The unprecedented period of low volatility, in which the S&P hasn’t moved more than 1% in either direction, is now well into its 40th day and the muted overnight session has done nothing to put this streak in jeopardy with S&P futures once again hugging the flatline ahead of the widely expected 3:30pm ramp. European stocks were likewise little changed while Asia was fractionally higher depite a modest dip in the Nikkei. Emerging-market stocks gained with commodities, while the dollar dropped after the latest batch of weak US economic data quelled speculation the Fed will hike in September.

Among today’s top stories we have the latest Apple iPhone product launch, while the U.S. is said to weigh criminal charges against HSBC that could upend 2012 settlement; German industrial output unexpectedly tumbled by 1.5%, far below the expected 0.2% rebound, the biggest drop since 2014, which should be welcome news for the Dax as it means, what else, more easing by the ECB.

The overarching theme in global markets remains one of “bad news is good news” which meant that the MSCI Emerging Markets Index gained 0.4% at 9:51 a.m. in London, advancing for a fourth day, which together with South Korea’s won, climbed to their highest levels in more than a year as loose central bank policies did nothing to fade the search for higher yields. A stronger yen weighed on Japanese shares after a media report cast doubt on the central bank’s willingness to boost stimulus. The krona reached the strongest level in a week versus the euro after the Riksbank decided against extending its quantitative easing program. Copper touched a two-week high.

Taiwan Semiconductor Manufacturing Co., a major Apple Inc. supplier, climbed to a record amid speculation the U.S. company will unveil the iPhone 7 in San Francisco on Wednesday. In Europe, the Stoxx Europe 600 Index gained 0.2 percent.

According to Bloomberg, trading is the calmest it’s been before an ECB meeting since the start of quantitative easing in 2015. An oil rebound pushed Total and Royal Dutch Shell higher and helped energy producers post the biggest gain of the 19 industry groups on the index.  CMC Markets Plc tumbled 11 percent after the U.K. foreign exchange and spread betting broker forecast a decline in net operating income.

S&P 500 futures were little changed, after equities advanced on Tuesday amid speculation that the disappointing services-industry data will damp the likelihood of a Fed interest-rate increase in September. Philippine stocks dropped for a third day to their low for the quarter after foreigners pulled funds from the securities on each of the last 10 trading days. The country’s benchmark has lost 2.4 percent this week as President Rodrigo Duterte’s threat to swear at Barack Obama saw the U.S. president cancel a meeting with him.

Oil rose 1% as Iran hinted that it may soon drop its opposition to an oil-production freeze, with a senior official saying the OPEC member’s crude output is closing in on its pre-sanctions level and that limiting supply is “a political decision.” The Persian Gulf exporter is pumping 3.8 million barrels a day, approaching its daily target of 4 million barrels, Mohsen Ghamsari, director for international affairs at the National Iranian Oil Co., said Wednesday at a conference in Singapore. He said earlier in the week that Iran could reach its target in two to three months.

“Iran is close to the 4 million target, but the freeze is a political decision,” Ghamsari said, referring to Oil Minister Bijan Namdar Zanganeh. “We are now close to previous production levels, so now it depends on the minister’s decision.”

Treasuries due in a decade were little changed at 1.54 percent, after their yield slid seven basis points on Tuesday following the services data. Spain’s 10-year bond yield rose three basis points to 0.95 percent, the first increase in four days.

In Europe, bonds were little changed before the ECB meeting, with the yield on benchmark German 10-year bonds at minus 0.106 percent. Germany suffered another failed bund auction, when it sold only €3.95 billion of the €5 billion in 10 Year paper marketed at a record low yield of -0.11%.

