Risk appetite finding momentum ahead of key US employment reports

Notes/Observations

- China Oct Caixin PMI Services at a 3-month high (52.0 vs. 50.5 prior)

- Australia Sept Trade Balance registers its smallest deficit in 6 months (-A$2.3B v A$2.9Be) with its exports to China at a 16-month high; Sept Retail Sales in-line (M/M: 0.4% v 0.4%e)

- Major European PMI Service data mixed but firmly in expansion territory

- Theme of monetary divergence remains intact; Draghi reassured markets that the ECB remained ready and willing to act if necessary

- Plethora of Fed speak in session (Yellen, Fischer, Dudley, Harker and Brainard) and ADP employment Report to gauge Dec timing for rate lift-off

Economic data

- (JP) Japan Oct Consumer Confidence (beat): 41,5 v 40.8e

- (IN) India Oct PMI Services: 53.2 v 51.3 prior (4th straight month of expansion and highest since Feb); PMI Composite: 52.6 v 51.5 prior

- (IE) Ireland Oct Services PMI: 60.1 v 62.4 prior; Composite PMI: 57.7 v 59.5 prior

- (TH) Thailand Central Bank (BoT) left its Benchmark Interest Rate unchanged at 1.50% (as expected)

- (SE) Sweden Oct PMI Services: 57.5 v 55.5e

- (ES) Spain Oct Services PMI (beat): 55.9 v 55.4e; Composite PMI: 55.0 v 55.0e

- (IT) Italy Oct Services PMI (miss): 53.4 v 53.5e; Composite PMI: 53.9 v 53.6e

- (FR) France Oct Final Services PMI (beat): 52.7 v 52.3e (confirms 9th month of expansion and highest since Jun); Composite PMI: 52.6 v 52.3e

- (DE) Germany Oct Final Services PMI (miss): 54.5 v 55.2e; Composite PMI: 54.2 v 54.5e

- (IS) Iceland Central Bank (Sedlabanki) raises 7-day Lending Rate by 25bps to 6.50%; 7-day Term Deposit Rate to 5.75%

- (EU) Euro Zone Oct Final Services PMI (miss): 54.1 v 54.2e; Composite PMI: 53.9 v 54.0e

- (UK) Oct Services PMI (beat): 54.9 v 54.5e; Composite PMI: 55.4 v 53.6e

- (ZA) South Africa Oct SACCI Business Confidence: 88.4 v 81.6 prior

**Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills

- (DK) Denmark sold total DKK6.35B in 2018 and 2025 bonds

- (VN) Vietnam sold total VND3.0T vs. VND4.0T target in 5-year and 10-year bonds

- (GR) Greece Debt Agency (PDMA) sold €1.1375B vs. €875M indicated in 26-week T-Bills; Avg yield: 2.97% v 2.97% prior, Bid-to-cover: 1.3x v 1.3x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.2% at 3,442, FTSE +0.3% at 6,383, DAX +0.1% at 10,951, CAC-40 +0.4% at 4,936, IBEX-35 +0.4% at 10,465, FTSE MIB -0.1% at 22,459, SMI 0% at 8,935, S&P 500 Futures 0%]

- Market focal points/key themes: European stocks opened up and continued higher following remarks from ECB's Draghi that the bank is ready to act to maintain recovery; materials stocks supported in early trading; Moscow markets closed for holiday; Volkswagen dropped following reports emissions tampering software was also used in gasoline cars; Chocolate producers impacted following Barry Callebaut's earnings report saying cocoa market difficult; Lonmin said would have to cease trading if refinancing plan didn't go through, putting pressure on its stock; Upcoming US reports include Chesapeake Energy, Motorola, Time Warner and Wendy's

**Sectors

- Consumer discretionary [Marks & Spencer MKS.UK +3.5% (earnings), Barry Callebaut BARN.CH -7.4% (results), Beiersdorf BEI.DE +1.8% (results)]

