After economic optimism based on “soft” surveys and stronger than expected earnings lifted stocks around the globe in the first two days of the week, it was the turn of earnings to push them down again. European, Asian stocks and S&P futures all fall as oil prices slumped and Apple Inc.’s results disappointed.

Yesterday, the S&P 500 ended the day with a -0.38% drop led by declines in the consumer discretionary sector. Following disappointing earnings reports there were double digit declines for Under Armour and Whirlpool in the sector, while General Motors also tumbled -4% as investors looked through better than expected Q3 numbers and decided that we may have seen the peak in auto sales. Other corporates to feel the pinch yesterday following earnings were 3M, where shares closed down nearly -3%, and also Caterpillar.

Meanwhile, the big earnings focus was Apple’s Q4 numbers. While revenues for the fourth quarter confirmed the first annual decline in revenue since 2001, the headline sales number was in line with the consensus while earnings were a fraction ahead. Shares were initially up 3% in extended trading with that news however once the details were sifted through, shares reversed and were actually down over -3%. Guidance on margins for the December quarter was a little lower than hoped, while some also pointed towards a disappointing decline in selling prices for its smartphones.

Analysts were generally not happy with the world’s largest company by market cap: “Apple’s forward expectations aren’t great and it’s susceptible to more of a pullback,” said James Audiss, Sydney-based senior wealth manager at Shaw and Partners Ltd., which oversees about $7.5 billion. “Apple does speak directly to the region as a lot of its supply chain is in Asia, and that will add to weakness,” said Michael McCarthy, chief market strategist in Sydney at CMC Markets. Asian earnings have been generally positive so far, he said.

Putting earnings season to date in context, the S&P has have barely moved since Alcoa Inc. kicked off the reporting season two weeks ago as U.S. and European earnings failed to offer clear cause for optimism. While the big banks, namely Goldman, Citigroup and JPMorgan started off Q3 season strong and beat forecasts, disappointing results from Lloyds Banking Group Plc, Daimler and Caterpillar, among others, have muddied the outlook for global growth. That leaves earnings from companies including Amazon.com, Deutsche Bank and Volkswagen in focus this week. Exacerbating the uncertainty: skepticism about major oil producers’ ability to agree output reductions.

The good news, at least for now, is that concern over the outcomes of the U.S. presidential election and Federal Reserve policy has eased, reducing overall volatility. Bank of America Merrill Lynch’s GFSI Market Risk Index, a measure of future price swings implied by options trading on global equities, interest rates, currencies and commodities, has fallen to the lowest since 2014. Hillary Clinton’s odds of victory in next month’s vote are close to the highest on record at 86.5 percent, according to forecaster FiveThirtyEight, and futures trading indicates a 73 percent chance of a U.S. interest-rate hike by December.

After yesterday’s blistering move in commodities, especially metals, higher, crude oil slid 1.3% to $49.29 a barrel in New York in early trading as the market focused on a warning by Russia which confirmed our warning from the weekend, namely that output cuts aren’t an option for Russia, according to Interfax. American supplies rose by 4.75 million barrels last week, industry data showed before Wednesday’s release of official figures.  Putting further pressure on oil is the ongoing collapse in Brent time-spreads, with the Z6-Z6 spread, shown below, now the widest since January.

“The recent drop in oil prices is partially responsible but also indices continue to struggle for momentum as they attempt to break above their recent highs,” said Craig Erlam, senior market analyst at OANDA.

In FX, the big movers was the Australian dollar which strengthened 0.6 percent after consumer prices in Australia increased 1.3% from a year earlier, in the latest quarter exceeding the previous period’s 1 percent gain.

Asia stocks slipped amid the declines in oil prices following a larger than expected build in the latest API report, with Apple earnings, especially among AAPL suppliers, pressuring local markets. Energy companies led declines on the MSCI Asia Pacific Index, which slipped 0.2 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1.4 percent, led by an 11 percent drop in Great Wall Motor Co. after recommendation downgrades. South Korea’s Kospi index declined 1.1 percent after Hyundai Heavy Industries Co. tumbled 5.1 percent on mounting concern the shipbuilding industry faces more job cuts.  The ASX 200 (-1.5%) underperformed after strong Australian Q3 CPI figures beat expectations, reducing the likelihood of further RBA easing. The Nikkei 225 (+0.15%) traded flat for a bulk of the session.

