Global Stocks Tumble, Asia Plunges On Chinese Commodity Carnage

The euphoria of the past month has ended with a thud and BTFDers are strangely missing as the commodity chill out of China (which overnight became full blown carnage), has unleashed a global risk-off phase ahead of today's critical CPI data, resulting in broad and sharp selling across global markets, as European stocks followed declines in Asia while bonds and gold advanced. The equity retreat, which spread to U.S. stock futures, started with last night's sharp puke in Chinese commodities.

As a result, S&P 500 futures dropped 0.5% after U.S. stocks fell for a third time in four days, while Japan’s recent euphoria - which attracted a record influx of foreign investors - is now a distant memory with the Topix falling for the fifth day, its longest losing streak this year, as it declined 2%, while European stocks tumbled for a seventh consecutive day, the worst losing streak since November 2016, to a two month low with the Stoxx 600 down 1%.

“The decline by U.S. equities led by energy shares is having a knock-on effect, dampening sentiment in sectors related to energy and industry,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. “Broadly speaking equities had enjoyed an almost uninterrupted run for the past few months, so we are seeing a bit of a correction finally emerging.”

"So far we don’t see that much disruption in sentiment, so I think we are just taking a bit of froth off the top of the market at the moment,” Michael Metcalfe, global head of macro strategy at State Street Global Markets, said on Bloomberg TV. “It would be dangerous to say this is the unwinding of a bubble - the fact that it’s being led by Japan actually tells you that, because there isn’t a valuation case to sell Japanese stocks.”

The cautious tone has settled into markets in recent days as new obstacles emerged to the U.S. overhauling taxes and after many stock gauges approached record highs. Attention now turns to data coming on U.S. consumer prices and retail sales for further clues on US economic strength after the flattest American yield curve in a decade raised concern that growth will slow. Amusingoy, amid the equity pullback, Morgan Stanley advised staying overweight stocks and avoiding the temptation to sell even as valuations appear stretched. Current indicators used by the New York-based bank’s cross-asset strategy team are showing strong macro-economic data favoring a tilt to shares, with low allocation to high-yield credit.

Asian equities fell, with the regional benchmark poised for its steepest four-day decline this year, as a slump in commodity prices weighed on materials and energy producers shares. The MSCI Asia Pacific Index dropped 1% percent to 167.97 with material and energy sub-gauges each down at least 1.7 percent. Japan’s Topix capped its longest declining streak since September 2016, while Hong Kong’s Hang Seng Index lost 1 percent. Moderation in China’s growth and rising odds of U.S. rate hikes are putting the brakes on Asia’s world-leading rally this year. A Bloomberg gauge of commodity prices extended Tuesday’s steepest slump in six months after Chinese data pointed to slowing industrial output, fixed-asset investment and retail sales. The MSCI Emerging Market Index fell 0.4%, hitting the lowest in almost three weeks with its fifth consecutive decline.

"Commodity prices are sinking on rate-hike expectations as well as China data that missed some analyst forecasts," said Hao Hong, Hong Kong-based chief strategist at Bocom International Holdings Co. "Investors are taking profits after rallies." Mitsubishi Gas Chemical Co. slumped 4.3 percent in Tokyo for its biggest drop in more than seven months, while PetroChina Co. lost 3.1 percent in Hong Kong.

European stocks followed in Asia's example, falling in brisk volumes, with basic resources and energy stocks falling the most on the back of weaker commodity prices, as investors assess the global equity pull-back. The Stoxx Europe 600 Index retreated 0.6% to a near two-month low, breaking below its 200-day moving average for the first time since early September. All but one sector are in the red, with banks among the worst performers as bond yields weaken. The Stoxx 600 is heading for its longest losing streak since November 2016. The U.K.’s FTSE 100 Index decreased 0.6% , hitting the lowest in almost seven weeks with its fifth consecutive decline. Germany’s DAX Index dipped 1.3%, reaching the lowest in almost seven weeks on its fifth consecutive decline.

