field developments such as Balder X which we assumed would be included”. In terms of metals, gold was consolidating between the USD 1470-1475/oz levels but saw some mild downside in recent trade on the WSJ source article. Market caution is, however, exerting downward pressure on Copper, which is heading towards weekly lows around USD 2.614/lbs after hitting weekly highs yesterday at USD 2.666/lbs.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 6, prior 5.6
  • 8:30am: Initial Jobless Claims, est. 218,000, prior 225,000; Continuing Claims, est. 1.68m, prior 1.68m
  • 9:45am: Bloomberg Consumer Comfort, prior 58; Bloomberg Economic Expectations, prior 49
  • 10am: Leading Index, est. -0.2%, prior -0.1%
  • 10am: Existing Home Sales, est. 5.49m, prior 5.38m; Existing Home Sales MoM, est. 2.04%, prior -2.2%

DB's Jim Reid concludes the overnight wrap

I’ve been trying to predict the future of markets for nearly 25 years now and for the vast majority of that time have written an annual outlook. The fact that we published a new credit strategy one yesterday for 2020 suggests that I may not have got it 100% right every single year in the last quarter of a century and therefore still need to work. So maybe the people you should listen to for the year ahead no longer have to write outlooks!! Assuming you can’t find them then here is our view. Within the team we all think spreads will be wider in 2020 but there is a bit of disagreement on the magnitude. At one end Michal thinks that whilst valuations are stretched, it’s too early to price in the end of the cycle and he only has mild widening. At the other end I think the US cycle looks more vulnerable the nearer you get to 2021 - partly but not solely due to 2019’s yield curve inversions. So no certainties here but elevated risks. The 2020 US election could also be a big risk to markets depending on the Democratic candidate chosen. This risk could of course dissipate early in 2020 or could build. We don’t know yet but probability weighted outcomes suggest some risk premium is needed for it. In the note we show our trade preferences. For example, we expect further decompression between IG and HY, prefer US to EU HY and like Sterling IG. For more see the link here . This is the top level macro credit strategy view. Next week the team will do more detailed IG and LevFin 2020 notes with much more granularity about these universes.

Onto markets and back on October 11th, President Trump and China Vice President Liu He had a meeting and public briefing at the White House to confirm the “Phase One” arrangement. Indeed, looking back at the transcript this line from Mr Trump stands out, “We have come to a deal, pretty much, subject to getting it written. It’ll take probably three weeks, four weeks, or five weeks. As you know, we’re going to be in Chile together for a big summit. And maybe it’ll be then, or maybe it’ll be sometime around then.”

That summit in Chile was supposed to be last weekend before the domestic issues there led to it being cancelled. Nevertheless, it is now nearly six weeks since that trade breakthrough and rather than the market simply wondering when it will be signed there has to be a small but growing risk as to whether it gets signed at all.

Indeed, US markets were volatile again yesterday as trade news reverberated and outweighed earnings results. The S&P 500 dropped as much as -0.92% before retracing to end -0.38%. The DOW and NASDAQ were down a similar amount, -0.51% and -0.40% respectively. The initial move lower was driven by a Reuters article saying that a US-China trade deal might not get finished this year, citing sources close to the White House. However, Deputy Press Secretary Judd Deere then came out and said that “negotiations are continuing and progress is being made,” which arrested the decline and helped equities stabilise. For his part, President Trump spoke to reporters and said that he is fine with the status quo situation of tariffs on imports from China. He also said that “China would much rather make a trade deal than I would, I don’t think they’re stepping up to the level that I want.” Separate from the conflicting headlines about an imminent deal, the longer-term issue of US concern over the situation in Hong Kong came again to the fore, as the House of Representatives unanimously passed the same bill that the Senate passed unanimously on Tuesday.

The bill will now go straight to President Trump’s desk quicker than expected, since the two chambers no longer need to reconcile differences in language. This will force Trump to decide whether to accept the legislation, which could risk progress towards a phase one trade deal, or veto it and possibly face an override if two thirds of each chamber votes to overrule his veto. If he takes no action over the next ten days, the bill will automatically become law anyway. Bloomberg have a story this morning saying that “a person familiar” with events say he will sign it.

As a reminder, the bill requires the US State Department to certify each year whether Hong Kong should retain its special status and also places sanctions on those involved in human rights abuses. Reacting to the bill, the HK government said overnight that allowing the legislation to become law “would send the wrong signal to violent protesters, which doesn’t help in cooling the situation.”

Risk off is the theme in Asia this morning as a quick refresh of our screen shows that the Nikkei (-0.70%), Hang Seng (-1.65%), Shanghai Comp (-0.48%) and Kospi (-1.71%) are all trading in the red alongside almost all other markets in the region. However, most indices are off their respective intraday lows on positive trade comments by China’s top trade negotiator Liu He (more below). Elsewhere, futures on the S&P 500 are down -0.25% and yields on 10y USTs are down -1.5bps.

