26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax.

None of the happened – except maybe the fax thing when people still used those some 20 years ago. Instead the only “back to the future” moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news, in this case another month of Abenomics failing as Japanese exports missed badly, rising 0.6% or the slowest pace since August 2014 as Japan’s export-driven “recovery” fizzles, while imports tumbled from -3.1% to -11.1%, resulting not in the expected JPY87BN trade surplus but a JPY114.5BN trade deficit, pushing stocks higher.

Japan’s terrible trade data was promptly seen as grounds for more BOJ easing, lifting USDJPY above the critical 120 level, sending the Nikkei soaring 1.9%, and pushing US equity futures 11 points higher as of the moment. As Takashi Aoki, a fund manager at Mizuho Asset Management, summarized it “We’re starting to see hard evidence for our fears about the global economy being weak. Whenever we get negative economic news, hopes for additional monetary easing moves the market.”

Which also explains why stocks are surging for yet another day.

One place that did not soar on bad news was China, where despite initially seeing strength as a result of even more bad news after we learned that profits at state-owned companies in the Jan.-Sept. period fell 8.2% to 1.74 trillion Yuan, the SHCOMP proceeded to tumble, closing down -3.1%, while the tech heavy Chinext tumbled over %. Amid no fundamental catalyst and following weeks of stability in Chinese equities, volatility rose again, while alongside weakness in equities, the CNH vs CNY spread widened, suggesting an increase in capital outflows. “Market confidence is on shaky ground and investors rushed to sell on any slight hint of profit-taking,” Central China Securities strategist Zhang Gang says by phone. Not helping was Sinolink Securities which said Chinese stocks are overvalued, especially the Chinext.

What surprised us is that Chinese stocks were not limit up after the previously discussed state-owned Sinosteel officially missed an interest payment, raising questions about the government’s commitment to stand behind such firms. Surely more defaults is the bullishest thing possible for stocks.

Elsewhere, markets in Hong Kong were closed due to the Chung Yeung festival, while JGBs traded relatively flat amid subdued trade with the BoJ also in the market for JPY 780b1n worth of bonds. ASX 200 (-0.5%) was weighed by financials as large banks extended on yesterday’s declines.

Positioning ahead of the upcoming risk events, together with another round of less than impressive earnings, meant that European stocks spent the first half of the session in the red although pared the losses heading into the North American crossover to trade in positive territory (Euro Stoxx: +0.4%). At the same time, Bunds recovered from a lower open and moved into positive territory, while Portuguese bonds underperformed its EU peers amid reports that the country may face action from the EU as a result of not providing a draft budget.

In terms of notable movers, financials underperformed on the sector breakdown after Credit Suisse (-2.85%) announced that it is to raise USD 6.3bIn of fresh capital. Elsewhere, Pearson (-16.5%) shares fell over 10% after warning that 2015 earnings may be at lower end of range.

In FX, antipodean currencies saw weakness overnight, with AUD softening on the aforementioned volatility in Chinese stocks. While NZD continued to weaken on the back of yesterday’s weak GDT auction in which milk prices declined for the first time in 5 auctions, with today seeing Fitch downgrading Fonterra to A  from ‘AA-.

Ahead of the NA crossover, EUR/CHF and USD/CHF saw a bout of strength to move to fresh highs in quiet conditions with no fundamental news being attributed to this latest uptick at present, however unusual moves in CHF quite often spur speculation of intervention by the SNB. Going forward, market participants will get to digest the BoC rate decision as well as comments from BoC’s Poloz, BoE’s Carney and Fed’s Powell.

In addition to China, the only other sector suffering unexpected weakness “despite” the bevy of bad news was the commodity complex, where WTI and Brent crude futures traded lower in Europe, in part in reaction to another build in US API inventories but also reports that Russian President Putin has held talks with Syrian President Assad in an attempt to find a political solution to the ongoing conflict in Syria. Elsewhere, the metal complex was relatively subdued amid light newsflow. At last check, copper was down 0.42% after sliding as much as 1% earlier in the session.

