Stock Rally In Peril As Markets Slide On Lack Of Trade Deal, Dismal Data

The sharpest stock market rally in the past decade, which started with the Steve Mnuchin call to the Plunge Protection Team on Christmas Eve and resulted in a 10% gain in two weeks, is in danger of falling apart this morning as a result of disappointment from the failure of the latest round of US-China trade talks to reach any tangible agreement coupled with dismal Chinese inflation numbers released overnight.

With S&P futures sliding 0.5%, and European and Asian markets sliding, it is a day of reversals in global markets as the new-year rally has stalled, while the dollar rebounded and oil dropping for the first time in two weeks.

Today's decline follows four consecutive daily gains for the S&P 500 which is something the index hasn’t seen since September, and the rally of +5.60% over that stretch is the best such four-day performance since August 2015. Buying continued to be broad based, with 68% of S&P 500 companies advancing, though equities did fade off their intraday highs as acrimony between President Trump and Congressional Democrats intensified. In a highly-anticipated meeting between the two sides, President Trump walked out of the meeting, calling it “a total waste of time.” So the federal shutdown is set to continue.

Following a vague statement from the USTR after the conclusion of trade talks in Beijing, China said the three days of talks in Beijing had established a “foundation” to resolve the two country’s differences, but gave virtually nothing in the way of details on key issues at stake.  The "nothingburger" was confirmed when China's Mofcom issued a statement on trade talks in which it stated that China and US agree to continue close communication on trade and that sides had "broad, deep and detailed" communication. Furthermore, Mofcom said that talks promoted mutual understanding and established a foundation for resolution of each other’s concerns, while both sides agreed to maintain close contact.

Additionally, a slew of weak data also dampened the mood when China reported the lowest wholesale inflation in more than two years, the 6th consecutive month of declines...

... while worse-than-expected industrial figures in France provided more proof that Europe is spluttering again.

After last Friday's surprisingly dovish Powell statement, the Fed Chair takes to the podium for the second time in a week when he addresses the Economic Club of Washington later today; separately, Richmond Fed President Thomas Barkin (non-voter, moderate hawk), St. Louis Fed President James Bullard (voter, dove), Chicago Fed President Charles Evans (voter, moderate dove) and Minneapolis Fed President Neel Kashkari (alternate voter, dove) speak.

Meanwhile, concern surrounding the partial government shutdown in America continues to weigh on sentiment ahead of earnings season: Trump stormed out a meeting with top Democrats on Wednesday, confirming that the current government shutdown episode is set to at least tie the longest on record when it hits 21 days tomorrow.

As Bloomberg notes, investors may well be catching their breath after recent rapid gains, while the lack of any concrete details from trade discussions between China and the U.S. meant there was no fresh catalyst to sustain momentum. Futures for the S&P 500, Dow Jones and Nasdaq all slumped after the four straight gains.

Stoxx Europe 600 Index erased most of Wednesday’s advance, and dropped 0.7%, led lower by carmakers as Germany’s trade-sensitive DAX dropped 0.8% and Britain’s FTSE 100 fell 0.5% on persistent Brexit concerns.

"I am beginning to get a little concerned about the path of the European industrial data,” State Street Global Markets’ head of strategy, Michael Metcalfe, said. “It is raising the possibility of a technical recession in Europe. One of the big challenges is that if this is replicated in Italy’s data tomorrow, that potentially brings the budget questions back into the market’s thoughts.”

Earlier, Asian shares had edged up overnight on the weaker dollar and hopes of more economic stimulus in China following its latest data disappointment. But many stocks seesawed, and Tokyo and Shanghai both closed lower as markets finally grasped that the trade talks were a dud. Japanese stocks paced declines across much of Asia dragged lower by a sharp slide in the USDJPY, though the MSCI Asia Pacific Index was down only marginally.

The soured sentiment saw the normal move into safe-haven government bonds with yields on German and French and government bonds dropping again toward recent two-year lows.  U.S. Treasury yields last stood at 2.657 percent, down from 2.710 percent on Wednesday when Fed minutes showed policymakers were becoming more cautious about future rate hikes.

The dollar rebounded after hitting its lowest level since mid-October. The greenback was flat against the euro at $1.1525. The single currency gained 0.9 percent against the dollar during the previous session, its biggest one-day gain since late June. The pound weakened as British Prime Minister Theresa May mulled options for a Brexit “Plan B.” Gold fluctuated and emerging-market shares climbed.