European stocks fall in brisk volumes, with basic resources and energy stocks falling the most on the back of weaker commodity prices, as investors assess the global equity pull-back. The Stoxx Europe 600 Index retreats 0.6% to a near two-month low, breaking below its 200-day moving average for the first time since early September. All but one sector are in the red, with banks among the worst performers as bond yields weaken. The Stoxx 600 is heading for its longest losing streak since November 2016. Mining and oil-related stocks set the tone, as the Bloomberg Commodities Index continued its longest slide since June.

Benchmark WTI crude fell through $55 a barrel after industry data showed U.S. stockpiles unexpectedly rose last week and as Russia was said to waver on extending output cuts. The dollar traded near a three-week low and Treasuries led bond gains. S&P 500 futures dropped 0.6 percent.

The euro climbed to its highest level in more than three weeks, the EURUSD rising above 1.1800 as increased confidence in the currency bloc was underpinned with concerns that U.S. inflation data due Wednesday may further pressure the dollar. The common currency rose a sixth day, set for its longest winning run since May 2016, as demand for upside exposure intensified in both spot and options markets. Real-money names returned from the sidelines and added fresh longs, while macro accounts also bid the euro, traders in Europe and London told Bloomberg.

Pressured by the euro’s surge, the dollar index against a basket of six major currencies lost about 0.7 percent overnight. It last stood flat at 93.870. The greenback was 0.2 percent lower at 113.230 yen after pulling back from a high of 113.910 the previous day.  The yen as well as Japan’s equity and bond markets showed little reaction to Wednesday’s GDP data. Japan’s economy grew for the seventh straight quarter during the July-September period, although this was tempered somewhat as private consumption declined for the first time since the last quarter of 2015.

The immediate focus for the dollar, and a potential catalyst, was data on U.S. consumer prices due later in the global day.

Ahead of today's closely watched CPI update out of the US, overnight the Fed's Evans said that the Fed should acknowledge a much greater chance of 2.5% inflation, further stating that he sees solid US economic growth in 2018 and sees a big risk in not getting inflation to 2% before the next recession hits.

Elsewhere, the US Senate Finance Committee Chair Hatch unveiled the modified Chairman’s mark of Senate’s tax overhaul plan, which:

  • Repeals Affordable Care Act’s individual mandate tax, according to release from committee
  • Increases child tax credit from the current $1,000 to $2,000
  • Reduces middle income tax rates from 22.5% to 22%; 25% to 24%; and 32.5% to 32%

The White House is said to strongly support the House tax bill.

Crude oil prices stretched losses, weighed by forecasts for rising U.S. crude output and a gloomier outlook for global demand growth in a report from the International Energy Agency. U.S. crude futures were down 1.1 percent at $55.07 per barrel and on track for their fourth day of losses. Brent lost 1.3 percent to $61.42 per barrel. With oil prices having slid steadily from 28-month highs scaled last week, commodity currencies came under pressure.

On today's calendar, investors will be looking for consumer prices, retail sales, MBA mortgage applications, Empire State manufacturing, business inventories, and Treasury net capital flows.  Tax overhaul update: revisions bring the plan in line with Senate’s tight fiscal constraints, but may create complications for President Donald Trump who have pitched the plan as benefiting the middle class. Several ECB officials speak with Executive Board member Peter Praet chairing the closing policy panel at an ECB conference in Frankfurt.

Market Snapshot

  • S&P 500 futures down 0.5% to 2,566.25
  • STOXX Europe 600 down 1.0% to 380.00
  • MSCI Asia down 0.9% to 168.14
  • MSCI Asia ex Japan down 0.6% to 552.69
  • Nikkei down 1.6% to 22,028.32
  • Topix down 2% to 1,744.01
  • Hang Seng Index down 1% to 28,851.69
  • Shanghai Composite down 0.8% to 3,402.52
  • Sensex down 0.6% to 32,750.40
  • Australia S&P/ASX 200 down 0.6% to 5,934.24
  • Kospi down 0.3% to 2,518.25
  • German 10Y yield fell 2.8 bps to 0.369%
  • Euro up 0.4% to $1.1845
  • Italian 10Y yield fell 0.5 bps to 1.563%
  • Spanish 10Y yield fell 0.9 bps to 1.525%
  • Brent Futures down 1.1% to $61.51/bbl
  • Gold spot up 0.4% to $1,285.26
  • U.S. Dollar Index down 0.4% to 93.47