- Energy [Verbund VER.AT +9.4% (results), Saipem SPM.IT +1.7% (broker move)]

- Financials [Legal & General LGEN.UK +1.7% (results), Old Mutual OML.UK +1.2% (trading update), ING Groep INGA.NL +2.0% (results), Hannover Re HNR1.DE +1.6% (results), Countrywide CWD.UK -12.6% (outlook)]

- Healthcare [Lundbeck LUN.DK +10.8% (results)]

- Industrials [Volkswagen VOW3.DE +2.3% (emission scandal widening), Finmeccanica FNC.IT +3.3% (results), Maersk MAERSKB.DK +4.2% (accelerates efficiency program), Vedanta VED.UK -1.2% (results)]

- Materials [Glencore GLEN.UK +5.6% (debt plan update), SGL Carbon SGL.DE 0.5% (guidance)]

- Technology [Atos ATO.FR +6.3% (results), Axel Springer SPR.DE +2.0% (raised guidance)]

- Telecom [Tele2 TEL2A.SE +2.4% (unit merger), Telecom Italia TIT.IT -1.1% (Niel comments on stake)]

Speakers

- ECB's Draghi urged completion of EU banking union

- ECB's Nouy (head of SSM): Greece banking sector recap should be completed by end-2015. Full implementation of bank resolution in 2016 to be more rigorous. Banks within Euro Area still face significant credit risk

- Hungary Central Bank's Nagy: Want to maintain loose monetary conditions; prefers unconventional measures going forward rather than Base Rate cuts

- Hungary Central Bank Gov Matolcsy: CPI target was the only anchor for the central bank

- Turkey President spokesperson Kalin: Discussion over executive Presidency will accelerate and the mechanism could be a referendum

- Japan PM Abe: Government to consider policies to increase both investment and wages; key to realizing GDP target

- Thailand Central Bank notes that its vote was unanimous (7-0) to keep policy steady in the session. Monetary policy to continue to be accommodative with the current level supporting its economic recovery. Govt stimulus program to support economy. It saw inflation turning positive in Q1 2016

- IMF said to delay its final review on CNY currency (Yuan) inclusion into SDR basket until Nov 30th. Later an IMF official from HK added that no date was set for meeting on China Yuan currency inclusion in SDR basket

Currencies

- Divergence in monetary policy continued to be the driver in FX with the USD maintaining a firm tone

- Perceived dovish remarks from ECB chief Draghi late Tuesday weighed on the Euro sentiment in the session while Fed speakers likely to leave the door open for a possible tightening in December.

- The EUR/USD drifted lower to test below 1.0930 level. Some analysts added that potential weak US data (aka non-farm payroll) could increase the ECBs commitment to act aggressively

- USD/JPY above the 121 level after the Japanese markets re-opened after a 1-day holiday aided by the risk appetite in global equity markets

**Fixed Income:

- Bund futures trade at 156.76, up 16 ticks as Draghi yesterday reiterated ECB remains ready and willing to act if necessary. Support stands at yesterday's low at 156.43, with further continuation seeing 155.71. Resistance moves to 156.96, with 157.44 high the next target. Follow through would see 157.61, with a break testing 157.98. A continuation targets 158.22, followed by 158.60 high.

- Gilt futures trade at 117.17, down 14 ticks after stronger services data out of the UK. A break of 117.09 low sees a test of 116.93, then continuation to 116.65. To the upside resistance moves to 117.49, followed by 117.75. A break would target 118.33, then 118.67. -

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €561.5B, a drop of €0.1B from €561.6B prior. This was primarily due to AFs and MonPol portfolios rising to negative €143.4B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €22M from €1M.

- Corporate issuance was lighter yesterday with around $3B coming to market. Expect a big offering from Halliburton by tomorrow. Analysts estimate over $25B of issuance to come to market this week.