China’s yuan also muscled higher, breaching the 6.8 per dollar level for the first time since August in both onshore and offshore trade in Asia. “This drop in the dollar is an overdue correction following a surprisingly robust few weeks despite the massive collapse in U.S. rate expectations,” said Ulrich Leuchtmann, currency strategist at Commerzbank.

After entering a bull market following a furious post-Christmas rally, crude fell back $1 having jumped overnight on signs of OPEC-led crude output cuts. Brent crude was last trading 1.4 percent lower at $60.58 a barrel and U.S. WTI was down 1.5 percent at $51.57 cents.

In US political news, the US House voted to approved bill to reopen Treasury Department and several other agencies without border wall money, although the White House had previously threatened to veto the bill. Elsewhere, there were reports that US Republican Senators are said to be planning on courting Democrat senators to reach a deal on border wall.

In the latest Brexit news, UK PM May was said to be mulling supporting an amendment that would keep EU regulations regarding pay and conditions, health and safety as well as environmental standards in an effort to garner support for her Brexit deal. A spokesperson for May later stated that the PM is attempting get further assurances from the EU on her Brexit deal before the conclusion of the debate in Parliament. Spokesperson added that PM is to consider backing Labour MP’s Brexit worker-rights plan. Meanwhile, the Times reported that May’s Brexit approach is seen as being in tatters after Conservative Rebels opened discussions with Labour regarding an alternative to her deal. Finally, UK Labour Leader Corbyn states that a general election should be the priority before a 2nd Brexit referendum and added "Labour will table a motion of no confidence in the government at the moment we judge it to have the best chance of success".

In geopolitical news, South Korean President Moon said he expects a 2nd Trump-Kim summit soon, However, there were also comments from the South Korea Ambassador to US that US-North Korea nuclear talks have slowed and that it could take years to realize goals in North Korea.

Expected data include jobless claims, while the publication of wholesale inventories is being delayed by the government shutdown. Cogeco Communications and Synnex are reporting earnings

Market Snapshot

  • S&P 500 futures down 0.4% to 2,571.50
  • MXAP down 0.1% to 150.98
  • MXAPJ up 0.3% to 489.22
  • Nikkei down 1.3% to 20,163.80
  • Topix down 0.9% to 1,522.01
  • Hang Seng Index up 0.2% to 26,521.43
  • Shanghai Composite down 0.4% to 2,535.10
  • Sensex down 0.2% to 36,126.07
  • Australia S&P/ASX 200 up 0.3% to 5,795.27
  • Kospi down 0.07% to 2,063.28
  • STOXX Europe 600 down 0.5% to 346.04
  • German 10Y yield fell 1.7 bps to 0.262%
  • Euro down 0.2% to $1.1526
  • Italian 10Y yield fell 7.4 bps to 2.518%
  • Spanish 10Y yield fell 4.5 bps to 1.447%
  • Brent futures down 0.8% to $60.97/bbl
  • Gold spot little changed to $1,292.97
  • U.S. Dollar Index up 0.1% to 95.33

Top Overnight News

  • The Trump administration is pushing for a way to make sure China delivers on its commitments in any deal the two nations reach to defuse a trade war that has roiled financial markets and dimmed the outlook for global growth. China says Beijing talks lay foundation for trade resolution
  • The pound fell against all of its Group-of-10 peers as U.K. Parliamentary debate on May’s deal continues, with Labour leader Jeremy Corbyn due to call for an election if it fails in Jan. 15 vote; gilts rose as disappointing retail sales added to economic slowdown concerns
  • Theresa May is openly contemplating a Brexit "Plan B" amid growing signs the British Parliament will reject the deal she’s reached with the European Union and try to take charge of what happens next
  • U.S. central bankers could place interest rates on hold through March or longer as they wait for clarity on risks to global growth that could affect the U.S. economy. That’s the signal from recent comments by Fed officials, reinforced by minutes of their Dec. 18-19 meeting on Wednesday
  • Chinese policy makers are continuing their piecemeal approach to arresting the slowdown in the world’s second-largest economy, as further details emerged of measures to ensure credit to small businesses and ease their tax burden. China factory prices rise at slowest pace in more than two years
  • Oil stormed back into bull market territory, as investors who’d abandoned crude just a month ago were lured back by an OPEC-led campaign to bring runaway supplies in check
  • The woes for U.K. retailers are mounting as new report suggests that 2018 was their worst Christmas since the financial crisis. Shops saw no growth in sales in December vs year earlier, the worst performance in a decade
  • Norway’s krone advanced after faster-than-forecast inflation data
  • The yen lost some steam in the European session after earlier getting support from a slowdown in Chinese factory prices
  • Australia’s dollar gained for a second day after industry data showed iron ore exports improved last month; the Aussie earlier fell following the China data