Aside from MBA mortgage applications there is little on today’s calendar, but it’s a bumper day for corporate earnings in the US with 31 S&P 500 companies due to report, the highlights being Coca-Cola, eBay, American Express, Boeing, Abbot Laboratories, EMC, GM, Biogen, Texas Instruments, Kimberly Clark, Southern Copper, Illinois Tool Works, Baker Hughes, St. Jude Medical, SanDisk and Yelp.

Notable overnight events:

• Credit Suisse to Raise Capital Amid Shift to Wealth Business: Will raise ~CHF6.05b of capital as part of reorganization; 3Q net CHF779m vs est. CHF858m
  • Credit Suisse Said to Name HSBC, SocGen, Citigroup for Offering: Said to name banks to help co. handle its rights offer
• Ferrari Raises $893 Million Pricing IPO Shares at Top of Range: Fiat Chrysler priced 17.18m shares at $52 each after offering them for $48-$52 apiece
• Ryan’s Demands for U.S. House Speaker Race Meet Early Resistance: Approach risks a backlash from conservative members of the House Freedom Caucus by seeking change to the procedure they threatened to employ to remove Boehner as speaker
  • House Republicans to Consider Debt Ceiling Options in Meeting: Closed-door members’ meeting to take place Wednesday to discuss proposals of Republican Study Committee
• Syngenta CEO Mack Quits Amid Criticism Over Monsanto Snub: Chief Financial Officer John Ramsay to be interim CEO
• Greece’s Bailout Costs Could Rise Over Life of Loans, ESM Says: So far Greece has been charged ~1% on funds released from EU86b bailout won in August; those costs aren’t locked in for the life of the loan, according to ESM CFO
• Lam to Buy KLA-Tencor in $10.6b Chip Machinery Deal: Will acquire all outstanding KLA-Tencor shares in cash, stock deal for $67.02/shr, or $10.6b equity value based on Oct. 20 close
• Syria’s Assad Met Putin in Moscow for Talks on Tuesday: First known foreign visit since Syria’s civil war erupted in 2011
• Yahoo’s Mayer Still Chasing Growth in Fourth Year of Turnaround: 3Q adj. EPS and 4Q rev. ex-TAC, adj. Ebitda views miss ests.
  • Yahoo Says Spinoff of Alibaba Stake May Close in January: Confident that co. has “strong” legal opinion on tax-free spinoff plan
• Brazil Impeachment Papers About to Drop as Crisis Hits New Stage: Group of high-profile lawyers plans to file a request Wednesday to begin impeachment process against President Dilma Rousseff
• Puerto Rico Said Struggling to Reach Deal With Hedge Funds: Development bank, creditor group said to be deadlocked
• Toyota Recalls 6.5m Vehicles for Melting Window Switch: Inconsistent greasing may cause switch to short circuit
• Saudis Risk Draining Financial Assets in Five Years, IMF Says: May run out of assets amid drop in oil prices if the govt maintains current policies, according to the IMF
• Uber CFO Says Public Offering ‘Years Away’ as Company Matures: Board member Bill Gurley’s Benchmark fund and investors including Google Ventures, Baidu Inc. and TPG have poured billions into the co., pumping its valuation up to >$50b
• Other Post-Mkt News
  • Imax Reports Over $6.5m in Domestic ‘Star Wars’ Presales
  • Railcar Orders’ Biggest Drop Since 1980s Hints at U.S. Slump
  • Chipotle 3Q Adj. EPS Misses; Sees ’16 Comps. Up Low Single
  • IRobot Cuts Yr Sales Forecast, Boosts Yr EPS View; Shrs Fall
  • VMware 3Q EPS, Rev. Match Prelim; Forming Cloud JV With EMC

Market Wrap

• S&P 500 futures up 0.3% to 2028
• Stoxx 600 down less than 0.1% to 362
• MSCI Asia Pacific up 0.6% to 135
• Nikkei 225 up 1.9% to 18554
• Shanghai Composite down 3.1% to 3321
• S&P/ASX 200 up 0.2% to 5248
• US 10-yr yield down 2bps to 2.04%
• Dollar Index down 0.05% to 94.87
• WTI Crude futures down 1.2% to $45.75
• Brent Futures down 0.3% to $48.56
• Gold spot down less than 0.1% to $1,175
• Silver spot down 0.7% to $15.81