Top Overnight News

  • Chicago Fed President Charles Evans says policy makers should take a more aggressive public stance toward boosting price gains; "harder for me to feel comfortable with the idea that weak inflation is simply transitory"; concerned something more persistent is holding down inflation today
  • While U.K. unemployment rate stayed near a 42-year low, there were signs that the labor market may be slowing as the number of people in work fell for the first time in almost a year
  • Britain’s PM May is heading for a showdown with her own Tory party over what one member of Parliament called her “mad” plan to write the date of Brexit into British law
  • The armed forces seized power in Zimbabwe after a week of confrontation with President Robert Mugabe’s government and said the action was needed to stave off violent conflict in the southern African nation that he’s ruled since 1980
  • U.K. Sept. Average Weekly Earnings: 2.2% vs 2.1% est; Unemployment Rate 4.3% vs 4.3% est.
  • ECB’s Hansson: we feel more and more confident that inflation will eventually reach the levels consistent with our aim; short-term economic risks are to the upside
  • Australia 3Q wage prices 0.5% vs 0.7% est; y/y 2.0% vs 2.2% est
  • API inventories according to people familiar w/data: Crude +6.5m; Cushing -1.8m; Gasoline +2.4m; Distillates -2.5m
  • North American Free Trade Agreement (Nafta) negotiators from the U.S., Canada, and Mexico meet in Mexico City for round five of discussions through Nov. 21.
  • The armed forces seized power in Zimbabwe after a week of confrontation with President Robert Mugabe’s government
  • House leaders cleared the way for a Thursday vote on their tax-overhaul bill as Senate tax writers released a late-night draft that would make many individual breaks temporary and repeal a key part of the Obamacare law
  • Airbus SE announced the biggest commercial-plane transaction in its history, securing an order for single-aisle aircraft valued at nearly $50 billion at the Dubai Air Show, outdoing Boeing Co.’s own $20 billion mega-deal
  • Amid the worst sell-off in months for junk-rated corporate bonds, money manager Loomis Sayles & Co. has been selectively buying the debt
  • Warren Buffett continued to trim a once-major investment in International Business Machines Corp. while adding to newer holding Apple Inc. in the third quarter
  • OPEC has yet to convince Russia that it’s necessary to reach an agreement to extend oil-output cuts at a meeting in Vienna later this month, as officials and oil bosses in Moscow still haven’t decided how long the production deal should last
  • Deutsche Bank AG has attracted a new top investor whose identity will probably be revealed within days
  • SandRidge Energy is nearing agreement to buy Bonanza Creek Energy for about $750 million in cash-and-stock deal, Wall Street Journal reports citing unidentified people familiar

Asian stocks slumped sharply, following the lead of their US counterparts, as negative risk sentiment and the stronger domestic currency weighed on Japan’s Nikkei 225 which finished 1.6% lower, although this was off of worst levels. In Australia, the ASX 200 fell 0.6%, with energy stocks and resource names leading the way on the back of softer oil prices and yesterday’s Chinese data respectively. Chinese and Hong Kong markets also fell afoul of risk off sentiment (Shanghai Comp -0.6%, Hang Seng -0.7%), with the tumble in Shanghai metals heaping further weight on industrial names. Bonds edged higher in the US, Japan & Australia, with Australian 3-year bond futures experiencing notable buy side flow in the wake of the soft wage data. Japanese GDP QQ (Q3) 0.3% vs. Exp. 0.3% (Prev. 0.6%); Australian Wage Price Index QQ (Q3) 0.5% vs. Exp. 0.7% (Prev. 0.5%); New Zealand Finance Minister Robertson reiterates that it is the government's intention to reduce net debt to 20% of GDP within 5 years. The RBNZ has increased the capital requirements for Westpac's NZ division as the firm did not comply with regulations.