Asian stocks were mixed as the equity rally somewhat stalled overnight which momentarily saw all regional bourses in negative territory, despite the gains in US where a dovish tone from the FOMC Minutes and several Fed speakers underpinned the US majors to their longest winning streak since September. ASX 200 (+0.3%) and Nikkei 225 (-1.3%) were subdued after sentiment in the region soured with BHP shares hit in Australia as it traded ex-dividend, while the Japanese benchmark underperformed as exporters took the brunt of detrimental currency moves. Hang Seng (+0.2%) and Shanghai Comp. (-0.4%) initially weakened as trade-related momentum began to wane, with sentiment also dampened after the PBoC drained another CNY 70bln from the interbank market and after soft Chinese inflation data added to the despondent tone. However, Chinese stocks then staged a gradual recovery throughout the session, while in terms of trade news, both US and China have issued separate statements in the aftermath of the trade discussions, although the sides refrained from a joint statement and there was also no mention of a timeline moving forward. Finally, 10yr JGBs were underpinned by the initial safe-haven demand which coincided with gains in T-notes in the wake of the Fed dovishness, although prices are off best levels as risk sentiment in the region began to recover, while mixed results at today’s 30yr JGB auction proved to be inconclusive for prices.

Top Asian News

  • China’s Rekindled Deflation Fears Add to Global Growth Concerns
  • Further Rally Seen for China’s Yuan as It Breaks Key Level
  • SBI Is Said to Select Arrangers for Institutional Share Sale
  • Time for ‘Reality Check’ on Trade as Asian Stock Rally Fades
  • Citic Securities Surges on $2 Billion Purchase of Rival

Major European equities are in the red [Euro Stoxx 50 -0.4%] following on from the mixed performance seen in Asia on the lack of US-China trade clarity. Some underperformance is seen in the CAC (-0.8%), weighed on by Safran (-3.6%) who were downgraded at JP Morgan Chase, and Airbus (-1.7%) in the red after posting fewer net orders than Boeing for the first time in 5 years. Sectors are similarly in the red, with slight outperformance seen in utility names. Other notable movers include Sodexo (+1.8%) who are up after posting an increase in Q1 revenue. Separately, Tesco (+1.0%) are positive after the Co say that they remain on track to deliver their FY outlook, similarly Marks and Spencer (+1.5%) are in the green after the Co saying their FY guidance remains unchanged; despite UK BRC retail sales for December missing with -0.7% vs. Exp. -0.3%.

Top European News

  • Tesco Bucks U.K. Holiday Retail Gloom as Small Chains Suffer
  • With Brexit Vote Approaching, Companies Make Plea to Cut a Deal
  • Ericsson Takes $687 Million Charge to Fix Digital Services Unit
  • Past Sins Forgiven at a Price as Saudi Arabia, Turkey Sell Bonds
  • Carige Leaders Resist Italy Populist Nationalization Push

In FX, the DXY is on a firmer footing in early EU trade despite yesterday’s dovish Fed speakers and FOMC Minutes which stated that many policymakers said the Fed could be patient about further tightening amid muted inflationary pressures. Additionally, policymakers stated that it was appropriate to hike rates in Dec 2018, though some members favoured no change. Furthermore, due to the recent stock rout, volatility in markets and global growth concerns, the extent and time of future policy tightening is “less clean than earlier.” As such the DXY tested 95.000 to the downside during Asia-Pac hours in a continuation of USD weakness from Wall St., though the index rebounded off the psychological level and marches closer towards 95.500 (intra-day high of 95.381) ahead of a plethora of Fed speakers including Chair Powell, Vice Chair Clarida and 2019 voters Bullard and Evans. It is also worth bearing in mind that US President Trump is to participate in a roundtable meeting on border security around 18:00 GMT as the government shutdown reaches its 20th day.

