Global Stocks, US Futures Slide As Oil Rebound Fizzles, Pound Tumbles

European stocks pared a decline of as much as 1.2% on Wednesday but remained in the red, as the FTSE 100 erased losses after the pound resumed its drop ahead of today's key cabinet meeting, and as oil rebounded after a Reuters report OPEC+ may cut 1.4MM barrels of output, following the latest mixed data out of China...

...  while Asian shares slumped and US equity futures slid in the red fading earlier gains.

Overall sentiment was negative, with stocks around the globe in the red, if not suffering major losses.

Europe's Stoxx 600 Index was dragged lower by mining and energy shares following the latest round of disappointing Chinese retail sales data, as good news for the auto sector - following a Bloomberg report that the White House would hold off imposing auto tariffs for now - wasn’t enough tip the broad European market into the green.


European stocks were also pressured by the worst German GDP print since 2015, after Europe's strongest economy contracted in the 3rd quarter as a result of collapsing auto production.

Not helping was continued political gridlock in Italy, whose cabinet defied Europe overnight and resubmitted its budget proposal, predicting a 2.4% budget deficit, a number that had previously been rejected by Brussels. European energy stocks were down 0.9%; they pared losses at one point as oil recovered after a OPEC’s President said the group and its allies will cut production, and Reuters reported up to 1.4MM barrels in production would be cut. West Texas crude attempted a rebound after posting its longest losing streak on record, however the spike has been short-lived for now and at this pace, oil's record 12-day decline appears set to continue.


The UK's FTSE 100 was flat with the pound falling as much as 0.5% vs USD after a sharp jump on Tuesday, with the success of U.K. Prime Minister Theresa May’s Brexit deal still in question, given the need to win over her Cabinet members and later Parliament.

Energy producers also weighed in Australia, where equities slumped. Japanese stocks came off their highs of the day, while shares declined in Hong Kong, China and South Korea. The Nikkei 225 (+0.2%) shrugged off a contraction to GDP data with the benchmark index kept afloat for most the session by JPY weakness and as automakers cheered reports the US was said to be planning to hold off on implementing auto tariffs for now. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.9%) were also downbeat as participants digested mostly uninspiring releases from China including softer than expected New Yuan Loans, Aggregate Financing and Retail Sales, although Industrial Production and Fixed Assets Investment data topped estimates

In currencies, all eyes were on the pound, which swung between gains and losses as traders wait to see if Theresa May could persuade her cabinet to back her Brexit deal. The dollar reversed a decline during Asian hours, while the Norwegian krone hit its lowest level since June 2017 following a rout in oil prices. The euro dipped 0.2% to $1.1270 as euro-area economic growth slowed in the third quarter, held back by a contraction in Germany. The Swedish krona fell as inflation missed estimates for October, weakening the case for an interest rate hike as soon as next month.

Treasury yields were flat and the dollar remained near an 18-month high, rising from earlier session lows. Italy’s sovereign bonds climbed despite the government submitting a defiant budget to the European Commission on Tuesday.

Traders also fretted over the next move in oil, which has suffered a historic rout at an already challenging time for global equities, which have been digesting a downturn in the tech sector, the ongoing trade spat between the two biggest economies as well as a higher-rate regime.

And as we reported earlier that the Trump administration is holding off for now on imposing new tariffs on automobiles, there is ground for some optimism, but Brexit and Italian risks linger, American inflation data is out Wednesday and key reports on the crude market are also imminent.

The key event in the US will be the October CPI report where the consensus is for another +0.2% mom reading for the core – the 37th successive month with such a forecast.

In addition to today's key CPI report, attention will also turn to Fed Chair Jerome Powell, who speaks Wednesday at a conference on national and global economic issues; some expect the Chair to expound on topics and recent events in markets that did not make their way into last week’s sparse FOMC statement, with some analysts expecting him to calm worries about the central bank pushing its interest rate-hike cycle too far.

Elsewhere, India’s rupee rallied to an almost two-month high and its sovereign bonds advanced as the slump in oil prices deepened, easing investor concerns over the oil-importing nation’s current-account deficit. Emerging-market equities slipped. Gold fell.