**Political/In the Papers:

- (CN) PBoC Gov Zhou: China to launch Shenzhen-Hong Kong stock connect within this year (**Note: Follow Up: Later reports noted that comments were made back in May but only published today)

- (US) San Francisco voters rejected measure on proposition F which would have limited rentals. Measure would have limited annual rentals to 75-nights and required hosts to file quarterly reports with the city's planning department

Looking Ahead

- (PL) Poland Central Bank (NBP) Interest Rate Decision (no set time): Expected to leave Base Rate unchanged at 1.50%

- 05:30 (US) Fed Gov Brainard (FOMC voter, dove) in Frankfurt

- 06:00 (PT) Portugal Q3 Unemployment Rate: No est v 11.9% prior

- 06:00 (IE) Ireland Sept Industrial Production M/M: No est v -1.0% prior; Y/Y: No est v 14.3% prior

- 06:00 (BR) Brazil Sept Industrial Production M/M: -1.5%e v -1.2% prior; Y/Y: -11.3%e v 9.0% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Oct 30th: No est v -3.5% prior

- 07:00 (UK) Weekly PM Cameron question time in House of Commons

- 08:00 (US) Feds Harker in PA (**Note: replaced Plosser)

- 08:00 (HU) Hungary Central Bank's Minutes

- 08:15 (US) Oct ADP Employment Change: +180Ke v +200K prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept Trade Balance: -$41.0Be v -$48.3B prior

- 08:30 (CA) Sept Int'l Merchandise Trade: -C$1.8Be v -2.5B prior

- 08:30 (US) Intuit reports Oct small business employment: K v 0K (flat) m/m

- 08:30 (US) Treasury quarterly refunding announcement

- 09:00 (MX) Mexico Aug Gross Fixed Investment: 3.8%e v 4.6% prior

- 09:00 (DE) German Chancellor Merkel in Berlin

- 09:30 (BR) Brazil Weekly Currency Flow

- 09:30 (SE) Sweden Central Bank (Riskbank) Skingsley with member Jochnick at banking conference

- 09:45 (US) Oct Final Markit Services PMI: 54.5e v 54.4 prelim; Composite PMI: No est v 54.5 prelim

- 10:00 (US) Fed Chair Yellen testifies on bank regulation in House

- 10:00 (PL) Poland Central Bank (NBP) Gov Belka holds post rate decision press conference

- 10:00 (US) Oct ISM Non-Manufacturing Composite: 56.5e v 56.9 prior

- 10:00 (MX) Mexico Weekly International Reserves

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley

- 12:00 (CA) Canada to sell 5-Year Bonds

- 13:50 (DE) German Chancellor Merkel in Dusseldolf

- 14:00 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report

- 14:30 (US) Fed's Dudley (dove, voter) in NY

- 16:00 (CO) Colombia Sept Exports: No est v $2.8B prior

- 16:00 (CO) Colombia Oct Total PPI Total M/M: No est v 0.0% prior; PPI Domestic M/M: No est v 1.1% prior

- 17:25 (AU) RBA gov Stevens in Melbourne

- 18:00 (US) Fed Vice Chair Fischer speaks to National Economists Club

- 18:50 (JP) BOJ Minutes for Oct. 6-7 Meeting

- 19:30 (TW) Taiwan Oct CPI Y/Y: 0.2%e v 0.3% prior; WPI Y/Y: -8.2%e v -8.6% prior

- 20:00 (PH) Philippines Oct CPI M/M: +0.2%e v -0.2% prior; Y/Y: 0.4%e v 0.4% prior; CPI Core Y/Y: 1.4%e v 1.4% prior

- 20:00 (AU) RBAs Lowe in Sydney

- 22:30 (TH) Thailand Oct Consumer Confidence: No est v 72.1 prior; Economic Confidence: No est v 61.2 prior

- 22:35 (JP) Japan to sell 3-Month Bills

- 22:45 (JP) Japan to sell 10-Year JGB Bonds