Overnight global market action could be described with one word: disappointment in Mario Draghi’s bazooka which, as we warned previously, ended up being a water pistol: “The market was hoping for some Draghi magic, but instead got some Draghi shock” said Mitsuo Shimizu, deputy general manager at Japan Asia Securities. The result was a drop in European stocks for the second day as Asian shares tumbled, while global bonds held losses.

As Bloomberg shows in assessing the level of disappointment from the ECB’s meeting, look no further than the Euro-area bond market. Short-term yields in countries from Germany to Spain to Finland had sunk to record lows ahead of Thursday’s announcement. By the close, German 10-year bond yields had risen the most since 2011. European stocks sunk 3.1 percent on Thursday.

Whether Draghi’s action was driven by structural constraints and the previously laid out concerns that the ECB may run out of monetizable assets sooner rather than later, by a gentle reminder to markets that the level of risk assets is no longer the primary concern of central banks around the globe, or by a mutiny by the Germans on governing council to which Draghi had no choice but to relent is now irrelevant: what is relevant to hundreds of money managers who were positioned incorrectly into the ECB announcement are the massive P&L losses in the tens of billions suffered by hedge funds across the globe, who believed Draghi’s latest “whatever it takes” promise only to be left holding the bag. Who will be the next Fortress and BlueCrest will be revealed in the coming days if not hours.

For now, however, optimism in the US futures market appears to have returned, and as of this moment US equity futures are higher by 9 points to 2060 as the attention shifts to what, according to BofA, is truly the most important ever.

It is unclear just how the algos would take a second consecutive major disappointment in a row: should today’s NFP print be well below the 200,000 consensus, December rate hike odd will tumble and the EUR will surge even more after declining modestly from overnight highs just below 1.10, leading to even more losses in European equities and spilling over to the US.

In any event, since very few truly important things happens by accident, be prepared for another major disappointment if  the Fed wishes to keep its December options open “just in case” in the aftermath of the ECB’s unexpected relative tightening.

There is not much to be optimistic about in crude oil, which is trading at overnight highs currently on what appears to be algo-driven confusion over headlines from the OPEC meeting which started just hours ago.  As Bloomberg reports, WTI climbs for 2nd day, extends gains after slew of OPEC headlines before ministers gathered behind closed doors to discuss output policy, while Brent mirrors WTI momentum, climbs above $44/bbl. “There has been a bunch of headlines coming out of OPEC with each contradicting the other,” says Petromatrix analyst Olivier Jakob. “It is difficult to trade in front of OPEC – the general consensus is for nothing, but when we get a soundbite that creates a bit of a reaction.”

So with all of this, here is how markets stand right now:

• S&P 500 futures up 0.4% to 2059
• Stoxx 600 down 0.4% to 371
• FTSE 100 down 0.2% to 6263
• DAX down 0.3% to 10758
• German 10Yr yield down 1bp to 0.65%
• MSCI Asia Pacific down 1.1% to 132
• Nikkei 225 down 2.2% to 19504
• Hang Seng down 0.8% to 22236
• Shanghai Composite down 1.7% to 3525
• US 10-yr yield down 3bps to 2.29%
• Dollar Index up 0.58% to 98.18
• WTI Crude futures up 0.9% to $41.47
• Brent Futures up 0.8% to $44.20
• Gold spot down less than 0.1% to $1,062
• Silver spot up 0.3% to $14.14

A look at regional markets shows Asian stocks trading lower following the weak close on Wall Street after the ECB disappointed markets by announcing a stimulus package that did not meet dovish expectations. Nikkei 225 (-2.2%) and ASX 200 (-1.5%) underperformed amid sharp broad based losses with a firmer JPY against the USD weighing on Japanese exporters, while the Shanghai Comp. (-0.5%) was dragged lower by losses in financials as the CSRC announced the resumption of IPOs, while margin debt balance also declined. Finally, 10yr JGBs tracked bunds and USTs lower amid spillover selling following the aforementioned ECB decision, while the BoJ entered the market to purchase JPY 1.08trl of government bonds ranging from the short end to super long end.

