FTSE Collapses On GBP Rise And US Bond Selloff

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FTSE 100 Analysis: Default Safe-Haven on No-Deal Brexit Risk as Sterling (GBP) Collapses

FTSE 100 Analysis and News

  • GBP/USD Slumps as Hard Brexit Risks Mount
  • FTSE 100 a Safe Haven?

GBP/USD Slumps as Hard Brexit Risks Mount

Yesterday saw the Pound experience its largest 1-day decline against the US Dollar in 2020, dropping 1.25% with the currency trading at the lowest level since March 2020. This came amid Boris Johnson and his cabinet ministers continuing to show a hardened stance towards the EU with Michael Gove stating that the government are working on the assumption that the EU would not strike a fresh Brexit agreement . Consequently, in light of the plummet seen in GBP, this was to the beneficiary of the FTSE 100, which jumped to fresh 2020 highs.

As mentioned last week , given that Boris Johnson government is unlikely to reduce the current uncertainty and with his rhetoric that he is willing to carry out a no-deal Brexit , the FTSE 100 would stand to outperform on the basis that the weak Pound supports FTSE 100 profitability with 2/3 of the revenue from the top 100 companies generated overseas.

FTSE 100 a Safe Haven?

As Brexit uncertainty continues to weigh on the Pound, it can be argued that the FTSE 100 is a potential safe haven with investors rotating from domestic assets (FTSE 250 or GBP) to more internationally exposed. Since the backend of 2020, the FTSE 100 and the Pound have had a sizeable negative correlation with the correlation becoming increasingly more negative at times when Brexit uncertainty (no-deal Brexit risks) rises. Therefore, showing signs that the default trade on rising hard Brexit risks is a move into the FTSE 100. However, with that said, just like the initial reaction to the Brexit referendum, if the UK were to confirm that they were heading for a no-deal Brexit, it is likely that the Pound and FTSE 100 would head lower.

FTSE 100 Price Chart: Daily Time Frame (Apr 18 – Jul 19)


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— Written by Justin McQueen, Market Analyst

Bonds sell-off continues as investors bet on rate rise

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A wave of selling sweeping across bond markets resumed on Monday as investors continued to digest the impact of a Donald Trump presidency.

US and European bond prices have sunk in expectation that he will enact inflationary policies that speed the pace of interest rate rises.

On Monday, some bond yields – which rise as the price falls – hit their highest for more than six months.

Bonds globally lost $1.29tn (£1tn) last week, according to Bank of America.

And there is no sign that the bond sell-off is easing, depressing the value of some pension investments and making it more expensive for countries and companies to borrow money.

On Monday, the 30-year US Treasury jumped above 3% for the first time since January. In the UK, the 10-year gilt yields returned to levels not seen since June’s Brexit referendum vote. And German 30-year bunds rose above 1% for the first time since early May.

Italian bonds have been among the most affected. Rome’s 10-year yields rose four basis points to 2.01% on Monday, their highest in 14 months.

“It is a continuation of this recent trend. There are still these expectations that inflation could go up if the US takes a more expansionary fiscal stance,” said DZ Bank strategist Daniel Lenz said.

Jim Cielinski, head of fixed income at Columbia Threadneedle, said the sell-off trend was not surprising, but the “ferocity of the reversal” was.

And in a research note for Societe Generale, analyst Daniel Fermon said that rising interest rates may not be a good thing.

“As central banks are now less active in the bond market and Trump expects to cut taxes and launch a $1tn infrastructure investment plan, increasing the deficit, we believe rising US long-term rates remain a major risk for financial markets,” he said.

Dollar strength

Investors had piled into bonds, seeking a safe – but low – rate of return during what has been years of sluggish growth in the US, Europe and Japan.

But since inflation and interest rates are seen as likely to rise, investors are seeking assets with a more attractive return. With a Trump administration promising economic stimulus through spending and tax cuts, investors are worried about putting money into low fixed-payment assets, such as bonds.

That has fuelled share markets since last Wednesday’s election result.

Wall Street’s Dow Jones index closed at another record high on Friday, in the wake of Mr Trump’s unexpected victory. European markets have also risen, and at midday on Monday, the FTSE 100, Cac-40 and Dax were all slightly higher. Earlier, Japan’s Nikkei index hitting a nine-month high, closing up 1.7%.