Expected data include mortgage applications and inflation. Canopy Growth, Macy’s and Cisco are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,723.75
  • STOXX Europe 600 down 0.9% to 361.31
  • MXAP down 0.2% to 150.12
  • MXAPJ down 0.6% to 478.54
  • Nikkei up 0.2% to 21,846.48
  • Topix up 0.2% to 1,641.26
  • Hang Seng Index down 0.5% to 25,654.43
  • Shanghai Composite down 0.9% to 2,632.24
  • Sensex up 0.09% to 35,177.13
  • Australia S&P/ASX 200 down 1.7% to 5,732.77
  • Kospi down 0.2% to 2,068.05
  • German 10Y yield fell 1.9 bps to 0.39%
  • Euro down 0.1% to $1.1274
  • Italian 10Y yield rose 0.8 bps to 3.074%
  • Spanish 10Y yield rose 1.2 bps to 1.618%
  • Brent futures up 0.5% to $65.77/bbl
  • Gold spot down 0.2% to $1,200.23
  • U.S. Dollar Index little changed at 97.30

Top Overnight News

  • Prime Minister Theresa May has clinched a Brexit deal with the European Union after months of deadlock. She now has to convince a skeptical Cabinet that it’s not a sellout and overcome near impossible odds to get it through Parliament
  • The U.S. and China have resumed contact “at all levels” over trade ahead of a planned meeting between President Donald Trump and China’s Xi Jinping, White House economic adviser Larry Kudlow said
  • China’s industrial production and business investment gained pace, while retail sales growth slowed, signaling some stabilization for policy makers grappling with the slowest economic growth in nearly a decade
  • Japan’s economy contracted in the third quarter for the second time this year after an earthquake, typhoons and torrential rain battered production at home and exports declined amid softer demand overseas
  • The Trump administration will hold off for now on imposing new tariffs on automobile imports as top officials weigh revisions to a report on the national security implications, according to two people familiar with the matter
  • Oil was showing little sign of recovering from its unprecedented decline as investors flee a market hammered by swelling supplies and a darkening demand outlook
  • Euro-area GDP grew 0.2%, matching an initial estimate, but half the pace recorded in the previous period, Eurostat said Wednesday. The German economy shrank for the first time since early 2015 after the auto industry took a hit
  • U.S. Senator Lindsey Graham called Saudi Arabia’s Crown Prince Mohammed bin Salman “unstable and unreliable” and said he and other lawmakers were discussing sanctions against the longtime U.S. ally in the wake of Saudi journalist Jamal Khashoggi’s killing
  • OPEC and allied oil producers will cut or adjust production as needed to balance the market, the group’s president, United Arab Emirates Energy Minister Suhail Al Mazrouei, said Wednesday

Asian equities traded lacklustre following a similar performance on Wall Street where the energy sector was hit by a further
aggressive slide in oil prices but with losses in the broader market stemmed amid resilience in financials and tech. ASX 200 (-
1.7%) was led lower by weakness in energy names after WTI crude fell nearly 8% on its record 12th consecutive decline, while
Nikkei 225 (+0.2%) shrugged off a contraction to GDP data with the benchmark index kept afloat for most the session by JPY
weakness and as automakers cheered reports the US was said to be planning to hold off on implementing auto tariffs for now.
Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.9%) were also downbeat as participants digested mostly uninspiring
releases from China including softer than expected New Yuan Loans, Aggregate Financing and Retail Sales, although Industrial
Production and Fixed Assets Investment data topped estimates. Finally, 10yr JGBs were higher as the lacklustre risk tone across
the region underpinned demand and in which upside gained traction as the Japanese benchmark stock index momentarily gave up
all its gains.