Market Snapshot

• S&P 500 futures down less than 0.1% to 2185
• Stoxx 600 up less than 0.1% to 350
• FTSE 100 down less than 0.1% to 6825
• DAX up 0.2% to 10706
• German 10Yr yield up less than 1bp to -0.11%
• Italian 10Yr yield up less than 1bp to 1.1%
• Spanish 10Yr yield up 2bps to 0.95%
• S&P GSCI Index up 0.8% to 350.8
• MSCI Asia Pacific up 0.3% to 142
• Nikkei 225 down 0.4% to 17012
• Hang Seng down 0.2% to 23742
• Shanghai Composite up less than 0.1% to 3092
• S&P/ASX 200 up 0.2% to 5424
• U.S. 10-year yield up less than 1bp to 1.54%
• Dollar Index up 0.06% to 94.88
• WTI Crude futures up 1% to $45.30
• Brent Futures up 1.1% to $47.77
• Gold spot down less than 0.1% to $1,350
• Silver spot down 0.5% to $19.96

Global Headline News

• Apple Holds Product Event; Expectations Low as New iPhone, Watch Likely
• U.S. Said to Weigh HSBC Charge That Could Upend 2012 Settlement: U.S. prosecutors considering a criminal charge against a unit of HSBC related to conduct on its FX desk
• Fed’s Williams Says He Isn’t Jumping to Conclusions on Data: Williams sees inflation on track to reach Fed’s 2% goal; San Francisco Fed chief in wait-and-see mode on weak data
• Ackman Sets Sights on Beleaguered Chipotle and Its Insular Board: investor takes $1.2b stake in Mexican-food chain
• UBS Handed Setback in $2 Billion Mortgage Buy-Back Lawsuit: judge finds problems with 13 of 20 loans examined in May trial; special masters to review thousands of other loans, judge says
• Amazon Enters U.K. Restaurant-Delivery Wars With Prime Offering: Amazon will provide free delivery for its Prime customers; Just Eat shares fall as much as 5.3% as competition heats up
• New Cheniere CEO Says He’s Focused on Simplifying the Company: CEO strategy is far cry from expansion plans of founder Souki
• Hormel Names New CEO as Ettinger to Step Down Next Month

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Loking at regional markets, Asian stocks traded mixed despite the positive lead from the USwhere poor ISM data further reduced prospects of a September Fed hike, with Nikkei 225 (-0.4%) the underperformer on JPY strength. This saw the index decline by around 1% at the open with Japanese exporters reeling after USD/JPY fell aggressively below 102.00, while ASX 200 (+0.2%) traded flat as commodity advances kept the index afloat, despite a narrow miss on GDP figures. Chinese markets were mixed with Shanghai Comp (+0.1%) and Hang Seng (-0.2%) indecisive following several encouraging August operating results, while the PBoC remained reserved in its liquidity injection. 10yr JGBs were higher amid a risk averse tone in Japanese stocks, although upside was capped by a relatively small BoJ buying operation and amid reports of a lack of unison at the BoJ. As reported last night, the USDJPY slid after the BoJ is said to be struggling on forming a consensus regarding its approaching policy review, according to Sankei.

Top Asian News

• Australia Economy Grows at Fastest in 4 Years on Fiscal Stimulus: Public sector adds 1 ppt to quarterly growth
• Dark-Pool Firm Started by Bankers to Enter Hong Kong and Japan: Former Citi, UBS trader Richard Macfarlane heads Asian growth
• Tens of Thousands of Jobs Go as China’s Biggest Banks Cut Costs: Agricultural Bank’s staff numbers fall below 500,000
• Credit Suisse Promotes Chin to Markets Head Replacing O’Hara: Asset management head Varvel gets new responsibilities
• SoftBank’s Self-Driving Buses Are Coming Soon to Japan’s Roads: Co.’s automated buses could be navigating streets as soon as 2019
• Hanjin’s Ghost Ships Seek Havens as Food, Water Start to Dwindle: S.Korea weighs loan package to gain Hanjin port access

In European it has also been another subdued session, with equity markets relatively mixed amid light newsflow once again. The usual suspects are among the worst performers as financials remain the laggard, with UniCredit (-3.5%) underperforming after Italian PM Renzi stated the company will likely raise capital, dragging the like of Deutsche Bank (-2.5%) lower in tandem. Separately, the worst performer is Sports Direct (-10.8%), ahead of the Co.’s AGM and after an announcement premarket that profits will fall by a fifth this year. Elsewhere, energy names outperform today, benefitting from the recent upside in the commodity complex with WTI and Brent futures both higher on the day. Finally, fixed income markets also remain subdued, with participants awaiting the upcoming Bund auction. Of note, Italy also allotted EUR 2bIn 4.75% 2028 BTP via Exchange auction which saw the Italian Tesoro buy back 5 bonds.