Andrew Walker, BBC World Service economics correspondent

Bond yields are up in the eurozone’s financially stressed countries, such as Italy, Spain and Portugal and the moves have been quite pronounced over the last few days. Rising government borrowing costs were one of the central features of the region’s financial crisis. So are we are looking at a re-run?

There are three important differences to keep in mind. Those borrowing costs are still well below crisis levels. At the time, a rule of thumb for whether a bailout was needed was ten-year government borrowing costs of more than 7%. Italy has just gone over 2%, Portugal is 3.5%. And it’s happening to them all.

Even ultra-safe Germany has seen its government bond yields rise, although they are much lower than Italy’s. And the impetus is coming from outside, from political events in the US. Still, it is clear that Europe still has its weaknesses, especially in some countries’ banks – Italy and Germany’s Deutsche Bank most notably.

The dollar has also strengthened against major currencies. The pound fell 1.1% to $1.2464. Currencies in many emerging markets – from the Mexican peso and Malaysian ringgit, to Turkey’s lira and South African rand – fell on fears that protectionism and higher US interest could suck investment from these markets.

“Clearly the market has settled on a ‘buy dollar’ theme, on the basis there will be a debt-fuelled US fiscal binge that will push up inflation,” said TD Securities’ European head of currency strategy Ned Rumpeltin.

“There are signs that higher bond yields and the knock of a stronger US dollar are having a domino impact, taking down the weakest risky assets first, before moving on to the next,” said Deutsche’s global co-head of foreign exchange, Alan Ruskin.

And a senior European Central Bank (ECB) official has warned that the uncertainty caused by sudden swings in the financial markets threatened economic recovery.

Speaking in Frankfurt on Monday, ECB vice-president Vitor Constancio said: “We should be cautious in drawing hasty, positive conclusions from those market developments, because they may not necessarily indicate that the world economy will have an accelerating recovery with higher growth.”

Global Bond Selloff Resumes; Stocks Rise Following Strong Chinese Data

With October, the worst month for stocks since January, now in the history books S&P futures are eager to telegraph that the streak of five consecutive declines – the longest since August 2020 – will end, with a modest gain of 0.3% in overnight trading after U.S. equities ended Monday little changed to cap a third straight monthly decline, coupled with mixed global markets as Asian stocks rose while Europe was pressured again on the back of poor Standard Chartered results which saw the bank miss earnings on a drop in revenue, as the global bond selloff returned after strong Chinese economic data prompted concerns about rising global inflation. Oil failed to rebound after a sharp drop in recent days as hopes of an OPEC deal unwind.

The recent selloff in global bonds resumed amid speculation that major central banks may be moving closer to scaling back their extraordinary stimulus measures as well as strong Chinese PMI reports overnight. Prospects for a pickup in inflation pushed the yield on 10-year Treasury notes to the highest since May relative to those on two-year securities.

Gasoline in New York jumped the most in almost eight years after an explosion and fire in Alabama shut the largest fuel pipeline in the U.S. The Stoxx Europe 600 Index of equities pared gains after banks slid. Australia’s currency strengthened after the central bank refrained from cutting interest rates.

In Overnight news we say both the BOJ and the RBA keep rates unchanged at -0.1% and 1.5% respectively, as expected. The BoJ also held off on expanding stimulus on Tuesday but once again pushed back the timing for hitting its inflation target. The dollar hovered around 104.80 yen. Traders focused on whether the Japanese central bank would keep its November purchases of bonds due in over 10 years at the same level to determine if Kuroda would signal an implicit taper. He did not when earlier today the BOJ announced plans to buy 110b yen of debt due in more than 25 years, and 190b yen for bonds with maturities of 10-to-25 years for its first operation in November, roughly the same as its last market operation in October, when it bought 110.7b yen of debt with more than 25-year maturity, and 191.4b yen for those in the 10-to-25-year bucket.

The Fed begins its two-day meeting today, however, markets see only a small chance that the U.S. Federal Reserve will raise rates when it concludes its meeting on Wednesday, but traders will be scouring its statement for clues on the timing of its next rate hike. Chances of a rate hike in December are around 78%.

The key economic update was China’s October PMI data, which smashed expectations as China’s official factory gauge rose to the highest since July 2020, led by new orders, suggesting the economy’s stabilization continued into the fourth quarter as robust consumption underpins demand driven largely by an unprecedented credit injection which has seen China unleash more than $4.5 trillion in debt in the past year .