Top Asian News

  • China’s Economy Hints at Improvement Ahead Amid Consumer Gloom
  • Sumitomo Mitsui Profit Jumps on Trading, Loans and Fee Business
  • Samsung Arm Faces Criminal Probe After Breaking Accounting Rules
  • Iran Executes Gold Coin ’Sultan’ as U.S. Sanctions Bite
  • Weber Sees Takeda Getting More Than 66% Vote on Shire: Nikkei

Major European indices, excluding FTSE 100 (+0.1%), are in the red (albeit off of worst levels, amid a mild uptick in crude prices
and positive earnings from Tencent), with the FTSE MIB (-1.2%) lagging its peers amid political jitters and negativity from Mediaset
(-8.1%) post earnings and Telecom Italia (-4.0%) following a negative broker move amid board unrest; of note, reports suggest that Alfredo Altavia is the lead candidate for CEO. Sectors are mixed with energy names and materials lagging whilst utilities lead.
Elsewhere, Smiths Group (+6.3%) are in the green after confirming their full year management expectations and spinning-off their
Healthcare unit. E.ON (+2.5%) are firmer after reporting a beat on earnings, Wirecard (-4.0%) are at the bottom of the Stoxx 600
post-earnings, whilst Rio Tinto (-3.0%) shares have been hampered after a downgrade at Liberum

Top European News

  • Macquarie Being Investigated by Denmark for Role in Tax Scandal
  • EON Reports Profit Gain, Eyes Synergies From Innogy Takeover
  • Maersk Raises Lower End of Forecast Range as Sales Pick Up
  • U.K. Inflation Unexpectedly Stays at 2.4% as Food Costs Decline
  • Convicted Balkan Ex-Leader’s Asylum Plea Puts Orban in a Jam

In FX, it’s Brexit day for the Pound, or at least another pivotal moment in the process towards reaching a deal before the UK officially leaves the EU as the Cabinet decides whether to back or reject the withdrawal agreement. The session kicks off at  14GMT and the outcome remains uncertain even though PM May appears to have persuaded key Ministers to vote in favour, as the minority DUP coalition partner has already indicated its strong opposition. Hence, some retracement in Sterling from the highs seen when news broke that UK and EU negotiators had finally agreed resolved the outstanding issues, with Cable back below 1.3000 and almost retesting 1.2900 on negative legal observations on the terms of the backstop, while Eur/Gbp is firmly back above 0.8700. Note, benign inflation data has also kept the Pound in consolidative/defensive mode. EUR - The single currency remains partly in lock-step with the Gbp on Brexit-related moves, but also depressed by the ongoing Italian-EU budget stand-off and further evidence of slowing momentum in the Eurozone economy, with German GDP weaker than forecast in Q3. Eur/Usd has lost grip of 1.1300 as a result, and from a technical perspective is back below the 100 HMA at 1.1312. SEK/NOK - Another weak Scandi macro release has seen the Sek underperform and Nok decline in sympathy, as Swedish CPI missed consensus and raised more doubt over a Riksbank hike in December rather than February 2019. Moreover, the domestic political backdrop remains clouded as PM candidate Kristersson did not get Parliament consent to try and form a new Government. Eur/Sek up to 10.2980 and toughing strong chart resistance vs circa 10.2135 at one stage, Eur/Nok just shy of 9.6400 from 9.585 at the low.

In commodities, Brent (+0.3%) and WTI (+0.1%) break their downward streak, following sources reporting that OPEC+ are debating a 1.4mln BPD oil supply reduction. This followed today’s IEA monthly stating that OPEC crude output rose by 200kbpd in October, which is up 240k compared to last year; and Q3 stocks posting their largest gain since 2015. At the time, this added to the recent downward pressure on prices before the aforementioned sources suggesting an OPEC+ supply reduction. Of note, we APIs will be released today due to Monday's Veterans Day Holiday. Gold (-0.1%) is marginally softer amidst a firmer dollar with Gold breaching USD 1200/oz to the downside and unable to benefit from the current risk environment. Separately, shanghai rebar prices have recovered from recent lows, as expectations of economic stimulus from Beijing offsets record October steel output.

Looking at the day ahead, all eyes will of course be on the October CPI report. Away from the data, over at the Fed, Vice Chair of Supervision (Quarles) will give his semi-annual testimony on banking supervision to the House Financial Services Panel. Late this evening and after the close, Fed Chair Powell will participate in a conference with the Fed’s Kaplan. Oh and don’t forget Brexit will be in the news!

