German consumer confidence falls to 5-month low

Notes/Observations

- German Nov Consumer Confidence hits a 5-month low

- Markets looking through recent BOE Gov Carney comments which hinted there were limits to looking through higher inflation (suggesting no further rate cuts likely): UK yields higher, GBP firmer

Overnight

Asia:

- Australia Q3 CPI higher than expected (QoQ: 0.7% v 0.5%e) reduces speculation that RBA would ease again

Europe:

- ECB chief Draghi: monetary policy was protecting the interests of savers; refer not to have to keep interest rates at such low levels for an excessively long time

- BOE Gov Carney reiterated view that BOE did not target the exchange rate, but not indifferent to it; Markets 'mistaken' to be so gloomy on Article 50

- German Fin Min Schaeuble stated that there was a growing consensus that monetary policy had reached the limits of its possibilities

Energy:

- (US) Weekly API Oil Inventories: Crude: +4.8M v -3.8M prior; Largest build since April

Economic data

- (JP) Japan Oct Small Business Confidence (beat): 48.3 v 47.7 prior

- (DE) Germany Nov GfK Consumer Confidence (miss): 9.7 v 10.0e (5 month low)

- (DE) Germany Sept Import Price Index M/M: 0.1% v 0.0%e; Y/Y: -1.8% v -1.9%e

- (FR) France Oct Consumer Confidence: 98 v 98e

- (UK) Sept BBA Loans for House Purchase(beat): 38.3K v 37.4Ke

Fixed Income Issuance:

- (SI) Slovenia opened its book to sell EUR-denominated 24-year bond; guidance seen +100bps to mid-swaps

- (EU) EFSF opened its book to sell €2.0B in 0.4% May 2026 bond; guidance seen -18bps to mid-swaps

- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills

- (EU) ECB allotted $1.0B in 7-day USD Liquidity Tender at 0.90% vs. $3.5B prior

- (SE) Sweden sold SEK10B vs. SEK10B indicated in3-month Bills; Avg Yield: -0.8030% v -0.7917% prior; bid-to-cover: 2.02x v 2.29x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.4% at 3,072, FTSE -1.0% at 6,949, DAX -0.7% at 10,683, CAC-40 -0.7% at 4,511, IBEX-35 flat at 9,137, FTSE MIB -0.1% at 10,207, SMI -0.5% at 7,888, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European equity indices are trading lower across the board as WTI fell below the $50/bbl handle overnight and as Carney suggested no further rate cuts are likely; Banking stocks generally lower despite the major Spanish banks Santander and BBVA trading higher; shares of Antofagasta leading losses seen in the FTSE 100 after releasing production results; shares of Lloyds Banking trading notably lower after releasing Q3 results; Commodity, mining, and energy stocks in the index also trading notably lower as Brent and WTI pare back recent gains.

A plethora of upcoming scheduled US earnings (pre-market) include Alliance Bernstein, AGCO, Ally Financial, Avery Denison, Boeing, Franklin Resources, Biogen, Boston Scientific, Comcast, Exelon, General Dynamics, Huntington Bancshares, Hess, Hilton Worldwide, Ingersoll-Rand, Coca-Cola, Lear, Laboratory Corp of America, Southwest Airlines, Mondelez, Nasdaq OMX, Northrop Grumman, Norfolk Southern, Owens Corning, Penske Auto, PolyOne, Silgan, Simon Property, State Street, WEC Energy, Waste Management, and Wyndham Worldwide.

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Heineken HEIA.NL -1.9% (Q3 sales), Kesko KESBV.FI +8.2% (Q3 results, to divest retail business)]

- Financials: [Banco Santander SAN.ES +1.1% (Q3 results), Lloyds Banking LLOY.UK -3.1% (Q3 results)]

- Healthcare: [AstraZeneca AZN.UK -0.4% (positive results in Lynparza trial), Bayer BAYN.DE -1.8% (Q3 results), Ipsen IPN.FR -0.9% (Q3 sales, adjusts outlook)]

- Industrials: [Airbus AIR.FR +1.2% (9M results), Antofagasta ANTO.UK -7.5% (Q3 production), PSA UG.FR +0.9% (Q3 sales, raises outlook)]

- Technology: [Cap Gemini CAP.FR -7.2% (Q3 sales), Wirecard WDI.DE -1.8% (9M results)]

- Telecom: [Telefonica Deutschland O2D.DE +1.6% (Q3 results), Telenor TEL.NO -3.7% (Q3 results)]

- Utilities: [Iberdrola IBE.ES +1.0% (9M results, raises outlook)]

Speakers

- ECB's Hansson (Estonia) reiterated view that Dec Council meeting to have through discussion on Q. Did not see clear improvement in core inflation

- EU's Tusk stated that EU-Canada summit could still occur on Thurs, Oct 27th and hoped to finalize CETA deal soon. Reiterated that EU seeks as close as possible relationship with UK

- EU's Juncker stated that was not sure if able to sign EU-Canada trade agreement on Thurs

- Bank of Spain (BOS) Monthly Bulletin: Domestic economy continued with notable strength at end of Q3

- Russia Econ Min Ulyukayev: Economy was gradually improving; Q3 GDP seen at -0.4%

- Russia Envoy reiterated that Russia prefers a production freeze with OPEC but would consider a output cut during the talks

- Russia Foreign Ministry official Kelin: Nato build-up in Black Sea seen as pressure

- Philippines Central Bank Gov Tetangco: Conditions did not warrant reserve requirement adjustment

- BOJ might drop reference to ¥80T annual target for government bond purchases. Key directive for staff implementing BOJ's new policy framework was managing the yield curve for short-term and long-term borrowing costs

Currencies

- USD consolidated recent gains. Markets currently pricing over a 70% probability of a Fed hike in 2016 but dealers used the session for mainly profit-taking on recent moves.