  • Chinese Manufacturing PMI (Oct) M/M 51.2 vs. Exp. 50.3 (Prey. 50.4); 2-year high.
  • Chinese Non-Manufacturing PMI (Oct) M/M 54.0 (Prey. 53.7). 10-month high
  • Chinese Caixin Manufacturing PMI (Oct) M/M 51.2 vs. Exp. 50.1 (Prey. 50.1). 2-year high.

Goldman’s break down of the data:

China’s NBS October manufacturing PMI came in at 51.2, the highest level since August 2020. Most of the sub-indexes improved, with the new order sub-index showing a visible uptick to 52.8, from 50.9 in September. The production index was also higher at 53.3, vs 52.8 in September. Inventory indicators went up: Raw material inventory was up to 48.1 from 47.4 in September, and finished goods inventory increased to 46.9 from 46.4 in September. The employment index was higher at 48.8 vs 48.6 in September. The upward trend in inflation indicator continued in October: The input prices index increased to 62.6, the highest level since early 2020. Trade indicators were weaker on the other hand: The export orders index fell to 49.2 from 50.1 in September, and the import index declined to 49.9 from 50.4 previously. The suppliers’ delivery times were up to 50.2 vs. 49.9 in September.

The official non-manufacturing PMI (which covers the construction and service sectors) increased to 54.0 in October from 53.7 in September, supported by a strong service PMI. The service sector PMI improved to 52.6 from 52.3 in September. Construction PMI edged down to 61.8 from 61.9 in September.

The Caixin manufacturing PMI release showed a similar improvement as the official NBS one – the headline index increased to 51.2 in October from 50.1 in September, and both the production and new orders index rebounded strongly.

Economists cheered China’s manufacturing survey data, although some expressed caution that this is as good as it gets as the strong PMI’s will likely make the government more comfortable tightening monetary and property sector policies in Q4.

  • “We expect economic activity to pick up further in October thanks to the booming real estate sector and infrastructure projects,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, wrote in a note. “As the government has announced cooling measures to tame the overheated housing market, in addition to the return of inflationary pressure, we expect monetary policy tightening may slowly take place.”
  • “The unexpected rise in the manufacturing PMI and continued strength in the non-manufacturing PMI tell us that the Chinese economy is doing OK at the start of the December quarter,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “It means less pressure for further policy stimulus for now.”
  • “It’s a very strong reading,” Ding Shuang, head of Greater China economic research at Standard Chartered and a former economist at the International Monetary Fund, said in a Bloomberg Television interview. “Both current and forward-looking economic indicators bode well for growth in the fourth quarter.”
  • “The manufacturing reading is robust and is a bit of a surprise to us,” said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. “Materials prices jumped a lot, which has contributed to the surge. Since PMI and PPI are co-related, the PPI will very likely be in positive territory.”

The UK economy continued to defy naysayers with October manufacturing PMI printing at 54.3, in line with expectations of 54.5, but still the second highest in the past 27 months and refusing to indicate that the post-Brexit economy has fallen off a cliff, supported by ongoing weakness in sterling, and as Markit said, “boding well for Q4 GDP.”

UK #manufacturing PMI fell in Oct but still 2nd highest in past 27 months, boding well for Q4 GDP https://t.co/rG1g5rPnvu pic.twitter.com/LJACEUc21K

European shares were poised to fall for a seventh straight session while the dollar edged lower with investors largely holding back as the contentious U.S. presidential campaign entered its final week. Stronger-than-expected manufacturing data from China underpinned gains in Asian stocks and further stoked inflation expectations that drove a selloff in bonds in recent weeks.

Forecast-beating results from oil major Royal Dutch Shell initially provided a boost to Europe’s STOXX 600 index but those gains proved short-lived with weakness in banks, driven by poor Standard Chartered results, dragging the index 0.1 percent lower. The dollar was slightly weaker against a basket of currencies with the dollar index .DXY down 0.2 percent.

“We’re in limbo, unfortunately, ahead of the U.S. election,” said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

A global slump in government bonds resumed after the abovementioned PMI report showed an unexpected pickup in manufacturing in China, which fueled optimism about the outlook for the global economy and a rise in global inflation.