The Stoxx 600 lost 0.9 percent at 10:38 a.m. in London. The equity gauge has failed to post a daily increase since Thursday as investor sentiment oscillates on mixed earnings. Energy producers slipped with oil Wednesday, while miners declined after reaching their highest prices since August of last year.

Among European companies moving on corporate results, as summarized by Bloomberg:

• Lloyds fell 1.8 percent as Britain’s largest mortgage lender posted a slide in profit after taking a charge to compensate customers who were wrongly sold loan insurance.
• Vinci SA dropped 1.8 percent, dragging construction companies lower, as its revenue fell.
• Bayer AG retreated 2.4 percent as its prescription-drugs unit, which is at risk of being sidelined after the takeover of Monsanto Co., spurred better-than-forecast earnings.
• Heineken NV fell 2.3 percent as Exane BNP Paribas noted that, while its third-quarter volumes beat forecasts, the “whisper” consensus estimate was probably higher than the official one.
• Kering SA, the owner of Gucci, led retailers to the best performance of the Stoxx 600’s 19 industry groups, rallying 7.6 percent after posting its fastest sales growth since 2012.
• Logitech International SA jumped 12 percent as the Swiss electronics manufacturer beat earnings and revenue projections.
• Banco Santander SA rose 0.9 percent after posting better-than-expected third-quarter profit.

The U.S will auction $34 billion of five-year nominal notes and $15 billion of two-year floating-rate debt. The yield on U.S. Treasuries due in a decade was little changed at 1.76 percent. American sovereign debt is saddling investors with losses for the third month in a row as speculation mounts that inflation will quicken and the Fed will boost interest rates. “The cyclical low for inflation rates has almost certainty past,” said Peter Jolly, the global head of markets research at National Australia Bank Ltd. in Sydney, who predicts headline consumer-price gains in the U.S. will rise above 3 percent early next year if oil prices remain at current levels. “That will help change market perceptions of inflation ahead, and put to rest deflation fears for now.” China’s 10-year government bonds fell for a third day amid concern policy makers are looking to increase scrutiny of wealth-management products, a move that would curb the flow of funds to the debt market.

Bulletin Headline Summary from RanSquawk

• European equities trade lower across the board in a continuation of softer energy prices and participants digesting large cap earnings — most notably Apple
• Limited movement in the major FX pairings this morning, with some much welcome calm returning to the GBP pairs as Cable reclaims 1.2200
• Looking ahead, highlights include US services PM! and New Home sales, DoE inventories and a host of earnings including GSK, Coca-Cola and Comcast

* * *

Market Snapshot

• S&P 500 futures down 0.4% to 2129
• Stoxx 600 down 0.8% to 340
• FTSE 100 down 1% to 6946
• DAX down 1% to 10649
• German 10Yr yield up 2bps to 0.05%
• Italian 10Yr yield up 4bps to 1.42%
• Spanish 10Yr yield up 3bps to 1.11%
• S&P GSCI Index down 0.7% to 370.5
• MSCI Asia Pacific down 0.2% to 140
• Nikkei 225 up 0.2% to 17392
• Hang Seng down 1% to 23325
• Shanghai Composite down 0.5% to 3116
• S&P/ASX 200 down 1.5% to 5360
• US 10-yr yield up less than 1bp to 1.76%
• Dollar Index down 0.27% to 98.45
• WTI Crude futures down 1.4% to $49.27
• Brent Futures down 1.3% to $50.12
• Gold spot up less than 0.1% to $1,274
• Silver spot down less than 0.1% to $17.76