Top Asian News

  • China Throws Lifeline to Builders Facing Record Wall of Debt
  • China Seen Supporting Bonds as PBOC Steps Up Liquidity Injection
  • Tencent Delivers a Blowout Quarter as Honour of Kings Shines
  • India Advances BS-VI Fuel Norm in Delhi to Combat Pollution
  • Korea Factories Operating Normally After Big Quake
  • China Is Said to Allow Panda Bond Issuers to Use U.S. GAAP Rules
  • Investors Lose Faith in Asia’s Top Stock as Downgrades Mount
  • Freeport Indonesia Shuts Main Road to Grasberg After Shooting
  • Aluminum Supply Cuts in China Set to Disappoint This Winter

European indices lower this morning, with almost every sector in negative territory. A typical risk-off session thus far, with financials and commodity-related names taking the most points off EU bourses. Not all doom and gloom however, as Airbus shares have been flying high after they confirm the largest aircraft deal in its history, valued at over USD 40bln. Gilts initially firmer in wake of the latest jobs and wages update, and indeed inched a bit closer to 125.00 before easing back again, while the Short Sterling strip has held relatively modest gains of 1-2 ticks. The inference is that unemployment and pay did not top estimates by enough to prompt a reaction or change the near term outlook for the BoE, albeit encouraging. Moreover, Bunds and USTs are inching further ahead (former just up to a fresh 162.86 Eurex high) amidst a broader safety flight, which has now seen the 10 year UK benchmark break through 125.00 to 125.09. Germany supply up next, but in the context of risk aversion this should cause any major digestion issues.

Top European News

  • EU Is Said to Be Looking to 2018 Summits for Brexit Breakthrough
  • Weimer Is Said to Be Lead Candidate for Deutsche Boerse CEO Post
  • U.K. Labor Market Shows Signs of Slowing as Employment Falls
  • VW Raided by German Prosecutors Over Labor Chief’s Pay
  • TalkTalk Plunges as Earnings Outlook Dims on Customer Costs
  • Atlantia CEO Says Room to Make Abertis Offer Competitive: FT
  • AstraZeneca’s Fasenra Gets FDA OK for Severe Eosinophilic Asthma
  • Israel Plans to Issue Tax Bills to Google, Facebook: Haaretz

In FX, cable Retreated from session highs, consolidating back inside the day’s range. In DXY trading, d Dovish comments from Fed’s Evans hardly helped to ease the Greenback’s pain as he bemoans the fact that US inflation remains below target and warns that it may not hit mandate before the next recession. The Index has duly declined further from the 94.000 level and is threatening 93.500 on the downside. It's onwards and upwards for the Euro with 1.1800 now surpassed and techs turning outright bullish given the break of a negative channel. The early morning upside target of 1.1837 has been breached with the October peak of 1.1880 in sight. EURGBP making a firm breach of 0.90 has weighed on GBP. GBP briefly above 1.32 above post UK jobs data, however wages still continue to lag inflation, while some investors may be looking at the retail sales release tomorrow which has some growing pessimism given how weak the retail sector has been over the recent months. In JPY moves, benefiting from its flight to quality status (along with the Chf) and breaking below the recent 113.00-114.00 range vs the Greenback to around 112.80 and closer to downside option expiries at 112.50 (460 mn). The AUD was a marked and sole underperformer vs the US Dollar among majors, largely due to weaker than forecast Australian wage data, hot on the heels of comments alluding to that fact from RBA deputy Governor Debelle. Aud/Usd has now slipped through 0.7600 where macro offers were evidently seen, and bears are looking at 0.7571 chart support next. Note, a 0.7650 option expiry today (470 mn).