  • AUD – The G10 outperformer, albeit marginally after the Aussie was dented by the release of disappointing Chinese December inflation figures which briefly pressured the currency during the Asia-Pac session. An overnight rebound in copper prices however underpinned AUD/USD north of 0.7150, just below its 50 DMA at 0.7190 with options scattered around 0.7190-0.7220 (1.1bln).
  • NOK, CAD – Firmer than expected Norwegian CPI gave the Crown impetus to extend gains below 9.80 vs. the EUR, thought EUR/NOK saw volatile trade shortly post-release amid negative price action in the oil complex. Ultimately, the NOK regained composure as EUR/NOK sits below its 50 HMA at 9.7750 ahead of its 50 DMA at 9.7290. Meanwhile the Loonie bears the brunt of declining oil as USD/CAD trades just below its 50 HMA at 1.3250.
  • EUR,GBP – Both victimised by the firmer greenback, though the single currency was unfazed by dismal French industrial production numbers ahead of the ECB Minutes later today (full preview available on the Research Suite). EUR/USD is subsequently only marginally above 1.1500 with the next level to the downside at its 50 HMA (1.1490) ahead of its 100 DMA (1.1478). Large option expiries may cap upside in the pair with 1bln on the money at 1.1515-25 and 1.3bln around the psychological 1.1500. Moving on, Sterling suffers a similar fate as the strengthening buck sent cable further below 1.2800 to breach 1.2750 and test 1.2730. In terms of the latest, Opposition leader Corbyn is again call for a general election today amid the Brexit deadlock, if PM May’s deal does not pass the meaningful vote on January 15th. In light of this, the Premier is reportedly considering supporting an amendment in an attempt to court some Labour MPs into supporting her deal. Cable sits around the middle of a 1.2750-2800 range with its 100 DMA at 1.2746.
  • JPY – Marginally softer following overnight upside from the dovish Fed and FOMC minutes as the buck eased and the Yen appreciated on safe-haven demand. As the greenback gained traction in EU trade, USD/JPY reclaimed the 108.00 handle to the upside with the pair’s 100 and 50 DMA at 108.46 and 108.50 respectively with 800mln in option expiries around 108-40-50.

In commodities, Brent (-0.7%) and WTI (-0.7%) are in the red, though the benchmarks reclaimed USD 61/bbl and USD 52/bbl respectively in EU trade with no attributed fundamentals to the recent price action. Previous sessions EIA showed a smaller than expected draw in crude oil inventories of -1.68mln vs. Exp. -2.7mln. Elsewhere, Saudi Energy Minister Al Falih comments that he would not rule out additional OPEC+ action at some point in the future. Gold (Unch) was initial buoyed by the dovish FOMC minutes, although the yellow metal is now trading towards the bottom of today’s USD 6/oz range as the dollar modestly firms. Elsewhere, according to reports US Treasury Secretary Mnuchin is to meet Democrats today to discuss plans to end sanctions against Rusal; of note Democrats have asked for the removal of these sanctions to be delayed. In a vote on January 16th, EU countries are expected to approve a scheme limiting imports of steel into the bloc; placing a cap on steel imports for 3 years.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 226,000, prior 231,000; Continuing Claims, est. 1.74m, prior 1.74m
  • 9:45am: Bloomberg Consumer Comfort, prior 59.6
  • 10am: Wholesale inventories/sales data postponed by govt shutdown
  • 8:35am: Fed’s Barkin Speaks on Ensuring Long-Term Growth
  • 12pm: Fed’s Powell to Speak to The Economic Club of Washington
  • 12:40pm: Fed’s Bullard Speaks on Economy and Monetary Policy
  • 1pm: Fed’s Evans speaks at Economic Forecast Event
  • 1:20pm: Fed’s Kashkari Speaks on Immigration and Growth
  • 5:30pm: Fed’s Clarida Speaks to Money Marketeers in New York

DB's Jim Reid concludes the overnight wrap

The opening para today is a little niche but if you like both music and comedy then I’m about to change your life forever. The highlight of my Xmas TV viewing was a documentary charting the recent comeback gigs of 1980s UK boyband “Bros”. For a brief period of time they were (for some reason) one of the biggest acts in the world. I’d not thought a lot about them since but this documentary is dynamite. For those familiar it is like Spinal Tap meets David Brent (The Office) but rather than fiction it is pure real life. It’s on the BBC iPlayer but also on YouTube for those outside the U.K. Its called “After the screaming stops”. Please, please hunt it down. You won’t regret it. Worryingly Bros consist of identical twins and I’m hoping mine end up with a more functional relationship in the years ahead.