Treasury 10-year notes slid before the Federal Reserve’s latest interest-rate decision on Wednesday, with futures trading showing 71 percent odds of an increase before the year is out. Banks were among decliners in European stocks, reversing an earlier gain in the Stoxx Europe 600 Index. Australia’s currency strengthened after the central bank refrained from cutting interest rates. Italy’s borrowing costs hit fresh two-year highs on Tuesday with investors wary of political risks and banking sector reforms continuing to run into hurdles. Other euro zone bond yields also rose between 3-4 basis points on the day, with Ireland’s 10-year bond yields hitting its highest level since June, rising 4 bps to 0.69 percent. Treasury 10-year yields increased three basis points to 1.86 percent as of 9:11 a.m. London time, while those on German bunds with a similar due date increased four basis points to 0.20 percent.

The ramp-up in yields has been a central theme across markets over the past month, spurring turbulence in debt markets and sending global investors out of bonds and into cash on fears that a multi-decade bond bull run was coming to an end.

In commodity markets, oil prices rose from one-month lows after OPEC agreed on a long-term strategy that was seen as an indication the cartel was reaching a consensus on managing production. Emerging-market stocks rallied and Aluminum and copper both gained.

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Investors will look Tuesday to data, including readings on manufacturing, for further indications of the health of the world’s biggest economy before this week’s Fed announcement.

Bulletin headline summary from RanSquawk

  • European equities enter the North American crossover lower as opening gains are trimmed by a downbeat update from Standard Chartered which has hampered the financial sector
  • The USD has seen a modest pullback from recent gains while the RBA and BoJ both kept policy unchanged overnight as expected
  • Looking ahead, highlights include Manufacturing PMIs from across the globe, API crude oil inventories and earnings from BP, Standard Chartered and Pfizer

Market Snapshot

  • S&P 500 futures up 0.2% to 2125
  • Stoxx 600 down 0.2% to 338
  • FTSE 100 down 0.2% to 6943
  • DAX down 0.1% to 10651
  • German 10Yr yield up 3bps to 0.2%
  • Italian 10Yr yield up 6bps to 1.72%
  • Spanish 10Yr yield up 7bps to 1.27%
  • S&P GSCI Index up 0.9% to 364.9
  • MSCI Asia Pacific up 0.3% to 139
  • Nikkei 225 up less than 0.1% to 17442
  • Hang Seng up 0.9% to 23147
  • Shanghai Composite up 0.7% to 3122
  • S&P/ASX 200 down 0.5% to 5290
  • US 10-yr yield up 3bps to 1.86%
  • Dollar Index down 0.21% to 98.24
  • WTI Crude futuresunchanged at 46.86
  • Brent Futures up 0.5% to $48.87
  • Gold spot up 0.3% to $1,281
  • Silver spot up 0.7% to $18.03

Top Headline Stories

  • Three of Fed’s Primary Dealers Warn Hikes on Hold Until 2020: HSBC, RBC, RBS say policy makers will choose to hold off
  • Shell Beats Estimates as BG Acquisition Drives Up Oil Output: Capital expenditure seen at lower end of guidance next year
  • BP Profit Slides on Weaker Refining, Oil-Production Loss: 49% decline in 3Q earnings as crude fell, refining margins shrank
  • Standard Chartered Profit Misses Estimates on Revenue Decline: reported third-quarter profit that fell short of analyst estimates as revenue fell at all four of its division
  • Sony Profit Falls Short of Estimates on Sale of Battery Unit: Impact from Kumamoto earthquake starting to recede
  • Whole Foods Facing Investor Skepticism That 365 Can Rescue Compa: Organic-food giant stuck in worst slump since at least 2009
  • Ienova Hits 17-Month High Following $1.5 Billion Equity Offering: Sempra’s Mexico unit issued additional shares Oct. 13
  • Goldman Sachs Said Outsourcing Dark Pool Operation to Nasdaq: Has been in talks with banks, brokers for service
  • Carney to Stay at BOE Until June 2020 to Help Address Brexit
  • Russian Manufacturing Unexpectedly Jumps to Four-Year High: Markit PMI index rose to 52.4, the highest reading since 2020

Looking at regional markets, we start in Asia where stocks traded mixed amid a slew of key risk events including BoJ and RBA policy decisions, while China outperformed on strong PMI data. Yesterday’s sell off in oil resulted to underperformance in the commodity heavy ASX 200 (-0.5%), while the Nikkei 225 (+0.1%) was indecisive following BoJ inaction and amid poor earnings with reports noting that net income of listed companies in the Q3 16 period in Japan decreased 25% Y/Y. Shanghai Comp. (+0.7%) and Hang Seng (+1.2%) were the outperformers as the they benefitted from the Caixin and Official Manufacturing PMI’s which both beat expectations and printed at 2-year highs. 10yr JGBs traded flat as an uneventful BoJ policy decision kept price action muted, while Australian bonds were pressured with yields higher across the curve on an unwinding of dovish bets post-RBA.