Top Healdine News

• Deutsche Bank Said to Weigh Alternatives to Cash Bonuses: Options said to include giving shares in non-core unit or bank
• Lloyds Shares Fall on Capital Questions, Quarterly Profit Drop: Some analysts discount capital boost driven by accounting move
• Apple Holiday Forecast Disappoints Given Samsung’s Troubles: Investors expected a more optimistic forecast for iPhone sales
• Big Oil Braces for Profit Pain as Refining Safety Net Slips: Global oil-processing margins shrank 42% last quarter: BP data
• Chevron’s 28 Years of Dividend Growth on the Line Amid Rout: ‘No one wants to be the CEO who breaks the streak.’ – analyst
• IBM Teams Up With Slack to Build Smarter Data-Crunching Chatbots: The two companies will release a developer toolkit that includes Watson technologies and can integrate easily into Slack
• Turbines From Outer Space Lift Lockheed Into New Energy Frontier: Company looking to commercialize its lithium-ion batteries

Looking at regional markets, we start in Asia where stocks slipped amid the declines in oil prices following a larger than expected build in the latest API report, while Apple earnings also added to the softer tone in which the tech giant missed on its revenue despite an EPS beat. ASX 200 (-1.5%) underperformed following weak sales growth from Wesfarmers (-5%), while losses in the index were exacerbated after Australian Q3 CPI figures beat expectations, subsequently reducing the likelihood of further RBA easing. Shanghai Comp (-0.5%) and Hang Seng (-1.0%) tracked lower with the latter hampered by a spate of mixed earnings, while Great Wall Motors shares crashed amid reports that Beijing are to restrict the number of vehicles on road. The Nikkei 225 (+0.15%) traded flat for a bulk of the session with Apple suppliers pressured in Asia after its revenue declined 9%. In credit markets, JGB’s traded in subdued fashion, up marginally by 5 ticks. Australian bonds weakened in the wake of the CPI figures, in which the 10-yr yield pulled off session lows, while the curve saw some notable flattening.

Top Asian News

• With Economy Stable, China Steps Up Quest to Rein in Credit Risk: PBOC said to trial monitoring some wealth management products
• Tata Surprise Raises Deleveraging Doubts for Bond Investors: Tata Group was focused on being fiscally prudent under Mistry
• Jailed Former CNPC Head Says He Wrongly Approved Oilfield Sales: Former Chairman Jiang serving 16-year sentence for corruption
• Galaxy Casino Beat Quarterly Profit Estimates on Tourist Visits: Profit jumps 28%, lifted by mass market as VIP revenue fell
• Hyundai Motor Profit Declines 29% as Strikes Cut Production: Stronger won against U.S. dollar eroded repatriated earnings
• A Wary Japan Quietly Opens Its Back Door for Foreign Workers: Number of foreign workers almost doubles over eight years

In Europe, equities have opened softer this morning, (EuroStoxx -0.5%) following on from their Asian counterparts amid the fall in oil prices overnight and the fallout from earnings releases on both sides of the pond. Auto names underperform due to news of usage caps from the fastest growing market China, although Renault are in the green (+1.6%) due to a stellar earnings report. In the financial sector, Lloyds reported a slight miss on expectations and, adding to their woes, PPI issues remain unresolved with a further GBP lbin in charges (-3.1 %). In fixed income markets Gifts are softer this morning and drag the asset class lower as markets digest BoE’s Carney’s comment from yesterday, with some analysts noting that the comments point to no additional QE measures in November if at all. Supply today in the US comes in the form of a US 5yr and 2yr FRN.