When will I, will I be bearish? The answer is probably before mid-year again but we’d continue to ride the rally for now as things to us don’t look nearly as bad in the near-term as they were made out to be just before Xmas. Yesterday was another day of gains for risk with the VIX trading below 20 again (close 19.8) for the first time since 3 December. In Q4 2018 it traded above 20 for 58.7% of the time after not spending a singleday there between 4 November 2016 and 2 February 2018. How things can change. When the dust settled, the S&P 500, DOW and NASDAQ posted more modest gains yesterday than of late but climbed +0.41%, +0.39% and +0.87% respectively. Still, that is four consecutive daily gains for the S&P 500 which is something the index hasn’t seen since September, and the rally of +5.60% over that stretch is the best such four-day performance since August 2015. Buying continued to be broad based, with 68% of S&P 500 companies advancing, though equities did fade off their intraday highs as acrimony between President Trump and Congressional Democrats intensified. In a highly-anticipated meeting between the two sides, President Trump apparently walked out of the meeting, calling it “a total waste of time.” So the federal shutdown is set to continue.

Prior to this, the STOXX 600 had closed +0.53% in Europe while in credit HY spreads in the US and Europe finished -9bps and -11bps tighter respectively. That’s -85bps of tightening for US HY since last Thursday. One factor supporting US HY credit has been the move in the oil prices, which are up every day this year. In fact, WTI has risen for the last 8 sessions (for a cumulative gain of +17.15%) including a +4.98% move yesterday to take it over $52/bbl. That run is the longest winning streak since June-July 2017. You have to go back to December 2009-January 2010 to find the last time that we were up 9 days in a row. We’re also back in bull market territory as Oil is up over +20% from the lows. The continued slide in the dollar (-0.81%, more color below) certainly helped, while news from Saudi Arabia also buoyed prices. Energy Minister al-Falih told reporters that “we have to remain vigilant and agile and respond, so I would not rule out calling for further action of some kind.” These comments reiterating the Saudi’s commitment to cap production come as the kingdom plans to export 7.2m barrels per day this month, down from 7.7m in November and in-line with the 2018 average in an effort to support prices.

There was a steady drip of newsflow feeding the broader risk on moves yesterday. Initially there were some positive soundbites coming out of the US-China trade meetings after talks had wrapped up although later in the day the USTR published an official statement. At 192 words though it was lacking slightly in substance with the text confirming that talks “focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the US”. It also stated that “officials conveyed President Trump’s commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries”. So not particularly ground-breaking, although the mention that any deal should include “ongoing verification and effective enforcement” was perhaps a reason for risk stalling a bit post the statement being released, as the likelihood of such a comprehensive agreement being reached in the next 50 days seems challenging. China for its part said that the meetings were “extensive, in-depth and detailed,” and laid the foundation for a resolution of the conflict.

Elsewhere we got a warning out of rating agency Fitch that the US could potentially lose its AAA credit rating later this year should the government shutdown continue to March and the issue of the debt ceiling is not resolved. Markets didn’t appear particularly bothered by that though, and the spotlight quickly jumped to the various Fedspeakers thereafter. The most interesting comments came from Boston Fed President Rosengren, Chicago President Evans, and Atlanta President Bostic.

Rosengren is slightly more hawkish than the committee’s median, and our economists had penciled him in as a supporter for three hikes this year. However, he cited “recent data from China, the potential for increased trade tensions, and heightened volatility” as an argument for policy to remain “flexible and patient.” He said that “there should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth.” So perhaps evidence that he wants to see more data before supporting another policy change, but he nevertheless remained confident overall, saying “the economic outlook is actually brighter than the outlook one might infer from recent financial-market movements.”

The second most interesting Fed official was Evans, whose views are roughly in-line with the center of the committee. He said that “developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions” and hinted at a six-month type of pace for rate hikes going forward. He mentioned tepid inflation data, which could be the key factor for him; recall that he dissented against the rate hike in December 2017, the last time he was a voting member of the committee. However he also flagged that “if the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral level”.

The Atlanta Fed’s Bostic largely reiterated his Monday comments, though he indicated that he may view the hiking cycle as already over, depending on how data develops. He said “we are not locked into a particular trajectory for policy,” and answered “yes” when asked if the next move could be either a hike or a cut. So he’s taking data-dependency to a new level, prompting another leg lower in the dollar yesterday and drop in fed fund future-implied rates, which now see around an 20% chance of a hike by the June FOMC meeting.

Finally, St. Louis Fed President Bullard, a well-known uber-dove, said that the Fed is “bordering on going too far and possibly tipping the economy into recession” and that bond markets are “signalling that there might be some recession risk ahead”.