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.7%
  • 8:30am: US CPI MoM, est. 0.3%, prior 0.1%; Ex Food and Energy MoM, est. 0.2%, prior 0.1%
    • US CPI YoY, est. 2.5%, prior 2.3%; Ex Food and Energy YoY, est. 2.2%, prior 2.2%
    • Real Avg Weekly Earnings YoY, prior 1.06%; Real Avg Hourly Earning YoY, prior 0.5%

DB's Jim Reid concludes the overnight wrap

We look like we now have a draft Brexit withdrawal deal. Now this easy part is out of the way along comes the hard part of selling  it to a divided Parliament full of vested interests and factions. Theresa May briefed cabinet members one by one last night and will hold a full special cabinet meeting at 2pm today to approve (or not) the deal. The agreement document will then be published over the next two days and the next 10 days will be spent on selling the deal to MPs and to the wider public. November 24/25th could then mark an EU summit to agree the deal, followed by the UK Parliamentary vote, with some press reports suggesting December 10th is earmarked but it could be earlier. Oliver Harvey put out a piece last night highlighting 10 key questions ( link ) for the market in light of the draft deal. For me the key ones surround whether there are any UK government resignations, whether the DUP are comfortable with the deal, and the reaction of the press.

The initial political reaction wasn’t brilliant, with attacks coming from all directions. Nigel Dodds, the Deputy Leader of the DUP said that if the deal subjects Northern Ireland to “rules and laws set in Brussels, not in Westminster or Belfast, then that’s unacceptable.” The leader Arlene Foster later echoed these comments. The hard Brexiteer Jacob Rees-Mogg described the mooted deal as “a failure to deliver on Brexit,” while Labor Party Leader Jeremy Corbyn warned that his party would vote against the proposal if it does not “work for the whole country.” The sharpest rhetoric unsurprisingly came from Boris Johnson, who called the deal “utterly unacceptable” and recommended Parliament to “chuck it out,” though he has not yet seen the details. However, the UK PM May’s most important pro-Brexit ministers, like Brexit Secretary Dominic Raab and Environment Secretary Michael Gove, are reported by the Sun to be standing by her side.

Consistent with the cacophony of noise from Westminster, sterling traded somewhat erratically yesterday. It initially gained as much as +1.54% when headlines broke about a deal being reached, as the market continues to interpret any Brexit progress as a positive. The currency later retraced a bit as the slew of negative reactions trickled through. Nevertheless, the pound still ultimately closed +1.0% stronger and is stable (+0.08%) in early trading this morning. Maybe I’m reading too much into all the initial comments from MPs from all sides who haven’t seen the full deal text but at this stage I can’t see how the deal passes through Parliament. Time will tell and maybe views will soften.

As an aside at home we got an email from EuroTunnel last week as we are travelling to France with Bronte the dog just a few days after the UK leaves the EU at the end of March. Holiday not emigration by the way! The email urged us to go to see a vet ASAP to find out exactly what the arrangements will be for dogs in case of a no-deal Brexit. My wife coincidentally had to take Bronte for some jabs the next day and thus asked the vet. The vet said she had absolutely no idea what it would mean. So vets can be added to the list of those of us utterly confused about the potential scenarios and what the consequences will be going forward. Outside of Brexit, oil was the big story yesterday with WTI and Brent falling a stunning -7.07% and -6.63% respectively, yesterday, which puts it in the 99.4th percentile for worst daily moves over the last 35 years. That means that oil prices are now down for 12 consecutive sessions. We’ve been lazy over the last couple of days and highlighted that oil was on its worst successive losing streak since 1983 based on when Bloomberg’s data starts. However we went through our archives yesterday and found a bit more daily data back to 1977 and we still we cant find a losing run of this magnitude. It now stretches to 12 days.