Top European News

• Paschi CEO Sees Slow Pace of Consolidation Among Italian Banks: Investors are looking for ‘long-term stability,’ CEO says
• Ericsson Names Wallenberg Insider as CEO to Revive Its Fortunes: Analyst: ‘Hard to see this as a fresh wind coming in’
• Bayer Confident It Can Resolve Monsanto Product Overlap: Bayer crop business is resilient in difficult environment, CEO Werner Baumann says in Bloomberg TV interview
• Dong Hired JPMorgan for Advice, Hasn’t Decided to Divest Oil&Gas: not considered long-term strategic commitment

In FX, the Bloomberg Dollar Spot Index fell 0.1%, extending Tuesday’s retreat from a seven-month high. The euro strengthened 0.2 percent. The Australian dollar strengthened 0.6 percent versus the greenback, the best performance among major currencies. In the last quarter, consumer prices in Australia increased 1.3 percent from a year earlier, exceeding the previous period’s 1 percent gain. Australia’s two-year bond yield increased by two percentage points to a one-week high of 1.69 percent. The probability that the central bank will cut interest rates by mid-2017 dropped to 29 percent in the swaps market, from 37 percent on Tuesday.

In commodities, crude oil slid 1.3 percent to $49.29 a barrel in New York. Output cuts aren’t an option for Russia, the nation’s envoy to the Organization of Petroleum Exporting Countries said, according to Interfax. American supplies rose by 4.75 million barrels last week, industry data showed before Wednesday’s release of official figures. U.S. natural gas futures extended their decline to a seven-week low before Energy Information Administration data on Thursday that’s forecast to show fuel inventories probably grew last week. Warmer-than-normal temperatures are also expected through most of the U.S. from Oct. 30-Nov. 4, reducing demand for heating. Aluminum in Shanghai jumped as much as 5.2 percent to its highest level since 2014, extending a rebound on speculation that transport bottlenecks may have created a shortage for some users in China. The metal rose 0.3 percent in London. French electricity for delivery next month soared to a record after Electricite de France SA and the nation’s nuclear safety authority said that investigations at a third of the country’s 58 atomic reactors would unveil new anomalies. EDF’s reactors supply almost three quarters of France’s power.

DB’s Jim Reid concludes the overnight wrap

The S&P 500 ended the day with a -0.38% decline with the consumer discretionary sector in particular enduring a tough day. Following disappointing earnings reports there were double digit declines for Under Armour and Whirlpool in the sector, while General Motors also tumbled -4% as investors looked through better than expected Q3 numbers and decided that we may have seen the peak in auto sales. Other corporates to feel the pinch yesterday following earnings were 3M, where shares closed down nearly -3%, and also Caterpillar. The latter’s earnings are always an interesting read given that Caterpillar is bit of a bellwether for the industrial sector. While earnings bettered expectations for Q3, revenues slid more than expected while the outlook for the remainder of 2016 and 2017 was a bit more subdued than hoped. Indeed it was noted that 2017 sales are not expected to be significantly different than 2016 and that the balance of risks, particularly in the first half of the year, was tilted to the downside. While management pointed towards the improvement in commodity prices, it was also acknowledged that many trucks remain idle and there has been little evidence of a pickup in orders for new equipment.

It was a similar end for markets in Europe too. The Stoxx 600 closed -0.35% and erased an early gain of as much as +0.40% with earnings in the healthcare sector in particular weighing (Novartis and Roche). European Banks (-0.34%) also ended a run of five straight sessions of gains. A big chunk of the blame was on the Italian Banking sector after Banca Monte dei Paschi swung incredibly, from an early 20% gain, to a -15% decline by the close. The intraday high to low change was actually 39%.

Meanwhile, the big focus since markets closed last night has been on the Apple Q4 numbers. While revenues for the fourth quarter confirmed the first annual decline in revenue since 2001, the headline sales number was in line with the consensus while earnings were a fraction ahead. Shares were initially up 3% in extended trading with that news however once the details were sifted through, shares reversed and were actually down a little over -2%. Guidance on margins for the December quarter was a little lower than hoped, while some also pointed towards a disappointing decline in selling prices for its smartphones.
This morning in Asia major bourses have generally followed the lead from the US yesterday. The Hang Seng (-0.69%), Shanghai Comp (-0.37%), Kospi (-1.33%) and ASX (-1.76%) are all currently in the red, while US equity index futures are also trending lower following those Apple numbers. Only the Nikkei (+0.06%) is up as we go to print.