Top European News

• German Industrial Output Unexpectedly Falls Most Since 2014: output slumped 1.5% vs estimated 0.1% increase
• U.K. July Manufacturing Shrank Most in a Year After Brexit Vote: Pharmaceuticals, transport lead 0.9% decline in manufacturing; industrial production rises 0.1%, boosted by oil and gas
• U.K. House Prices Decline for Second Month as Sales Soften: Halifax says quarterly growth is slowest since Dec. 2014
• Credit Suisse Promotes Chin to Markets Head, Replacing O’Hara: global markets unit has suffered losses in recent quarters
• Volkswagen Said in Advanced Talks With Jianghuai on Electric Car: electric vehicles will help VW meet China’s fuel- economy rules
• Riksbank on Hold as Record Stimulus Fans Swedish Recover: sees first rate rises starting 2H 2017; quantitative easing program maintained at current level

In FX, the yen appreciated 0.4 percent, after jumping more than 2 percent over the last two sessions. Bank of Japan policy board members are divided between those who support negative interest rates, those who want to expand government bond purchases, and others who oppose additional easing measures, Sankei reported, without saying who provided the information. South Korea’s won jumped 1.4 percent, leading gains in emerging markets. Taiwan’s dollar extended this week’s advance to 1.5 percent, the biggest three-day gain since 2009, after overseas investors pumped almost $600 million into the island’s shares over the last two sessions. Sweden’s krona was 0.2 percent stronger at 9.5125 per euro, after appreciating to 9.5016, the strongest level since Aug. 30. The central bank decision to keep the repo rate at minus 0.5 percent was forecast by all except one of 23 analysts surveyed by Bloomberg. The pound fell for the first time in six days versus its U.S. counterpart, sliding 0.4 percent to $1.3384 as a government report showed manufacturers cut production at the fastest pace in a year in July, after the June 23 vote to exit the European Union rocked the economy. Subsequent surveys have suggested the downturn proved short-lived.

In commodities, oil rose as Iran hinted that it could weaken its opposition to an oil-production freeze.  Mohsen Ghamsari, director for international affairs at the National Iranian Oil Co., said the nation’s crude output is closing in on its pre-sanctions level and that limiting supply is “a political decision.” Whether Iran is willing to freeze output will be a decisive factor in OPEC talks on stabilizing crude prices later this month in Algiers. West Texas Intermediate advanced 1.1 percent to $45.33 a barrel and Brent gained the same amount to trade at $47.79. Gold was little changed after its biggest daily increase since June amid diminishing chances of a U.S. interest-rate rise in September. Bullion for immediate delivery was at $1,349.15 an ounce. Silver fell 0.5 percent and platinum dropped 0.1 percent. Copper advanced 1.5 percent, leading a rally in industrial metals. Zinc and nickel gained 1 percent.

Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities trade relatively mixed as newsflow remains light in the wake of yesterday’s ISM disappointment
• In FX, the USD remains steady after yesterday’s sell-off with USD/JPY moving below 102.00 overnight alongside BoJ sources
• Looking ahead, highlights include BoC and Riksbank rate decision, UK Mfg. Production and comments from BoE Governor Carney