Prices started to crash lower midway through the afternoon, with WTI dropping through $59, $58, $57, $56 and $55 at one point before settling back above $55 as the US equity market closed. Overnight oil prices are still finding it difficult to find base in Asia this morning with WTI down another -0.41% and Brent -0.29%. The move came about after OPEC’s monthly report, which showed that Saudi Arabia pumped a record volume of oil in October, eclipsing its 2016 level which was the basis of the prior deal to cap production for the first time. The report also forecast a surprising build in global excess supply in 2019, as forecasts for non-OPEC supply were increased by 120,000bpd and global demand was reduced by 70,000bpd. A series of other headwinds contributed to the move, including President Trump’s tweet earlier this week calling for lower oil prices, the apparent reluctance by Russian Energy Minister Alexander Novak to support production cuts, and forced selling by vol-targeting and CTA funds.

Having held the title as one of the best performing assets in 2018, and one of only 8 assets out of 70 to have a positive total return in USD terms this year up until the end of October, WTI is now down -8.52% for the year (Brent -2.50%). So another asset now down in dollar terms for the year.

The move for oil weighed on US equities, as the energy sector (-2.39%) derailed an otherwise healthy session. The S&P 500 and DOW retreated -0.15% and -0.40% respectively, while the NASDAQ traded flat and the NYFANG index advanced +1.21%. Cyclical sectors (apart from oil) performed well, with financials and industrials leading gains, up +0.59% and +0.45% respectively. The NEC Director Larry Kudlow extended the positive sentiment around the latest round of US-China trade headlines, saying that talks between the two governments  are happening at “all levels.” Treasury yields nudged a bit lower especially at the front end where 2-year yields ended down -3.3bps, while 10-year yields finished -3.9bps lower, as the move in oil continued to weigh on inflation expectations, with 10-year breakevens down -1.9bps yesterday and -13.9bps from their early October peak.

On Italy, the government opted yesterday to stick with its budget deficit and growth projections, of 2.4% and 1.5% respectively, despite pushback from the European Commission. This raises the odds that the Commission institutes the Excessive Deficit Procedure imminently. 10-year BTPs rose +0.8bps yesterday and the FTSEMIB advanced +0.90%, as the news broke after European markets had closed. So something to watch at the open today but it’s hardly a surprise.

In the meantime, in a letter published on the Italian Treasury’s website this morning Finance Minister Tria has said that Italy will raise the privatisation goal to 1% of GDP for 2019 from the earlier planned target of 0.3% annually for the 2019-2021 period which it is hoped will help the government to reduce the debt to GDP ratio faster to 126% in 2021. However, it seems unlikely that this will assuage the EC concerns. Italy also asked for the EU to be flexible for extraordinary events such as floods and infrastructure work after the Genoa bridge collapse and has pencilled in €1bn for infrastructure maintenance in 2019. Elsewhere, the IMF in its annual review of the Italian economy said that “the planned stimulus carries substantial downside risks as it would leave Italy very vulnerable,” and the IMF projects Italian GDP growth to be c.1% in the 2018-20 period with the deficit standing at 2.7% of GDP in 2019 and public debt to remain around 130% of GDP over the next three years.

This morning in Asia, markets are off to a mixed start with Nikkei (+0.17%) up while the Hang Seng (-0.13%), Shanghai Comp (-0.06%) and Kospi (-0.22%) are down. Overnight data releases in China showed some signs of economic stabilisation as October industrial production (at +5.9% yoy vs. +5.8% yoy expected) and YtD October fixed asset investment (at 5.7% yoy vs. +5.5% yoy expected) surpassed expectations even as October retail sales (at +8.6% yoy vs. +9.2% yoy expected) disappointed. The data in China follows softer than expected October credit growth data yesterday which was a bit of a surprise in light of recent tax cuts and easing measures. Elsewhere, futures on the S&P 500 (+0.08%) are pointing towards a largely flat open and Japan’s preliminary Q3 annualised GDP came in at -1.2% qoq (vs. -1.0% qoq expected).