Also weighing on bourses this morning is the decline for Oil with WTI currently -1.22% at $49.30/bbl as we type and the lowest level this month. That comes following a -1.11% decline yesterday with the finger of blame being pointed at Russia after the nation’s envoy at OPEC said that production cuts aren’t ‘an option for us’. That mirrors similar comments we heard from Iraq earlier this week. The latest American Petroleum Institute inventory numbers haven’t helped either, with the data showing that crude inventories rose 4.8m barrels last week. The official EIA inventory numbers are due today.

Elsewhere, the big mover in FX markets is the Aussie Dollar which is up over half a percent after headline CPI (+0.7% qoq vs. +0.5% expected) rose more than expected in Q3. That has seemed to offset the concern about lingering soft core inflation with the average of the RBA measures coming in at just +0.3% qoq for the quarter. There has also been some data in China where the Westpac consumer sentiment reading for this month has increased 1.9pts to 117.1 and the highest since April.

Moving on. As has so often been the case in the last couple of months, Sterling was one of the other main stories in markets yesterday. At one stage in the early afternoon the Pound tumbled to an intraday low of $1.2083, or some -1.27% lower. However as BoE Governor Carney spoke the Pound recovered. His comments weren’t particularly groundbreaking but it was enough of a calming influence for the market. Speaking in front of the House of Lords, Carney said that there were limits to officials’ willingness to look beyond an overshoot of their inflation target and that officials’ were not ‘indifferent to the exchange rate’. The Pound recovered a decent amount of that fall to close ‘just’ -0.41% lower at $1.2188. It’s holding that level this morning as we type. Weakness in Sterling did however help the FTSE 100 (+0.45%) to outperform yesterday.

Staying with the macro, yesterday’s data in the US was a bit of a mixed bag but it was the underwhelming consumer confidence reading which caught the eye and ultimately contributed to that damper mood for risk. The headline 98.6 print for this month was down from 103.5 in September (which was revised down) and also lower than the market consensus of 101.5. The details showed that both the present conditions (120.6 from 127.9) and expectations (83.9 from 87.2) gauges fell, while the share of those who said jobs were plentiful also decreased to 24.3% from 27.6%.

Elsewhere, there was better news in the latest IBD/TIPP economic optimism reading which was up 4.6pts and more than expected to 51.3 (vs. 47.5 expected) this month. The Richmond Fed manufacturing index reading was up 4pts and in line with the market at -4. Finally the latest housing market data showed that house prices in the 20 largest US cities were up +0.24% mom and a bit more than expected in August according to the S&P/Case-Shiller index. That puts the YoY rate at +5.13% from +4.98%. Meanwhile in Europe the highlight was the Germany IFO survey which revealed a 1pt increase in the headline business climate reading to 110.5 (vs. 109.6 expected). Sovereign bond markets were quiet again yesterday. 10y Bund yields edged up just shy of 1bp to 0.028% while 10y Treasury yields (+3bps to 1.766%) continue to remain stuck in this 1.70-1.80% range that they’ve been in for the best part of 3 weeks now.

Speaking of rates, ECB President Draghi had a few things to say on the subject yesterday. He argued that ‘the type of actions we need, if we want interest rates at higher levels, are those that can raise the natural rate’ and that ‘this requires a focus on policies that can address the root causes of excess saving over investment – in other words, fiscal and structural policies’.

Looking now at the day ahead. This morning in Europe we’re kicking off in Germany where the September import price index reading will be released, along with the latest consumer confidence print. France will also release its latest consumer confidence print a short time after. This afternoon in the US the highlight will likely be the remaining October flash PMI’s (both services and composite prints due). Also important is the advance goods trade balance reading for September where a slight widening in the deficit is expected. This might be one of the few remaining releases which could influence forecasts for Friday’s GDP print. Also due out is the wholesale inventories reading for last month, and new home sales data. Away from the data the only notable speaker on the cards today is the ECB’s Praet this evening. Expect earnings to also continue to be front and centre with 43 S&P 500 companies due to report. The highlights include Coca-Cola and Boeing prior to the open. In Europe results from GSK and Bayer are also due.