Capping yesterday’s busy session of Fedspeak, we also got the minutes of the December FOMC meeting. They mostly ratified what we already knew, saying “many participants” want “to be patient about further policy firming” and that “a number of participants” favour assessing “the risks that had become more pronounced in recent months.”

There wasn’t a huge reaction in bond markets to any of those communications. Benchmark 10y Treasuries traded in an intraday range of just over 4bps and eventually settled -1.8bps lower at 2.710%. Two-year yields fell -3.3bps, consistent with the move in fed funds futures, and the 2s10s curve steepened 1.5 bps to 15.3bps. As mentioned, the dollar slid another -0.81% and is now at the lowest since 16 October. The euro ended up +0.97% while for completeness bond markets in Europe yesterday were broadly unchanged with the exception of BTPs which rallied -7.6bps following recent underperformance.

Those comments out of the Fed will be followed by a heavy schedule of Fedspeak today. Indeed we count no fewer than six separate scheduled speakers. In order we’ve got Barkin (1.35pm GMT), Powell (5.00pm GMT), Bullard (5.40pm GMT), Evans (6.00pm GMT), Kashkari (6.20pm GMT) and Clarida (10.30pm GMT). Given that we’ve just heard from Evans, and it would be a surprise if Powell said anything different to his comments on Friday, the most interesting should be Vice-Chair Clarida. Seen as relatively dovish, the market should be on the lookout as to whether or not Clarida takes the opportunity to amplify the message sent by Powell last week. It’s worth noting that Clarida is expected to have prepared remarks while Powell is not expected to release a formal speech. Both are expected to feature Q&A.

This morning in Asia markets are trading mixed with the Nikkei (-1.30%) down while, the Hang Seng (+0.16%), Shanghai Comp (+0.23%) and Kospi (+0.14%) all up. China’s announcement of a package of tax cuts for small and micro-sized businesses worth CNY 200 bn ($29 billion) per year over the next three years is aiding sentiment even as China’s December CPI ( at 1.9% yoy vs. 2.1% yoy expected) and PPI (at +0.9% yoy vs. +1.6% yoy expected) data disappointed with the later continuing the slowdown for a sixth straight month to the weakest level since September 2016. Meanwhile, China’s onshore yuan is up +0.33% to 6.7937 - the highest since August 2018 on positive sound bites from the concluded US-China trade negotiations. Elsewhere, futures on the S&P 500 are down -0.34% while oil prices (WTI -0.95% and Brent -0.76%) are also trading lower this morning after the stunning run discussed earlier.

Moving on. The latest Brexit development was the confirmation yesterday that PM May had effectively lost control of the timetable for what happens should Parliament vote against her Brexit deal next week as expected. Downing Street will now be compelled to report to Parliament and hold a vote on how to proceed within three days of losing a vote on the Withdrawal Agreement. The government will also accept a Tory amendment to limit the backstop to one year, though it’s not clear if that will be acceptable from the EU’s perspective. Separately, Labour’s shadow Brexit minister said that extending Article 50 “may well be inevitable now.” Nevertheless, this chaos was outweighed by the dollar’s broad weakness, leaving cable +0.66% stronger versus the greenback, though the pound did slide -0.31% versus the euro. Elsewhere, Bloomberg reported that the Labour party leader, Jeremy Corbyn, is set to deliver a major speech on Brexit today, in which he’ll call for a general election if May loses next week’s vote. According to released extracts of his speech Corbyn will say, "a government that cannot get its business through the House of Commons is no government at all. So I say to Theresa May: if you are so confident in your deal, call that election, and let the people decide."

Turning quickly to yesterday’s data, Germany’s November trade balance printed at $20.5bn as imports declined more than exports. So another signal of soft demand in Europe’s largest economy. French consumer confidence fell to 87 from 92, its lowest level since 2014. In the US, mortgage applications rose 23.5% last week, the fastest pace since October 2015, though the series is notoriously noisy.

To the day ahead now, where the aforementioned speeches by the Fed’s Powell and Clarida this evening are likely to be the main focus, alongside the raft of other Fedspeak. As for the data that is due out, this morning we’ll get the November industrial production report in France shortly, before we then get initial jobless claims and November wholesale inventories data in the US. Away from all that we’ll also get the ECB minutes of the December 12-13 meeting where the market will be on the lookout for any hints on the timing for the first rate hike, before the ECB’s Villeroy speaks this evening.