In commodities, oil prices off around 1% following last night’s API report which showed a rather large build of 6.5mln in US crude inventories, while analysts had expected a drawdown of 2.2mln.

Looking at the day ahead, the big focus will be the October CPI print while October retail sales, November empire manufacturing and September business inventories are also due. There is plenty more central bank speak scheduled with the ECB’s Lane, Praet and Hanson all due along with the Fed’s Evans and the BoE’s Haldane. NAFTA negotiators from the US, Canada and Mexico are also scheduled to meet for round 5 of discussions.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 0.0%
  • 8:30am: US CPI MoM, est. 0.1%, prior 0.5%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
    • US CPI YoY, est. 2.0%, prior 2.2%; Ex Food and Energy YoY, est. 1.7%, prior 1.7%
    • Real Avg Weekly Earnings YoY, prior 0.63%; Real Avg Hourly Earning YoY, prior 0.7%
  • 8:30am: Empire Manufacturing, est. 25.1, prior 30.2
  • 8:30am: Retail Sales Advance MoM, est. 0.0%, prior 1.6%; Retail Sales Ex Auto MoM, est. 0.2%, prior 1.0%
    • Retail Sales Ex Auto and Gas, est. 0.3%, prior 0.5%; Retail Sales Control Group, est. 0.3%, prior 0.4%
  • 10am: Business Inventories, est. 0.0%, prior 0.7%
  • 4pm: Total Net TIC Flows, prior $125.0b; Net Long-term TIC Flows, prior $67.2b

DB's Jim Reid concludes the overnight wrap

So will today’s US inflation numbers give markets an early Xmas present after a ‘bah humbug’ last four trading days which has carried on overnight in the Asian session. At the moment US CPI is probably the most important data release of the month so the stakes are high. The central bank put can continue to be withdrawn slowly and possibly be put back in place if needed whilst inflation remains well behaved. By well behaved the sweet spot for risk markets is a bias for slightly missing expectations more often than it beats but without ever threatening deflation. This describes 2017 perfectly so far. US CPI has missed expectations for 6 out of the last 7 months, with the other month being in-line. Today we expect Core CPI (+0.2% mom vs. +0.1% previous) to firm in line with consensus but the year-over-year growth rate should remain at 1.7%, down from 2.3% at the beginning of the year (headline 2.0% yoy expected). While our economists anticipate core inflation to remain tame near-term, there are signs that we are reaching an inflection point though. Over the last 20 years US inflation has lagged GDP by around five to six quarters, so we think that a lot of the misses this year can be attributed to the weak growth seen at the back end of 2015/ early 2016. The stronger growth seen in the US and globally post H2 2016 should start to impact inflation soon. Today’s print might be too early and our strategists’ models point to a weak 0.2% core reading (0.16% unrounded) so the risks might be on the downside near term but we think to the upside in 2018.

Ahead of this, the US PPI was strong but European inflation data weak. In the US, the headline October PPI was 2.8% yoy – the highest since February 2012. Core PPI was also above expectations at 0.4% mom (vs. 0.2%) and 2.4% yoy (vs. 2.2% expected). In the details, the healthcare services component of the PPI (a direct input into the core PCE deflator) was up 0.18% mom on a seasonally adjusted basis. Across Europe, the UK’s October CPI was slightly below expectations at 0.1% mom (vs. 0.2%), while core annual inflation was steady for the third consecutive month at 2.7% yoy (vs. 2.8% expected).

Elsewhere, the final readings on inflation for Germany (1.5% yoy), Spain (1.7% yoy) and Italy (1.1% yoy) were unrevised.

This morning in Asia, markets have followed the negative lead from yesterday and are trading lower again. The Nikkei (-1.51%), Kospi (-0.29%), Hang Seng (-0.79%) and ASX 200 (-0.42%) are all down with losses led by energy and mining stocks. In Japan, 3Q GDP was a tad softer than expected (0.3% qoq vs. 0.4% expected), but is still an expansion for the 7th consecutive quarter – longest since 2001, and adjusting for prior data revisions, the annual growth was more in line at 1.4% yoy.