Bulletin Headline summary from Bloomberg and RanSquawk

• FX markets saw Antipodean currencies underperform amid volatility in Chinese stocks and Fitch downgrading Fonterra to ‘A’ from ‘AA-‘
• European equities trade in modest positive territory, paring earlier losses after touted positioning ahead of the upcoming risk events, together with another round of less than impressive earnings
• Today’s highlights include the latest DoE crude inventories update, BoC rate decision and earnings by heavyweights Coca-Cola, eBay, American Express and Boeing
• Treasuries gain within recent ranges amid losses in oil and industrial metals, volatility declines toward year lows amid expectations Fed on hold for rest of year.
• Japan’s exports grew at the slowest pace in more than a year in September, with a drop in shipments to Asia all but overwhelming gains in sales to Europe and the U.S.
• The ECB risks running into political and technical limits on just what bonds it can purchase, which means investors are already starting to question just how much more the euro area’s policy makers can do to revive inflation
• ECB President Jean-Claude Juncker called for emergency talks and Slovenia gave its army a green light to help control a surge in migrants as Europe’s refugee crisis deepened before the onset of winter
• Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices
• China bond defaults are forecast to climb after a state- owned steelmaker missed an interest payment, raising questions about the government’s commitment to stand behind such firms
• A group of high-profile lawyers plans to file a request Wednesday to begin impeachment proceedings against President Dilma Rousseff after months of will-she or won’t-she-be- impeached speculation that has deepened an economic slump
• Syria’s Assad held talks in Moscow with Putin on Tuesday in his first known foreign visit since the civil war erupted in 2011, underscoring the growing Russian role in the four-year conflict
• While the ESM has so far charged Greece about 1% on the funds released from the $98b bailout Tsipras won in August, those costs aren’t locked in for the life of the loan, ESM CFO Christophe Frankel said in an interview
• A group of European high yield bond buyers is planning to ask issuers’ lawyers to summarize and explain key covenants in the first few pages of sale documents, according to two people familiar with the information
• $2b IG priced yesterday, $360m HY. BofAML Corporate Master Index OAS narrows 1bp to +171, YTD range 180/129. High Yield Master II OAS narrows 12bp to +606, YTD range 683/438
• Sovereign 10Y bond yields lower. Asian stocks mixed, European stocks mostly higher, U.S. equity-index futures rise. Crude oil and copper lower, gold little changed

DB’s Jim Reid completes the overnight recap

So this is the day we’ve been waiting for 26 years. October 21st 2015 was the day that Marty and Doc went forward to in Back to the Future II. They had flying cars, garbage powered vehicles, taxis paid for using a thumb print, hoverboards, talking jackets, self lacing boots, voice controlled TVs and the one that would be most useful to my life at the moment – a dog walking drone!! I think Bronte would lead the drone astray to be honest. Some of these have been mighty prescient although Marty did use a phone box which in the world of smart phones seems like a big miss. Holograms jumping out of advertising billboards is also a welcome thing they got wrong. Having said that I quite like the idea of me narrating this to you via a hologram beamed out of your tablet/phone/computer screen. Don’t choke on your coffee thinking about it.

Back to the present and markets are having a quiet week. The DOW (-0.08%) had its second successive day of moving less than 0.1% – something that has occurred twice previously this year (12th/13th August and 25th/26th February). Meanwhile the S&P 500 fell -0.14% and the NASDAQ dropped a steeper -0.50% as biotech shares in particular weighed on much of the broader index.

Earnings yesterday were largely to blame for what was a fairly directionless session across the pond. Of the 20 S&P 500 companies to have reported yesterday, 15 (75%) beat EPS estimates, but just 9 (45%) beat top-line estimates which is a strong reflection of the trend so far. With the count now at 86, 74% have reported an earnings beat and just 44% a beat at the top line. IBM’s disappointing after-market report on Monday saw the company’s share price drop nearly 6% in yesterday’s session, while Harley Davidson fell 14% and the most in nearly seven years after reporting a miss at both the profit and revenue level and downgrading its full year outlook for shipments in the process. Meanwhile Yahoo, reporting after the bell, recorded its biggest drop in quarterly sales since 2009 which sent the shares down over 5% in extended trading. These generally overshadowed some of the more positive earnings reports yesterday which were headlined in particular by Verizon and United Technologies.