Top Asian News

• China’s Bond Leverage Tops $1.2 Trillion in Replay of Stock Boom: Authorities seen using incremental curbs to cool market
• China to Start Stock Circuit Breaker After New Year, Caixin Says: Rules revised to shorten share suspension time
• Singapore Said to Mull Options for SMRT Including Train Sale: Govt to make proposals as early as 1Q 2016
• Modi’s Japan Nuclear Deal May Need More Than Just Abe Visit: Indian prime minister seeking technology, funding cooperation
• Didi, Lyft Enter Four-Way Alliance to Take on Uber for Rides: Ola, GrabTaxi complete global ride-hailing partnership

European markets appear to be in limbo this morning, still feeling the effects of yesterday’s ECB meeting, while also looking ahead to today’s US nonfarm payroll report and OPEC meeting. European equities have seen softness in early trade, with Euro Stoxx lower by 0.75%. Energy and material names are among the best performers so far today, with the sectors paring some of the heavy losses seen over the past few days and with some of the comments out of OPEC delegates suggesting that keeping production at current levels is not a definite outcome.

Fixed income markets have seen Bunds grind higher throughout the morning after their sharp fall yesterday, while interestingly flatter ECB dated EON lAs now price in a small or no further deposit rate cut from the ECB in 2016.

Top European News:

• U.K. to Keep Selling Lloyds Stock Under Extended Plan: govt says trading plan to be extended to mid-2016
• CaixaBank Sells Inbursa, Bank of East Asia Stakes to Parent: to get EU2.65b for stakes, deal seen completed in 1Q 2016
• Motorola Agrees to Buy U.K.’s Airwave for $1.2b: Airwave’s communications network serves U.K. first responders
• BBVA Bids for Turkey’s Finansbank, El Confidencial Reports: BBVA at final stages of bidding process for Finansbank along with ING and a fund from Qatar
• Abengoa Seeks EU600m Through March, El Mundo Reports: funds needed to meet most urgent costs over next 4 months
• LVMH’s TAG Heuer Has Orders for 100,000 Smartwatches: Le Matin: is suspending online sales as brand can only produce 1,200 smartwatches a week
• Norwegian Property Received Indicative Bids for Some Assets: Arctic Securities, Union Corporate, Thommessen mandated to assist in a potential sales process
• Philips Says It’s Not Interested in Bidding for B&O: Borsen: cites spokesman for Philips
• Ladbrokes Appoints John Kelly Chairman of the Board: says appointment with immediate effect
• Renault’s Ghosn Says 2016 Likely to Be Better Than 2015: Figaro: says co.’s financial solidity no longer a question

FX markets also appear to still be adjusting to yesterday’s less dovish than expected announcement from ECB’s Draghi, with EUR the notable underperformer to pare back some of the strength seen in the immediate aftermath of the announcement. However, EUR/USD still resides around 1.0900, while EUR/GBP has fallen back below the 50, 100 and 200 DMA.

In commodities, the energy complex has seen a bid in recent trade, with WTI and Brent Jan’16 futures trading around USD 41.50 and above USD 44.00, amid comments from OPEC members suggesting that oil demand continues to rise and many members are in favour of a cut. The UAE’s Oil Minister stated that oil demand continues to appear to be growing as a result of US and European growth and Ecuador’s Oil Minister has said that at least 6 OPEC members will back a proposal to cut production. Of these 6 countries, Venezuela is leading the way in terms of trying to reduce production and have proposed that OPEC cut by 5% in order to bolster prices.

However, analysts expect OPEC to maintain output at current levels today as Saudi Arabia announced that they would only consider reducing production if other OPEC and non-OPEC countries followed suit and it looks like a difficult task facilitating such an agreement. This is due to other non-OEC oil producers, most notably Russia having no desire to cut output. This comes after comments made by the Russian oil minister yesterday, who outlined the Russian strategy of maintaining output.

Looking ahead, as well as the much anticipated Nonfarm payroll report and OPEC meeting, today also sees Canadian unemployment data and comments from ECB’s Nowotny, Smets, Visco and Draghi and Fed’s Bullard, Harker and Kocherlakota.