Prior to this it was another weak day yesterday for markets. US bourses all weakened, with the S&P 500 (-0.23%), Dow (-0.13%) and Nasdaq (-0.29%) all down modestly. Within the S&P, only the utilities and consumer sectors were in the green, while losses were led by energy (-1.53%) and telco stocks. GE dropped a further 5.9% (-12.6% in two days) after announcing its turnaround plans. European markets were all lower, with the Stoxx 600 down for the 6th consecutive day (-0.59%, cumulative loss of -3.2%) - the longest losing streak since October 2016, with losses led by energy and mining stocks, partly in response to lower oil price and softer than expected Chinese macro data on IP and property sales. Across the region, the FTSE was the relative outperformer (-0.01%) following weaker inflation data, while the DAX (-0.31%), CAC (-0.49%) and FTSE MIB (-0.63%) all fell modestly. Bond markets were slightly firmer, with core 10y bond yields 1-3bp lower (UST: -3.3bp; Bunds -1.9bp; Gilts -0.8bp) while peripheral yields marginally underperformed, ranging from flat to 1bp lower.

Turning to currencies, the US dollar index fell 0.70% - the biggest fall since late June, while Sterling and the Euro gained 0.37% and 1.12% respectively, with the latter likely supported by a solid beat in Germany’s 3Q GDP (0.8% qoq vs. 0.6% expected). In commodities, WTI oil dropped 1.87% - the biggest fall since early October, following the IEA lowering its 2018 demand outlook and cautioning that the global market is likely to remain over supplied in 2Q. This morning, it’s fallen c1% more, after API data showed an unexpected rise in US crude inventory. Elsewhere, precious metal were little changed (Gold +0.15%; Silver -0.20%) but other base metals all weakened following  softer Chinese macro data (Copper -1.74%; Zinc -2.25%; Aluminium -0.90%). As a reminder, in China yesterday, both the October IP (6.2% yoy vs. 6.3% expected) and retail sales (10% yoy vs. 10.5% expected) were lower than consensus and monthly property sales turned negative for the first time since March 2015, dropping to -1.7% yoy from 1.6%.

Moving onto Brexit, yesterday we noted that Bloomberg reported that Brexit Secretary Davis told a group of business leaders that the chance for a breakthrough for Brexit talks by December was “a 50/50 chance”. Later on, a spokesman on behalf of Davis said “this is categorically untrue. Davis did not say this”. Elsewhere, Davis noted that he wanted banking employees to retain their ability to transfer between offices in the UK and EU after Brexit and he predicted he will achieve an agreement on a post 2019 transition period “very early next year”. Finally, the House of Commons has voted 318 to 68 to agree to Clause 1 of the EU withdrawal bill which will repeal the 1972 law that is the basis of UK’s EU membership. Notably, the vote is the second in a series of upcoming votes on PM May’s Brexit bill.

As we get closer to 2018 the outlooks will start to come thick and fast. Hot off the presses this morning our European equity strategy team led by Sebastian Raedler have published their 2018 outlook. They expect the Stoxx 600 to end 2018 at 395, 3% above current levels, based on projected 2018 EPS growth of 2% and an end-2018 12-month forward P/E of 15.1x (slightly above the current 14.8x). They remain tactically neutral near-term, but expect a pull-back for the Stoxx 600 to 375 in Q1 as Euro area macro momentum softens from its current elevated levels. They are underweight European cyclicals versus defensives – and expect European equities to continue underperforming US equities over the coming months. Email for a copy.

Now wrapping up with a busy day of central bank speak before we recap yesterday’s data and preview today’s. Firstly the Fed’s Bullard reiterated his dovish view, noting the current interest rate “is likely to remain appropriate over the near term” and that even if US unemployment rate declines substantially further, “the effect on inflation are likely to be small”. Further, if the Fed is going to hit its inflation target, “it will likely to occur in 2018 or 19”.  Conversely, the Fed’s Kaplan said he is “actively considering appropriate next steps” in terms of a potential December rate hike. Further, he is watching core inflation closely and noted there is a mounting case for moving ahead of signs of price increases.