Over in Asia this morning much of the focus has been on Japan’s September trade data where some soft export numbers in particular has put the focus back on more potential BoJ stimulus action. Exports rose just +0.6% yoy last month (vs. +3.8% expected), well below expectations and down from +3.1% in August for the slowest pace of growth in more than a year. Meanwhile imports fell just less than expected (-11.1% yoy vs. -12.0% expected), shrinking the trade deficit to ¥115bn. The BoJ next meets on October 30th.

In terms of market reaction, the Nikkei and Topix are up +1.10% and +1.17% respectively, holding steady after the initial steep climb higher. Japan aside it’s been a fairly dull session again in Asia this morning. The Shanghai Comp is +0.39%, while the Shenzhen (-0.39%) has slid. The Kospi (+0.35%) is a tad firmer but the ASX (+0.08%) is more or less unchanged. In the currency space the Yen (-0.08%) is a touch weaker. JGB’s are half a basis point wider while Japanese credit markets are a basis point tighter.

Back to yesterday. The latest ECB bank lending survey attracted plenty of attention with the results signalling positives effects from QE and perhaps raising the hurdle to any hopes that we might see some near-term action. While credit terms for households was said to have tightened and demand for housing loans weaker, the more positive news was on the business side with stronger loan demand as well as looser credit standards, while expectations were for further strong demand going forward, a signal that the ECB’s QE is having the desired effect.

With those outcomes possibly reducing the probability of ECB action tomorrow (we’ve always thought December was more likely), Eurozone sovereign bond yields crept higher yesterday. 10y Bunds eventually finished the session up 6.1bps at 0.624%, while the periphery nudged higher too with Italy, Spain and Portugal yields up 6.6bps, 4.9bps and 3.4bps respectively. European equities slid, the Stoxx 600 closing -0.43% and the Dax down -0.16%. Credit was little moved, Crossover finishing the session a basis point tighter. Speaking of credit markets, yesterday we also learned that VW is on the road with a new ABS deal, the first since the emissions scandal and one which will be worth keeping a close eye with investor meetings due to commence this week.

Across the pond, dataflow in the US yesterday was centered on the latest housing numbers. Housing starts in September were up +6.5% mom (vs. +1.4% expected) to an annualized rate of 1.206m, just off the eight year high reached in June after a surge in multi-family housing. Highlighting the volatility in the data however, building permits actually declined -5.0% mom (vs. +0.8% expected) to an annualized rate of 1.103m, the lowest since March.

Away from this, there wasn’t much to take away from yesterday’s Fedspeak. Speaking on liquidity in the Treasury market, Governor Powell noted that market participants need to have full faith in the structure and functioning of Treasury markets and that the Fed needs to consider the risk that liquidity may be more prone to disappearing at times when it is most needed, referring to the flash rally/crash in the Treasury market on October 15th last year.

Elsewhere, over at the BoE, committee member McCafferty reiterated his view that the BoE should raise rates in the near term, warning that the Bank needs to avoid getting behind the curve. McCafferty also suggested that, while the voting suggests some split on the MPC, in his opinion there isn’t much of a difference in views, saying that these are more of a ‘degree rather than of kind’.
Looking at today’s calendar, it’s another very quiet day for economic data with nothing of note out in the US session and just UK public sector net borrowing data due in the European session this morning. Away from that, the BoE is due to publish a paper on the bank stress test process while BoE Governor Carney is due to speak this evening. Fedspeak wise we’re due to hear from Powell again on liquidity in the Treasury market. Meanwhile it’s a bumper day for corporate earnings in the US with 31 S&P 500 companies due to report, the highlights being General Motors, Coca-Cola and Boeing pre-market and eBay which is due to report post the closing bell.
Oh and watch out for time travellers as you go about your day.