• Treasuries little changed as global equities mixed with emerging market stocks rallying on lower Fed rate hike expectations.
• San Francisco Fed Pres. John Williams says it “makes sense” to return to gradual pace of rate increases “sooner rather than later,” sees risks in letting an economy run “too hot for too long”
• China’s foreign-exchange reserves, the world’s largest foreign currency hoard, slipped by $15.9 billion to $3.19 trillion in August, the lowest level since 2011, as the central bank continued its defense of the currency
• U.S. prosecutors are considering a criminal charge against a unit of HSBC Holdings Plc related to conduct on its foreign- exchange desk imperiling an earlier deal that let the bank avoid prosecution
• On the surface, fear is nowhere to be seen. In its place — optimism that four more years of U.S. political gridlock will stymie efforts to loosen the fiscal purse strings, forcing central bankers to continue relying on the same easy-money policies that have driven asset values to unprecedented highs
• Sweden’s central bank is expected to deliver one final injection of stimulus in the form of more bond purchases later this year as policy makers in Stockholm struggle to keep up with record measures from the European Central Bank
• Government-bond bulls are keeping their expectations high before the European Central Bank’s meeting this week that policy makers will step up their asset-purchase program or adjust its rules to ease a perceived scarcity of bonds available to buy
• German industrial production fell 1.5% in July, the most in almost two years, as manufacturing suffered from subdued global trade
• U.K. manufacturers cut production 0.9% in July, the fastest pace in a year, as Brexit trauma rocked the British economy, a downturn that may prove short-lived
• China’s four biggest banks reported that staff numbers fell by the most in at least six years in the first half, highlighting the possibility that employment has peaked at the firms that are the world’s biggest providers of banking jobs

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DB’s Jim Reid concludes the overnight wrap

Yesterday the US non-manufacturing ISM hit its lowest level (51.4 vs. 54.9 expected) since February 2010 when this cycle had only just begun and the first non-state backed corporates issued bonds with a negative yield in Europe. A landmark moment as two such deals were launched. On this, when we discuss with clients as to why they would want to buy corporate bonds with a negative yield they remind us that they have cash and that the alternative is to be charged for holding said cash or buying government bonds at an even more negative yield. So we live in a world where cash unfortunately doesn’t yield zero. I’m sure students will look at this period in years to come and scratch their heads as to the absurdity of it all but investors are being as rational as they can be given the environment they’re operating in.

Yesterday’s two negative yielding landmark deals also came amid what was a bumper day for issuance on both sides of the pond. The day after the Labour Day holiday in the US is usually a popular day for new issues however the $22.5bn of deals across 14 names and 30 tranches was in fact the busiest this year by the number of companies and tranches. It was a similar story in Europe where it appears issuers are frontloading deals this week ahead of the ECB tomorrow. In total €11bn was said to have priced while there are a number of other mandates out there waiting on the sidelines. If cash or government bonds are the alternatives it’s hard to imagine the insatiable appetite for new credit issuance disappearing anytime soon.

Back to the ISM, our late cycle fears that US employment would soon start to respond to weak profits were raised a touch with the employment component 50.7 (from 51.4 last month and a 6-month average of 51.3) falling in yesterday’s report. DB’s Jerome Saragoussi ran a regression between payrolls and a combined ISM manufacturing (48.3 last week) and non-manufacturing employment component. He found the composite at 50.1 (current) is historically consistent with an underlying trend of job creation of around 30k/month. So a concerning development.

The subsequent knock on impact from the ISM data to markets was a reasonable re-pricing across the Fed Funds curve. Market implied September odds dropped to 24% from 34% immediately prior to the data. Overnight, the focus has been on comments from San Francisco Fed President Williams who was speaking on the economic outlook at an event in Nevada. There was little evidence in his speech that recent data has changed his view however, reiterating that the economy is ‘in good shape and headed in the right direction’ and that ‘it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later’. A non-voter this year, Williams added that ‘inflation is well within sight of and on track to reach our target’ in the next year or two.

After 2y and 10y Treasury yields dipped 5.8bps and 6.8bps lower yesterday respectively, yields are little changed in the Asian session this morning with Williams’ comments not causing much of a reaction in markets. There’s been no change to the 24% September hike probability as a result. The Greenback has faded modestly with the Dollar index building on a -1.07% loss yesterday with another -0.10% retreat this morning. Emerging market currencies have been the biggest beneficiaries over the past 24 hours while Gold and Silver, which rallied +1.73% and +2.79% respectively yesterday, are +0.14% and -0.01% this morning.

Elsewhere in Asia equity markets outside of Japan and Hong Kong are hovering in positive territory. The Shanghai Comp (+0.436), Kospi (+0.19%) and ASX (+0.04%) are up, however the Nikkei (-0.70%) and Topix (-0.68%) are being weighed down by a near 2% rally for the Yen since yesterday’s ISM data, while the Hang Seng (-0.27%) is also in the red. Elsewhere some marginally softer than expected Q2 GDP data in Australia (+0.5% qoq vs. +0.6% expected) has seen the Aussie Dollar pull back modestly this morning.

