Policy divergence helps USD to multi-month highs against numerous pairs

Notes/Observations

- ECBs Draghi passes baton on QE decision until December; Euro at lowest level since March

- ECB survey revises inflation marginally lower with moderate economic growth

- USD strength aided by policy divergence theme

Overnight

Asia:

China FX Regulator SAFE: China able to cope with the impact of US interest-rate increase because of China's steady economic growth

Europe:

- German Finance Ministry Oct report: H2 economic growth to slow due to sluggish industrial production and weak exports

- EU Council President stated that UK PM confirmed Britain would trigger article 50 by end of March 2017; Reiterated that EU will not negotiate with UK until then

Economic data

- (UK) Sept Public Finances (PSNCR): £13.3B v £0.7B prior; Public Sector Net Borrowing: £10.1B v £8.2Be, Central Government NCR: £22.5B v £4.1B prior. PSNB ex Banking Groups: £10.6B v £8.5Be

Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2024, 2030, 2034 and 2046 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,076, FTSE flat at 7,027, DAX flat at 10,702, CAC-40 flat at 4,539, IBEX-35 -0.2% at 9,044, FTSE MIB -0.1% at 17,122, SMI -0.4% at 8,037, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board after Draghi provided some optimism on its QE program stating that an abrupt end to QE is not a likely outcome and that an adjustment to the banks stimulus program could come in December; Banking stocks trading generally positive in the Eurostoxx despite shares of SocGen once again trading lower; shares of SAP trading notably higher in the index after releasing Q3 results and raising its outlook; shares of Essilor and Daimler trading notably lower however after releasing Q3 results; Daimler trading sharply lower after cutting its global car demand outlook and citing weak truck demand in Q3; shares of British American Tobacco leading the gains in the FTSE 100 after issuing a 9M trading update; Commodity and mining stocks generally trading higher with energy stocks mainly lower, as Brent and WTI trade lower in the morning session despite maintaining its stance above $50/bbl.

Upcoming scheduled US earnings (pre-market) include Citizens Financial, General Electric, Honeywell, Interpublic, Lincoln Electric, Manpowergroup, McDonalds, Moodys, Parker Hannifin, SunTrust Banks, and Synchrony Financial.

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Air France AF.FR +0.2% (reportedly CEO to step down), British American Tobacco BATS.UK +2.7% (To acqure remaining share of Reynolds for $56/50/shr, 9M sales), Essilor EI.FR -5.0% (Q3 sales), InterContinental Hotels IHG.UK -1.6% (Q3 RevPar), Tomtom TOM2.NL -3.4% (final Q3)]

- Consumer Staples: [Sixt SIX2.DE +1.5% (raises outlook)]

- Industrials: [Assa Abloy ASSAB.SE -4.9% (Q3 results), Daimler DAI.DE -2.7% (Q3 results, cuts global demand outlook, weak truck demand), Volvo VOLVA.SE -1.6% (Q3 results, raises outlook), Yara YAR.NO +3.1% (Q3 results)]

- Materials: [Acacia Mining ACA.UK +11.6% (Q3 results, raises prod outlook), Umicore UMI.BE -2.0% (trading update)]

- Telecom: [Ericsson ERICB.SE -4.2% (Q3 results), Telia TLSN.SE -2.2% (Q3 results)]

Speakers

- ECB's Vasiliauskas (Lithuania) saws inflation target being met in the medium term (in line with Council). He reiterates that QE to extend beyond March 2017 if necessary and the ECB might make some monetary policy decisions at its next decision on Dec. 8th

- ECB Survey of Professional Forecasters (SPF) Survey trimmed its 2018 HICP (EU Harmonized CPI) from 1.5% to 1.4% but maintained euro zone long term inflation expectations at 1.8%. The survey maintained 2017 GDP growth forecast at 1.4% but trimmed 2018 GDP growth from 1.6% to 1.5%

- Spain Fin Min de Guindos said to want to remain in position and expand role

- Russia Energy Min Novak saw Russia 2017 oil output at 548M tons (compared to 546-547 tons in 2016) and reiterated viewpoint that an oil output freeze was needed

Currencies

- USD surged to multi-month highs against numerous pairs driven by rising US rate expectations as central bank policy divergence coming on the back in determining price action

- EUR/USD softened to its lowest level since March in the aftermath of Thursdays ECB meeting in which Draghi noted that the Council did not discussed tapering or extending the asset purchase program. Pair lower fir the 4th straight session and testing below 1.0880 just ahead of the NY morning.