We also got a fresh set of trade headlines overnight with China’s Vice Premier Liu He saying in a private speech that he was “cautiously optimistic” about reaching a phase one deal. However, the speech which got reported by Bloomberg overnight, was made before the latest developments in the HK bill. In other news, President Trump said that he’s “looking at” exempting the iPhone maker from tariffs on goods imported from China while touring an Apple Inc. assembly plant in Texas.

Back to yesterday and in Europe, the STOXX 600 (-0.41%) also posted a small loss, while the DAX (-0.48%) was down similarly. Sovereign bonds advanced with bund yields down -0.7bps, while BTPs outperformed (-4.3bps).Ten-year Treasuries fell -4.1bps, while the US yield curve flattened for a 6th successive session, with the 2s10s -2.3bps to 16.2bps. Oil prices gained +2.45%, as official US data showed a smaller-than-expected build in stockpiles. The details for the report were also bullish, with a large increase in exports and a jump in refinery utilisation.

Regarding those positive earnings, both Target (+14.08%) and Lowe’s (+3.88%) bucked the previous day’s trend and surged to record highs yesterday as both companies raised their forecasts. The positive releases were in contrast to the poor Home Depot and Kohl’s announcements the previous day. On the whole, it’s been a pretty good earnings season, and of the 468 S&P 500 companies who’ve reported, 79% have reported a positive surprise on earnings for an aggregate beat of 4.75%. And in Europe, of the 414 in the STOXX 600 who’ve released, 58% have had a positive earnings surprise for an aggregate beat of 3.22%.

The FOMC minutes yesterday were full of interesting tidbits but bare on new substance. Officials continue to see risks as tilted to the downside, though some “have eased a bit.” Most officials now see rates as “well calibrated” after the October cut, though a couple of officials who supported the cut viewed it as a close call. There was an extended discussion about alternative monetary policy tools, with all participants agreeing that negative interest rates are currently an unattractive option. Many raised concerns about the prospect of capping long-term yields in a yield curve control-type framework, but a majority “saw greater benefits in using balance sheet tools to cap shorter-term interest rates and reinforce forward guidance.” As for nearer-term policy signals, there were disagreements about the pros and cons of starting a standing repo facility, which probably reduced the likelihood that any new program is announced before year-end.

In Europe, ECB Chief Economist Lane said that the institution is likely to launch a review of its policy strategy, possibly in a similar way to the Fed’s current policy review. He said that “we will make decisions fairly soon,” but emphasised that they want to take their time designing it before implementation.

Elsewhere in Europe, the European Commission gave its opinions on the draft budgets of Euro Area members yesterday. For 8 countries, including France, Italy and Spain, the Commission said that “the Draft Budgetary Plans pose a risk of non-compliance with the Stability and Growth pact in 2020.” Furthermore, their document said that “Belgium, Spain, France and Italy show declining or even negative primary balances, with debt only marginally declining or not declining at all, according to the Commission 2019 autumn forecast. … they are not taking sufficient advantage of recent declines in interest expenditure in order to reduce their debt ratios.” Italy in particular was identified as a risk, with the document saying that the “short-term sustainability of Italian public finances appears vulnerable to increases in the cost of debt issuance.”

Before we wrap up with yesterday’s data and the day ahead, yesterday we went live with the latest podcast from our Podzept series, where DB’s head of European Utilities Research, James Brand, shares his insights on ‘decarbonising heating’. Heating and cooling represents around half of all EU energy use and almost a quarter of all EU emissions. If European countries are serious about substantially reducing emissions, emissions from heating will need to be tackled. Click here to access or subscribe to Podzept on iTunes or Spotify.***

Recapping yesterday’s data releases, we saw further positive signs for US housing in the MBA’s weekly mortgage application index. Although weekly mortgage applications were down -2.2% last week, the purchase index rose to 270.4, its highest level since early July. It comes after the previous day saw US building permits rise to their highest level since the crisis. In terms of other data, German producer prices fell -0.6% yoy (vs. -0.4% expected), which was the biggest fall since September 2016. Meanwhile in Canada, inflation remained at +1.9% in October, in line with expectations, which comes ahead of Bank of Canada Governor Poloz speaking later today, so it’ll be interesting to see to what extent the possibility of rate cuts at the December meeting are left open. The current market pricing for a cut is at 22.7%.

Turning to the day ahead, from central banks we can expect the ECB’s account of their October monetary policy meeting, as well as policy decisions from South Africa and Indonesia. We’ll also hear from the ECB’s Mersch and de Guindos, along with the Fed’s Kashkari and Mester. In terms of data, we’ll get the Euro Area’s advance consumer confidence reading for November, French business confidence for November and the UK’s public finances for October. And from the US we’ll get the Philadelphia Fed’s business outlook for November, existing home sales and the leading index for October, and weekly initial jobless claims. Finally, the OECD will be releasing their economic outlook, and we’ll get earnings from Thyssenkrupp and Macy’s. Back on this side of the Atlantic, the opposition Labour Party will be launching their election manifesto today.