Moving on. In terms of the remainder of markets yesterday the initial reaction in equity markets was for markets to dip lower following the data. Indeed the S&P 500 fell as much as -0.36% from the pre-data highs only to then recover as the session wore on to close +0.30%. The Stoxx 600 had also been in positive territory for much of the session before sentiment swung following the data, falling to -0.33% and failing to recover from there. US credit indices were stronger meanwhile. CDX IG closed 1.4bps tighter and HY was 6bps tighter.

The rest of the US data, although largely secondary in nature, did little to help support the case for the bulls. The IBD/TIPP economic optimism reading for this month fell 1.7pts to 46.7 (vs. 48.1 expected) with the economic outlook component edging down 4.3pts to 40.3. Also of note was the decline in the labour market conditions index last month to -0.7 (vs. 0.0 expected) from +1.3. Aside from the positive reading in July, the index has posted a negative reading every month this year.

In Europe the only data to note was a slightly weaker than expected Germany factory orders reading for July (+0.2% mom vs. +0.5% expected) which our European economists noted was driven by a disappointing -1.5% fall in core orders. Elsewhere there was no change to the final Q2 GDP reading for the Euro area at +0.3% qoq and +1.6% yoy.

Staying in Europe, for those looking at political events in the continent DB’s Marc de-Muizon yesterday put out a note looking mainly at the themes around the French general election in 2017. His central case scenario (60%) is that a pro-reform, market-friendly, centre-right government will ultimately come through. Ex-Prime Minister Juppe appears more likely to win the nomination of the centre-right, ahead of ex-President Sarkozy. An alternative scenario (30%) would have a centre-right President without an absolute majority in Parliament. This may make it harder to implement a full reform agenda and would depend on the centre-right candidate’s overall popularity. As a tail risk (10%), under a scenario with many centrist candidates, they see a possibility of a candidate other than the centre-right one being the challenger to Le Pen in the second round. Under this scenario, based on polls, it would be difficult for Le Pen to ultimately win and the elected President would be unlikely to have an absolute majority in Parliament. Overall they expect the National Front to have a strong standing in the first round of the Presidential elections and in the Parliamentary elections, but it seems extremely unlikely that they will make it into power. However, compared to the last national elections in 2012, it seems very likely that they will improve their share of the national vote and obtain a historic number of seats in Parliament. This would increase their visibility on the economic policy debate in France, defending protectionist and anti-European policies. f

Before we take at look at today’s calendar, overnight the latest The House View titled “Waiting impatiently” was published. The team note that after kicking off with the surprise Brexit shock, the summer months were notably quiet for markets. But amid this resiliency, there is a question of whether looming macro risks will finally come into focus. A backdrop of sluggish growth and numerous macro risks leaves the team cautious on risk assets into year-end. They also cover several key themes for markets: the debate around the shift away from monetary easing to other forms of support; the implications for trade from the undercurrent of anti-globalisation sentiment; the outlook for Brexit and the US presidential election; and the nexus of weak growth, political uncertainty and ailing banks in Italy.

Looking at the day ahead, this morning we kick off in Germany again where industrial production data for July is due out. French trade data follows before we get a few reports out of the UK including August house price data and July industrial (-0.2% mom expected) and manufacturing (-0.3% mom expected) reports. Across the pond this afternoon in the US the sole data due out is JOLTS job openings for July, while the Fed’s Beige Book will also be released. China is also due to release August foreign reserves data at some stage where reserves are expected to fall modestly. This afternoon at 3pm BST the Fed’s Lacker and George are due to appear before the House Financial Services sub-committee on Monetary Policy and Trade so that will be worth keeping an eye on. Also speaking today are the BoE’s Carney, Cunliffe, Forbes and McCafferty at 2.15pm BST when they appear before lawmakers and testify for the first time since the referendum result. If that wasn’t enough, we’ll also get the outcomes of the latest monetary policy decisions from the Riksbank and Bank of Canada. Both are expected to leave current policy unchanged. So plenty to get through!