- USD/CHF edging closer to parity (highest since May)

- USD/JPY bucked the overall USD trend after reports of a 6.6 magnitude earthquake in Western Japan prompted some repatriation flows. Pair at 103.75

- USD/CNY hit a 6-year high during Asia session near 6.76 level as Chinas 10-year govt bond yield fell to an 8-year low below 2.62% as growth concerns persist

Fixed Income:

- Bund futures trade at 164.27 down 2 ticks in light trade recovering from earlier losses continuing to see momentum following the ECB press conference yesterday. A continued move higher eyes 164.52 followed by 165.03 then 165.42. A reversal targets 163.91 initially followed by 163.60 then 163.21.

- Gilt futures trade at 127.14 up 30 ticks reversing earlier losses on slight risk off trade as Equities fall from highs. A move back below lows eyes 126.31 then 125.82 followed by 125.60 then contract low at 125.30. Continuation higher targets 127.80 then 127.95. Short Sterling futures trades flat across the strip with Jun17/18 trading at 9/10bp.

- Friday's liquidity report showed Thursday's excess liquidity fell to €1.059T a fall of €6B from €1.065T prior. This was primarily due to AFs and MonPol portfolios rising to negative €629.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €74M from €166M prior.

- Corporate issuance slowed to $1.4B coming to market via 3 issuers led by Vakibank $500M 5 year bonds. This puts volume above $25B ex SSA posting the highest volume in 4 weeks.
For the week ending October 19th Lipper US Fund Flows reported IG funds Net inflows of $2.43B bringing YTD Net inflows to $41.1B. High Yield fund reported net outflows of $160.1M bringing YTD inflows to $10.94B.

Looking Ahead

- (IT) Italian, Russian, Greek PM at Eurasia Summit

- (UK) EU's Juncker holds working lunch with PM May

- (AR) Argentina Sept Budget Balance (ARS): No est v -37.2B prior

- (BE) Belgium Debt Agency (BDA) announces details for upcoming OLO bond auction for Oct 24th

- (PT) Portugal Debt Agency (IGCP) announces upcoming details for PGB bond auction for Oct 26th

- (IT) Italy Debt Agency (Tesoro) announces details of upcoming BTPei and CTZ auction for Oct 26th

- 05:30 (PL) Poland to sell 2021 and 2022 Bonds

- 06:00 (IE) Ireland Sept PPI M/M: No est v -0.6% prior; Y/Y: No est v -0.9% prior

- 06:00 (IE) Ireland Aug Property Prices M/M: No est v 2.5% prior; Y/Y: No est v 6.7% prior

- 06:00 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills (£0.5B, 1.0B and £3.0B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (IS) Iceland to sell Bonds

- 07:00 (BR) Brazil Oct IBGE Inflation IPCA-15 M/M: 0.2%e v 0.2% prior; Y/Y: 8.3%e v 8.8% prior

- 07:30 (IN) India Weekly Forex Reserves

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Aug Retail Sales M/M: +0.3%e v -0.1% prior; Retail Sales Ex Auto M/M: +0.3%e v -0.1% prior

- 08:30 (CA) Canada Sept CPI M/M: +0.2%e v -0.2% prior; Y/Y: 1.4%e v 1.1% prior

- 08:30 (CA) Canada Sept CPI Core M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 1.8% prior

- 08:30 (CA) Canada CPI (Seasonally Adj): No est v -0.1% prior

- 08:30 (CA) Canada Sept CPI Core (Seasonally Adj) M/M: No est v 0.0% prior, Consumer Price Index: No est v 128.7 prior

- 09:00 (BE) Belgium Oct Business Confidence: -1.5e v -2.2 prior

- 10:00 (EU) Euro Zone Oct Advance Consumer Confidence: -8.0e v -8.2 prior

- 11:00 (EU) Potential Sovereign ratings

- (DE) Germany Sovereign Debt to be rated by Moody's

- (AT) Austria Sovereign Debt to be rated by Moody's

- (LX) Luxembourg Sovereign Debt to be rated by Moody's

- (NO) Norway Sovereign Debt to be rated by S&P

- (FR) France Sovereign Debt to be rated by S&P

- (CY) Cyprus Sovereign Debt to be rated by Fitch

- (IT) Italy Sovereign Debt to be rated by Fitch

- (PT) Portugal Sovereign Debt to be rated by Canadian rating agency DBRS

- 13:00 (US) Weekly Baker Hughes Rig Count data

- 14:30 (US) Fed's Williams (moderate, non-voter) in San Francisco

- 15:00 (MX) Mexico Banamex Survey of Economists