- GBP/USD moved back above the 1.22 level in the session as dealers evaluated the recent commentary from BOE gov Carney. On Tuesday Carney reiterated that BOE was not indifferent to the pound, but had no magic number for the exchange rate. The comments provided an excuse to cover recent GBP currency shorts

- AUD/USD firmer after Australian Q3 inflation reading left the RBA with an option of shifting towards a more neutral bias

Fixed Income:

- Bund futures trade at 163.66 down 36 ticks on marginally higher German import price data. Continuation lower looks to target 163.21 followed by 162.81. A break back above highs targets 164.38 initially followed by 164.54 high with continuation seeing 164.87 followed by 165.03 then 165.42.

- Gilt futures trade at 126.38 down 55 ticks with the yield curve widening on the back of BoE Carney comments which hinted there were limits to looking through higher inflation. Further momentum lower looks to target 126.11 initial followed by 125.82. A rebound 127.02 tehn 127.34 with eventual target of 127.95. Short Sterling futures continues to widen with the front down 1-2bp the back end down 4-6bp with Jun17/18 trading higher at 13bp bid.

- Wednesday's liquidity report showed Tuesday's excess liquidity rose to a record €1.097T a rise of €34B from €1.063T prior. This was primarily due to AFs and MonPol portfolios falling to negative €667.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €55M from €5M prior.

- Corporate issuance saw $4.9B come to market via 6 issuers headlined by Goldman Sachs $1B offering and Orange $1.25B 3 year note offering bringing week to date volume to just below $15B. In the European space saw €21.7B come to market across 18 tranches led by Danone €6.2B up sized offering. Yesterday's issuance marked the third highest of the year, and puts the weeks issuance past €27B exceeding the €25B forecast. This morning momentum continued with a €1B 2 part offering from Merck as well as a multi tranche offering from Verizon.

Political/In the Papers:

- China State Administration of Foreign Exchange (SAFE) said to toughened restrictions on capital flows to prevent negative feedback loop between a weakening yuan and capital flight

- UK PM May said to want to keep BOE Gov Carney to stay on and looking to smooth over their misunderstandings

- EU Commission reportedly to ask Italy for specifications on how much it wants to attribute to migration spending and earthquake relief in 2017 budget

Looking Ahead

- (EU) NATO Defense Ministers begin 2-Day Meeting in Brussels

- (CH) Swiss Government holds Regular Meeting

- (ZA) South Africa announces details of next bond auction (held on Tuesdays)

- (IT) Italy Debt Agency (Tesoro) to sell combined €0.75-1.5B in I/L 2024 and 2026 Bonds (BTPei)

- 05:30 (DE) Germany to sell €3.0B in 0.00% Oct 2021 BOBL prior

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 3.85% Apr 2021 bonds

- 06:00 (BR) Brazil Oct FGV Consumer Confidence: No est v 80.6 prior

- 06:00 (BR) Brazil Oct FGV Construction Costs M/M: 0.2%e v 0.4% prior

- 06:00 (CA) Canada PM Trudeau in EU Parliament

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell RUB10B in 2026 OFZ bonds

- 07:00 (US) MBA Mortgage Applications w/e Oct 21st: No est v +0.6% prior

- 07:00 (BR) Brazil Sept PPI Manufacturing M/M: No est v -0.4% prior; Y/Y: No est v 3.1% prior

- 07:00 (UK) PM May's weekly question time in House of Commons

- 07:30 (CL) Chile Central Bank's Traders Survey

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept Advance Goods Trade Balance: -$60.5Be v -$58.4B prior

- 08:30 (US) Sept Preliminary Wholesale Inventories M/M: 0.1%e v -0.2% prior

- 08:30 (BR) Brazil Sept Total Outstanding Loans (BRL): No est v 3.115T; M/M: No est v 0.0% prior, Personal Loan Default Rate: No est v 6.2% prior

- 09:00 (MX) Mexico Sept Trade Balance: -$0.7Be v -$1.9B prior

- 09:00 (MX) Mexico Aug IGAE Economic Activity Index (Monthly GDP) Y/Y: 2.0%e v 1.3% prior

- 09:30 (ZA) South Africa Crop Estimate Committee: 3rd winter-crop output forecast

- 09:45 (US) Oct Preliminary Markit Services PMI: 52.4e v 52.3 prior, Composite PMI: No est v 52.3 prior

- 09:50 (UK) Bank of England Bond-Buying Operation Results

- 10:00 (US) Sept New Home Sales: 600Ke v 609K prior

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

- 10:30 (BR) Brazil Weekly Currency Flows

- 11:30 (US) Treasury to sell 2-Year Floating Rate Notes

- 12:00 (CA) Canada to sell 10-Year Bonds

- 13:00 (US5 Treasury to sell 5-Year Notes

- 13:00 (BE) ECBs Praet (Belgium)