Bulletin Headline Summary from Bloomberg and RanSquawk

• EUR underperforms to pare back some of yesterday’s ECB inspired gains
• European equities trade lower following on from US and Asia as global markets react to Draghi’s less dovish than expected measures
• As well as the much anticipated nonfarm payroll report and OPEC meeting, today sees Canadian unemployment data and comments from ECB’s Nowotny, Smets, Visco and Draghi and Fed’s Bullard, Harker and Kocherlakota
• Treasuries steady before reports forecast to show U.S. economy added 200k jobs in November with the unemployment rate holding at 5%.
• After raising its benchmark this month for the first time since 2006, the Fed will be cutting again before the end of 2016 as the U.S. economy runs out of steam, according to StanChart chief economist Marios Maratheftis
• OPEC looked on track to maintain the status quo after member states gave the strongest signal yet they wouldn’t agree to curb output at the group’s meeting in Vienna on Friday
• When Glencore Plc meets with shareholders next week, one big question on the minds of investors will be how long the company’s credit rating can withstand an ongoing slide in commodity prices
• Germany’s Bundesbank lowered its inflation forecasts for the next two years and kept its growth outlook unchanged, saying the country’s economy remains “healthy”
• Outstanding repo in China’s interbank market, used by debt investors to amplify their buying power, surged to $1.25 trillion in November, the highest level since at least 2012
• Federal agents have discovered preliminary evidence that suspected San Bernardino gunman Syed Rizwan Farook was in contact with at least one person who had been the subject of a terrorism probe by the FBI, according to two U.S. law enforcement officials
• Greece bowed to Europe-wide criticism over its lax refugee policies by calling on EU patrols and emergency workers to monitor its Aegean Sea borders and process asylum-seekers fleeing war in the Middle East
• NATO offered membership to Montenegro, extending its reach deeper into southeastern Europe and potentially adding to tensions with Russia
• German lawmakers approved sending reconnaissance warplanes into Syria, taking Merkel into dangerous territory by joining Europe’s intensified fight against Islamic State
• $5.85b IG priced yesterday, $1.8b HY. BofAML Corporate Master Index OAS -1bp to +162, YTD range 180/129. High Yield Master II OAS narrows 12bp to +632, YTD range 683/438
• Sovereign 10Y bond yields mixed. Asian stocks fall, European stocks extend yesterday’s rout, U.S. equity-index futures gain. Crude oil and copper higher, gold unchanged

DB’s Jim Reid completes the overnight event wrap

There was a lot of screaming and howling in markets yesterday as the ECB made a mockery of all the high expectations for aggressive action. Not only did they disappoint but they gave no indication that they were on the brink of doing more in Q1. On such occasions it’s tempting to blame markets for getting ahead of reality but it does feel to us that the ECB have made communication errors in the last month or so that led to us all expecting much more. Our European Economists wondered whether Draghi failed to build a consensus for further action and had underestimated his ability to do so in recent weeks. They suggest that he yesterday changed emphasis in his comments towards the positive developments on growth after not having done so for the last few weeks which have helped expectations to build.

The main consequences for the Euro economy could be through the exchange rate and through tightening of financial conditions. Our European Economists’ forecast for 2016 growth of 1.6% was helped by an assumed 5% decline in the trade weighted index. If the currency doesn’t decline this would reduce by 0.2%. In terms of financial conditions, one day’s move doesn’t make a trend but the initial moves in equities, bonds and the currency already go someway towards tightening conditions. It’ll be interesting to see if they go further. Much might also depend on inflation expectations after this announcement. It doesn’t feel like a “whatever it takes” moment so will the market start re-pricing lower inflation again?

So in the terms of markets, European equities were broadly 3-4% lower by the close of play. The Stoxx 600 in particular closed down -3.14% which was the biggest single day slump since August 24th. The high-to-low range on the index of 4% was even more impressive. There were some huge moves in the Euro too. The single currency eventually closed +3.06% higher at $1.094 but again it was the h ge +4.34% intraday swing off the day’s low mark which was more telling – a range spanning a whopping 4 and a half big figures. In fact if we go back to the commencement of the Euro in 1999, yesterday was in fact the third biggest intraday range (by percentage) for the currency of all time and tenth largest by Dollar val e. The European bond market wasn’t to be outdone as 10y Bund yields climbed from 0.469% to 0.665% by the close, a move higher in yield of nearly 20bps and the most since August 2012. Moves in the periphery were even greater with Italy, Spain and Portugal up +25.2bps, +24.4bps and +21.8bps respectively, while 2y Bunds climbed off the record lows in yield to finished over +13bps higher at -0.315%. Unsurprisingly European credit indices came under huge pressure too, Crossover and Main finishing +17bps and +4.5bps wider respectively.