  • BOJ stands pat even as it delays timing of inflation goal: CPI forecast for next fiscal year reduced to 1.5% from 1.7%
  • Yuan heads for first back-to-back gain in 6 weeks after data: Official manufacturing gauge jumps to highest since July 2020
  • China’s Oct. money demand sinks as PBOC seen curbing leverage: Repurchase contract turnover slips for second month in row
  • Park scandal investigators sought files from 8 Korean banks: President’s associate Choi Soon-sil detained for questioning
  • A-list bankers ensnared by one of their own in Hong Kong fiasco: Citi, Morgan Stanley bankers burned by cash-advance firm

In Europe, equities opened higher across the board this morning only to be thwarted by a poor trading update from Standard Chartered . This led STAN shares to trade lower by as much as 5.2%, dragging financial names lower with the broader move in equities possibly also exacerbated by thin volumes as a result of the All Saints Day Holiday. Elsewhere, in energy names Shell (RDSA LN) posted a beat on expectations to push the energy sector higher. Despite this BP group (BP/ LN) are amongst the worst performers in the FTSE 100 (-0.2%) after Co. lowered its Capital Expenditure forecast for this year. In European Fixed income markets supply is thin today with only the UK coming to market with a 2022 treasury gilt. Nonetheless, fixed income markets have failed to recover from their opening losses despite the recent downtick seen in equities with traders keeping an eye on upcoming risk events — notably the Fed and BoE rate decisions. Also of note, we have seen the US 2/10yr spread widen this morning, moving above 100bps which is the highest seen since May.

Top European News

  • Brexit Led $17 Billion Manager to Drop U.K. Assets Before Vote: Sold out stocks and bonds in financial, consumer industies
  • World’s Biggest Shipping Company Wants More Mergers After Japan: Maersk Line says mergers may help more than vessel sharing
  • U.K. Must Identify Best Ways of Taxing Wealthiest, Auditor Says: Probe pursuing as much as 1.9 billion pounds in unpaid tax
  • Japan Demands Talks With U.K. Government Over Brexit Strategy: Ambassador to London says his country is ‘major stakeholder’

In FX markets, commodities currencies have received a boost after Chinese PMI data came in ahead of expectations The Aussie strengthened 0.8 percent versus the greenback. Twenty-two of 28 economists surveyed by Bloomberg forecast the Reserve Bank of Australia would keep its benchmark interest rate at a record-low 1.5 percent, while the other six forecast a quarter-point reduction. Governor Philip Lowe expressed concern about rising property prices and said the economy is expanding at close to its potential rate with inflation seen picking up gradually over the next two years. “We think the RBA is likely on hold for the foreseeable future,” said David Forrester, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment-banking unit in Hong Kong. “We don’t think they’ll cut in 2020.” The yen weakened 0.1 percent after the BOJ kept its monetary policy stance unchanged, as forecast by the vast majority of economists in a Bloomberg survey, and pushed back the projected timing for reaching its 2 percent inflation goal to the fiscal year starting April 2020. The central bank re-set its monetary program in September to target yields on Japanese government bonds following a comprehensive policy review. “It looks as though the least anticipated BOJ meeting of the year will quite rightly produce the least market impact,” said Sean Callow, a senior strategist at Westpac Banking Corp. in Sydney. “Six weeks after taking the big step to target JGB yields is not the time to make yet another change, but extending the likely time to reach 2 percent inflation is at least admitting reality.”

In commodities, the Bloomberg Commodity Index rose 0.5 percent, after ending the last session at its lowest level since Sept. 27. Copper headed for the highest close in almost three months in London, while aluminum held near its best close since June 2020 following the upbeat manufacturing figures for China, the world’s biggest user of industrial metals. Zinc was near a fresh five-year high as steel gained in Shanghai. Gasoline in New York jumped as much as 15 percent to the highest level since June after Colonial Pipeline Co., which carries oil products to New York Harbor from the U.S. refining center in Houston, shut mainlines on the pipe for the second time in two months. Crude oil fell 0.3 percent to $46.71 a barrel in New York, after tumbling 3.8 percent on Monday. The Organization of Petroleum Exporting Countries ended two days of talks on Saturday without any commitments being made to limit oil output by its members or major producers from outside of the group. Goldman Sachs Group Inc. said it looks increasingly unlikely that a deal will be agreed at an OPEC meeting this month, adding that failure would warrant crude prices in the low-$40s.