Following on, the Fed’s Bostic noted that based on anecdotal feedback and monitored indicators, they convince him that the foreseeable future is “more of the same”, with GDP growth at a bit above 2%, unemployment rate in low 4% and modest increase in real wage growth. Hence he believes “it will be appropriate for interest rates to rise gradually over the next couple of years”. Elsewhere, he seemed to attribute the current yield curve flattening in the US to the flow associated with the demand for US securities, rather than as a sign of the economy’s softness. After the PPI data, softer markets and central bankers speak, the odds of a December rate hike fell 5ppt to a still high level of 92% (per Bloomberg).

Staying with the Fed, the WSJ has reported that former Pimco CEO Mohamed El-Erian is among several candidates that are currently being considered for the role of Fed Vice Chairman. Moving onto US tax plans, Senator John Thune noted that Senate Majority Whip Mr Cornyn is confident the chamber can get the votes to pass the bill, “we wouldn’t have proceeded if Cornyn wasn’t confident he could get to 50”.

Back to central bankers and the ‘Fab Four’ panel discussion at the ECB’s conference yesterday. Overall, there was minimal material information for markets. In the details, Mrs Yellen sounded a bit critical of some FOMC members who gave the impression of having made their policy decisions ahead of hearing the views of fellow colleagues. Elsewhere, she noted “all (rates) guidance should be conditional on the outlook for the economy” and the appropriate policy path depends “on expectations about where the medium term outlook is”. Finally, one of the lessons for the Fed from the taper-tantrum was to lay the ground work in a long set of communications to enable the taper process to be orderly, gradual and avoid market disruption.

The BOE’s Carney reiterated his caution on Brexit, noting that the UK is in “exceptional circumstances”, in part as Brexit will “very much depend on the final arrangements with the EU-27 and what the transition path is from here”. However, he noted the potential impact on rates may be evolving. On the one hand, it could be inflationary as there are not much spare capacity in the economy, on the other, there could be an expansive relationship with Europe, a reasonable transition period and demand holds up. For now, “you could paint either picture”. The ECB’s Draghi expressed some disappointment in the continued media

criticism of his Bank’s policies that was evident in some countries and noted that “forward guidance has now become a full-fledged monetary policy instrument”. Elsewhere, the BOE’s deputy governor Cunliffe was one of the two policy makers who oppose the recent rate hike in the UK. He reiterated his dovish view, noting “the low level of domestic pressure on inflation now, the absence of second round effects from the depreciation of sterling…..make it possible to wait before tightening policy until there is clear evidence that pay growth is responding to the level of unemployment”.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the NFIB small business optimism index was broadly in line at 103.8 (vs. 104 expected). In Germany, 3Q GDP beat  expectations at 0.8% qoq (vs. 0.6% expected) and 2.8% yoy (vs. 2.3% expected) – the highest in 6 years, mainly due to positive contributions from net exports and capital investment. The November ZEW survey on current situations for November slightly beat at 88.8 (vs. 88 expected).

In the Eurozone, the second reading of the 3Q GDP was unrevised at 0.6% qoq and 2.5% yoy along with the September IP at -0.6% mom and 3.3% yoy. The November ZEW survey on expectations was higher than last month’s reading at 30.9 (vs. 26.7 previous). Over in Italy, 3Q GDP was in line at 0.5% qoq and 1.8% yoy – the most since 1Q 2011.

Looking at the day ahead, in Europe we’ll receive the final October CPI report in France and the September/October employment stats in the UK. In the US the big focus will be the October CPI print while October retail sales, November empire manufacturing and September business inventories are also due. There is plenty more central bank speak scheduled with the ECB’s Lane, Praet and Hanson all due along with the Fed’s Evans and the BoE’s Haldane. NAFTA negotiators from the US, Canada and Mexico are also scheduled to meet for round 5 of discussions.