In other overnight news, Bloomberg has reported that the US will hold off for now on imposing new tariffs on automobile imports as the White House weighs revisions to the Commerce Department report into the impact of car imports on national security.It’s worth  noting that this morning’s data in China kick starts what is actually a fairly packed day ahead. Along with the UK Cabinet meeting, a couple of the other highlights – namely US CPI this afternoon and a speech by Fed Chair Powell this evening warrant a bit more of a preview. For US CPI, the consensus is for another +0.2% mom reading for the core – the 37th successive month with such a forecast – however our US economists do expect a slightly above market +0.3% print, which if so, would round up the annual rate to +2.23%. As for Powell, he’s due to speak after the close at 11pm GMT at a conference on national and global economic issues, and our colleagues think that this will be important since it will allow the Chair to expound on topics and recent  events in markets that did not make their way into last week’s sparse FOMC statement.

Indeed, the event may preview some issues that will likely turn up in the minutes (released November 29th). Given the broad scope of the event, Powell's and Kaplan's discussion could range anywhere from how recent events such as the soft Q3 capex data or October’s market volatility may have affected the Fed’s economic outlook to longer-run issues such as the ultimate size of the balance sheet or the uncertainty around estimates of the neutral level of interest rates.

Back to yesterday, Greece – remember that? – also had a rare moment back in the spotlight after Bloomberg reported that the Bank of Greece was mulling a plan to free Greek lenders from €42bn of bad debts. The idea being mooted included transferring around half of deferred tax claims sitting at Greek banks to a SPV which in turn would sell bonds and use the proceeds to buy bad loans from lenders. Most of the capital at Greek banks is made up of tax claims against the state. Greek banks rallied +5.35% yesterday for the sub-index’s 6th best day this year – however that’s in the context of a -40.52% decline this year. The broader Athex was up +1.39% although is still also one of worst-performing markets this year with a -19.74% YTD return. Greek 10y yields actually rose +3.0bps post the news however at 4.40% are a long way from the heady days of 2015 when we talking about yields closer to 20%.

That Greece news did at least appear to help European markets more broadly rise in conjunction with some positive earnings  reports and the trade headlines. The STOXX 600 finished +0.97% and DAX +1.30%. Bond markets were little changed with the exception of Gilts which rose 6.8bps amid the positive initial Brexit headlines that a deal was in the arrivals lounge.

As for the data yesterday, in Germany the final October CPI print was confirmed at +0.1% mom and +2.4% yoy – unchanged relative to the estimate. In the UK the main story was the soft employment data. The unemployment rate rose unexpectedly by one-tenth to 4.1% while the claimant count rose for the sixth consecutive month to 2.7%. The flip side was stronger than expected earnings with ex-bonus earnings coming in at +3.2% yoy in the three months to September, a tenth above consensus. The soft employment data is one to watch going forward with our UK economists noting that recent survey data also notes further weakness in the labour market ahead. The other data in Europe yesterday was the November ZEW survey in Germany where the current situations index tumbled nearly 12pts and far more than expected to 58.2 (vs. 65.0 expected). However that was somewhat offset by a tick up in the expectations component.

In the US, the October NFIB small business optimism index fell slightly to 107.4 from 107.9, but remains close to its all-time high. The US Treasury’s monthly budget statement showed a deficit of $100.5bn, roughly in line with expectations. The Fed’s senior loan officer survey showed little change to lending standards to large firms and will therefore have a limited impact on the economic outlook.

To the day ahead now where this morning we’ve got preliminary Q3 GDP data in Germany, where the consensus is for a -0.1% qoq reading. Shortly following that we get final October CPI revisions in France and a first look at the data for the UK. That then leads us into the advance Q3 GDP print for the Euro Area (no change from the preliminary +0.2% qoq reading expected), before September industrial production data for the Euro Area rounds out a busy morning. In the US all eyes will of course be on that aforementioned October CPI report. Away from the data, over at the Fed, Vice Chair of Supervision (Quarles) will give his semi-annual testimony on banking supervision to the House Financial Services Panel. Late this evening and after the close, Fed Chair Powell will participate in a conference with the Fed’s Kaplan. Oh and don’t forget Brexit will be in the news!