Looking at the day ahead, the highlight is the ISM manufacturing print for this month which is expected to show little change at 51.7. The final manufacturing PMI revision will also be made while construction spending, the IBD/TIPP economic optimism reading and finally October vehicle sales data are released this evening to round out the data. With no central bank speak to highlight the other focus will of course be earnings with 41 S&P 500 companies scheduled to release their latest quarterlies. The highlights include Pfizer and Kellogg both prior to the open. BP and Royal Dutch Shell headline releases in Europe.

US Event Calendar

  • 8:55am: Redbook weekly sales
  • 9:45am: Markit U.S. Manufacturing PMI, Oct. F, est. 53.2 (prior 53.2)
  • 10am: Construction Spending m/m, Sept., est. 0.5% (prior -0.7%)
  • 10am: ISM Manufacturing, Oct., est. 51.7 (prior 51.5)
  • 4:30pm: API weekly oil inventories

DB’s Jim Reid concludes the overnight wrap

Welcome to November. Indeed where has this year gone? It’s a cliché to say that time speeds up as you get older but as the first seeds of a mid life crisis permeate I’ve read a bit about this topic and apparently in scientific tests when a 20 and 70 year old count in their heads without a time piece, the 70 year old counts quicker. So time is perceived to be going quicker for the latter. Some have even suggested that the perception of time between the ages of 5-10 is the same as that between 40-80. Anyway at the end today we’ll go back in time a little and compile our usual monthly and annual performance review. Spoiler alert. It’s not a pretty sight for Sterling asset holders.

Before we get there though we’re jumping straight to the overnight news in Asia where it’s been a busy session with central bank meetings and more data out of China. Starting with the former, the BoJ has left its current policy unchanged as widely expected, however more notably has slightly tinkered with the inflation outlook. Acknowledging that momentum towards the price stability target is now ‘somewhat weaker than the previous outlook’, the BoJ has revised down its core CPI forecast for fiscal 2020 to 1.5% from 1.7% and also pushed back the 2% inflation target to ‘around fiscal 2020’. That hasn’t come as much of a surprise to the market though which was already sceptical about the BoJ’s timing for its price target. The Yen is little changed around the 104.80 area while Japanese equity markets have recovered slightly from earlier losses to trade flat as we go to print. All eyes on Kuroda now who is due to speak at 6.30am GMT and after we publish.

Meanwhile, in Australia the RBA has also left current policy unchanged which was also widely expected by the market. Our economists note that there wasn’t too much new in the statement although the RBA did acknowledge that house prices are rising ‘briskly’ in some markets. The Aussie Dollar is up about half a percent with the news while bond yields in the antipodeans are up a few basis points. The ASX is currently -0.70%.

Finally, in China the October PMI’s were generally supportive. The manufacturing PMI has increased 0.8pts to 51.2 (vs. 50.3 expected) and the non-manufacturing PMI is up to 54.0 from 53.7. That manufacturing print is in fact the highest level in 26 months with the details revealing that new orders, employment and raw materials were all higher. That data was also backed up by the private Caixin survey reading where the manufacturing print also came in at 51.2 (from 50.1 in September). Our China economists believe that the strong PMI’s will likely make the government more comfortable tightening monetary and property sector policies in Q4. The Shanghai Comp is +0.33% following the data while the Hang Seng is also up +1.14%

So while it’s fairly mixed across bourses in Asia this morning there’s still a constant theme and that’s the underperformance for energy names following the latest plummet for Oil. Following the disappointment of the lack of any material progress from the OPEC and non-OPEC meetings over the weekend, yesterday WTI plunged -3.78% and closed below $47/bbl for the first time since September 27th. After touching an intraday high of $51.93/bbl back on the 19th of October, WTI has now tumbled nearly -10% with the market questioning whether the cartel will actually be able to fill out the finer quota level details needed to follow through on a production curb. WTI is trading marginally firmer (+0.13%) this morning. As a reminder, OPEC are due to meet at the end of this month.