Markets in Asia this morning are trading with a similar negative tone. The Nikkei (-2.12%), Hang Seng (-1.08%), Shanghai Comp (-1.19%), Kospi (-1.02%) and ASX (-1.74%) are all heavily in the red as we go to print. Asia credit is a few basis points wider, while EMFX is the notable outperformer this morning, benefiting from the move lower for Dollar yesterday. The Euro is generally holding onto gains this morning.

So not an ideal build up to what could be the last payrolls number before the first US rate hike in 9 years. Market expectations are for a 200k print which would be down from that bumper 271k reading in October. DB’s Joe Lavorgna is a little less optimistic and is forecasting a 150k gain reflecting the payback from that big October surge. Joe believes that some of that strength reflected an earlier ramp-up in holiday hiring on the part of retailers, case in point being the big gain in retail trade during October which was the largest increase since November of last year. Joe also highlights the weakness in the non-manufacturing ISM yesterday and in particular the drop in the employment subcomponent. The headline reading declined 3.2pts to 55.9, the biggest one-month decline since November 2008. Interestingly the employment component declined a substantial 4.2pts to 55.0 last month. The last time this series fell by a similar amount was this past January (-4.1pts to 51.6) and this decline accurately foreshadowed a slowdown in the rate of private service sector hiring – job gains in the sector slowed to 151k in January 2015 from 255k in December 2014.

Oil markets staged a bit of a recovery yesterday, helped by that weakness in the US Dollar and after the steep declines we had the day prior. WTI was back above $41 after rebounding +2.85% while Brent closed with a +3.62% gain. The other big event today is of course the OPEC meeting in Vienna where a press conference is scheduled for the late afternoon, although we’d imagine headlines will start appearing well before that.

The weakness that we saw in European risk assets extended over into US markets yesterday also, while more reinforcement from Fed Chair Yellen also added to a tough day for risk. The S&P 500 finished -1.44% which is the biggest single day fall since September 28th. 10y Treasury yields were up over +13bps by the close at 2.314%, while 2y yields (+1.6bps) struck a fresh closing high in the cycle at 0.952% (although did touch as high as 0.990%). In comments which largely reflected those she made on Wednesday, Yellen added that ‘I currently judge that US economic growth is likely to be sufficient over the next year or two to result in further improvement in the labour market’. She added to this ‘ongoing gains in the labor market, coupled with my judgement that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2%’.

In terms of the remaining US data-flow yesterday, initial jobless claims last week came in as expected at 269k. The final services PMI was revised down 0.4pts to 56.1, meaning the composite was nudged down to 55.9 from 56.1, albeit still the highest since May. Factory orders in October were slightly ahead of market at +1.5% mom (vs. +1.4% expected).

Over in Europe, the final Euro area composite PMI was nudged down 0.2pts to 54.2 for November. This was based on weaker than expected services readings in France and Italy. Our colleagues in E rope noted that the recent set of PMI’s in Europe point to a slight increase in euro-area momentum. They highlight however that euro area surveys have tended to be a bit more optimistic than hard data over the past two quarters. Case in point was the softer than expected October retail sales numbers for the Euro area yesterday (-0.1% mom vs. +0.2% expected).

In terms of the day ahead, there’s not much of note in the European session this morning with German factory orders data the only notable release. This afternoon in the US it’s all about the November payrolls print d e o t at 1.30pm GMT. The usual associated employment indicators will be released alongside including the unemployment rate (expected to hold steady at 5.0%), labour force participation rate (62.4% expected) and average hourly earnings (+0.2% mom expected). It’ll also be worth keeping an eye on the October trade balance reading, d e o t at the same time. It’s a b sy day for Fedspeak also with Harker (3.15pm GMT), Kocherlakota (9.00pm GMT) and Bullard (9.10pm GMT) all scheduled. ECB President Draghi is now said to be speaking at an event at the Economic Club of New York which will be watched closely in light of yesterday’s events. The aforementioned OPEC meeting is also due today in Vienna.