Unsurprisingly then it was energy names which suffered yesterday. European equities were in the red from the off and the Stoxx 600 eventually finished down -0.54% with the latest batch of earnings releases not really adding much momentum. Across the pond US equities actually kicked off with a relatively positive tone and put to rest any fears that the FBI/Clinton related headlines might have a further dampening effect. However a late dip into the close meant that the S&P 500 (-0.01%) finished marginally in the red for the fifth session in a row. That’s only the 3rd time this year that the index has fallen for five consecutive days however as we noted yesterday, the cumulative decline in that time is only -1.17% so it’s hardly been a big selloff. US credit indices did however underperform given the greater energy exposure. CDX IG ended 1bp wider and CDX HY was 3bps wider.

The other notable news yesterday was over at the BoE. After much speculation Mark Carney last night surprised everyone by announcing that he would step down in June 2020. Over the last few days press speculation had suggested that he may resign within days, next year, serve his 5 year term to 2020 or alternatively take up the option of an extension until 2021. With the announcement also meaning that Carney will guide the UK through the early stages of the departure from the EU, Sterling got a rare boost to close up +0.47% at $1.2242 although it was up as much as +0.90% from the early intraday lows at one stage. It’s -0.06% this morning. The news came after the London close so we didn’t get to see any impact on Gilts (10y yield 1.5bps lower at 1.241%) or the FTSE 100 (-0.60%).

Meanwhile, over at the ECB the latest weekly CSPP data was released yesterday. As at the 28th of October the ECB reported total holdings of €37.815bn. That implies that total net purchases settled last week were €1.929bn or an average daily run rate of €386m. That’s marginally ahead of the €378m run rate since the program and so suggestive of another steady week of purchases. It’ll be interesting to see if we see any slowdown in purchases as we start to approach the latter end of this month and into the holiday period.

Away from central banks, with the ISM manufacturing print looming this afternoon in the US, yesterday’s regional manufacturing surveys were seen as a bit disappointing leading into the data . The Chicago PMI declined 3.6pts this month to 50.6 (vs. 54.0 expected) which is the lowest reading since May. The Dallas Fed’s manufacturing survey followed that and while the index did improve 2.2pts to -1.5, it still trailed market expectations for a bounce back into positive territory at +2.0. Treasuries weren’t hugely moved by the data with the benchmark 10y yield ending the day 2.1bps lower at 1.826%. European Banks (-1.07%) moved lower in tow.

That wasn’t the only data out in the US however with the latest personal income and spending reports also released. September personal income was reported as rising a little less than expected at +0.3% mom (vs. +0.4% expected) although that was somewhat offset by a slightly bigger than expected increase in personal spending (+0.5% mom vs. +0.4% expected). That was in fact the strongest monthly gain for spending since June. Elsewhere the PCE deflator rose +0.2% mom in September which helped the YoY rate to nudge up to +1.2% from +1.0%. The PCE core rose +0.1% mom as expected and so keeping the YoY rate steady at +1.7%.

There was important data in Europe too. Despite some suggestion of upside risks to the data, Q3 GDP for the Euro area ended up printing in line at +0.3% qoq and so had the effect of keeping the YoY rate on hold at +1.6%. The latest inflation data was already released in the region with the October headline estimate coming in at +0.5% and also on line. Meanwhile, the highlight of the UK data was mortgage approvals data for September. Approvals were reported as increasing to 62.9k (vs. 61.5k expected) from 61.0k in the month prior. That’s the highest level since the referendum vote.

Staying in Europe, the latest referendum poll was released in Italy yesterday. According to the Demopolis Poll, 49.5% of voters would vote “Yes” in the constitutional referendum next month and 50.5% would reject the reforms. The poll didn’t take into the account the large undecided proportion which is said to stand at 27%. The last Demopolis Poll came in at 51% to 49% in favour of “Yes” so this suggests a small swing the other way. Still, voting is incredibly close and the proportion of undecided voters still remains very significant.

Looking at the day ahead it’s a fairly quiet morning as far as data is concerned in the European session with the only release scheduled being the UK manufacturing PMI for October (expected to fall to 54.5 from 55.4). In the US this afternoon the highlight is the ISM manufacturing print for this month which is expected to show little change at 51.7. The final manufacturing PMI revision will also be made while construction spending, the IBD/TIPP economic optimism reading and finally October vehicle sales data are released this evening to round out the data. With no central bank speak to highlight the other focus will of course be earnings with 41 S&P 500 companies scheduled to release their latest quarterlies. The highlights include Pfizer and Kellogg both prior to the open. BP and Royal Dutch Shell headline releases in Europe.

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