After yesterday’s rollercoaster session in both the S&P and in oil, where initially stocks soared alongside oil, only to promptly tumble as stops were taken out and as the refiners’ inventory strategy was exposed after the DOE’s latest weekly numbers were released, it has been a quieter session so far, though maybe not for China where stocks jumped at the open only to fizzle and close at the lows in what appears to be ever less intervention by the market manipulating “National Team.”

Much of the overnight action was again in FX , where after yesterday’s dramatic tumble in the USD we had seen a substantial rebound in the greenback especially against the EUR and the JPY, although at last check those gains had reversed somewhat, in turn pushing US equity futures off their session highs.  The most notable event of a relatively quiet European session saw the SNB keep rates unchanged as expected and reaffirm commitment to intervene which resulted in temporary volatility in CHF.

Without the ECB pushing extra easing, and without more liquidity from the SNB, and with the Fed expected to hike rates next week, it is not surprising that Europe has continued to meander lower over the past week. with miners and commodities rebounding as a result of Glencore’s pledge to cut debt to as low as $18 billion by end of 2016, scale back operations and sell more assets, becoming the latest mining company to respond to the deepening slump in commodities prices.

“There’s a confluence of events, none of which is horrendous in and of itself but which together have conspired to push markets lower and drag on investor sentiment,” said Daniel Murray, London-based head of research at EFG Asset Management. “People always get a bit nervous when you get a bit of a pull back. All eyes now are pointing towards the Fed.” 11 out of 19 Stoxx 600 sectors fall with financial services, retail underperforming and basic resources, utilities outperforming.

US equity futures, while going very much nowhere but doing so in a very staggered, jagged and algo-driven fashion, confirm one thing: there continues to be no liquidity in the market whatsoever.

There is one more central bank on deck today, with the Bank of England’s last policy decision of the year, due in a few minutes at noon U.K. time – nothing is expected. Elsewhere, oil rises from 6-year low after U.S. stockpiles drop. Asian stocks fall as the yen’s biggest gain in 3 months weighed on Japanese exporters and Australian bank shares decline.

This is how markets looked right now:

• S&P 500 futures up 0.4% to 2051
• Stoxx 600 down 0.2% to 363
• FTSE 100 down 0.3% to 6109
• DAX up less than 0.1% to 10598
• German 10Yr yield down 1bp to 0.59%
• MSCI Asia Pacific down 0.4% to 130
• Nikkei 225 down 1.3% to 19047
• Hang Seng down 0.5% to 21705
• Shanghai Composite down 0.5% to 3455
• US 10-yr yield up 1bp to 2.23%
• Dollar Index up 0.4% to 97.74
• WTI Crude futures up 0.3% to $37.26
• Brent Futures up 0.5% to $40.31
• Gold spot up less than 0.1% to $1,074
• Silver spot up less than 0.1% to $14.21

Looking closer at markets shows Asian equities traded mixed following the lacklustre lead from Wall Stree t as stocks have once again been pressured by rising global growth concerns. In turn, the Nikkei 225 (-1.3%) continued to feel the brunt of a stronger JPY, after the currency surged the most in 3-months. ASX 200 (-0.8%) dismissed the euphoria over of the stellar Australian Jobs report, with the index weighed on by financials. Shanghai Comp. (-0.5%) bucked the trend as participants digested news of long awaited IPO reforms, consequently showing regulators determination to maintain market stability. However, the index slipped into negative territory heading into the European open. JGBs traded in minor negative territory in what has been a quiet session for Japanese credit markets.

“If you’ve got cash you’re better off hanging on to it and seeing how this plays out,” Don Williams, Sydney-based chief investment officer at Platypus Asset Management told Bloomberg. “It’s going to get more difficult into the next calendar year and earnings growth is waning. We’re pretty circumspect.” 8 out of 10 Asian sectors fall with consumer discretionary, health care underperforming and materials, utilities outperforming.

Top Asian News:

• NZ Cuts Key Rate to 2.5% as Seen by Most Economists
• Australian Nov. Employment Rose 71,400 M/M; Est. 10,000 Fall
• Japanese Bought Net 73.1 Billion Yen Overseas Debt Last Week
• Australia’s Best 2-Month Jobs Gain Since ’88: Mirage or Miracle?: AU employers recorded the biggest back-to-back monthly job gains in almost 28 yrs
• Yuan Bears’ Appetite Whetted as PBOC Support for Currency Fades: Yuan headed for 4-yr low, as central bank cut its reference rate to the weakest since 2011
• Xi’s Pared-Back China Growth Minimum May Already Be in Peril: Monetary easing, has done little to spur economy at risk of undershooting 2015 growth target of 7%
• Jeweler’s World-Beating 378% Indian Rally Drubs Tiffany in Slump: Rajesh Exports Ltd. is betting a demand pick-up after gold slid to 5-yr low last week
• Core Core Means No One Is Sure How to Measure Japan’s Inflation: Consumers feel inflation is rising at a faster rate than gov’t headline CPI indicates

In Europe, sentiment remained cautious, while the looming holiday-thinned liquidity also exacerbated the price action across various asset classes. As a result, European equities (Euro Stoxx: -0.2%) initially saw significant weakness before coming off the worst levels of the session to trade flat, while Bunds were supported by the new depo rate which came into effect yesterday and allows the ECB to buy securities that trade below the yield of -0.20%. Material sector staged an impressive recovery having been under considerable selling pressure over the past few sessions, with Glencore (+9.5%) leading the pack after the commodity trading giant widened plan to cut debt.

Top

Sentiment remained cautious, while the looming holiday-thinned liquidity also exacerbated the price action across various asset classes. As a result, European equities (Euro Stoxx: 0.0%) initially saw significant weakness before coming off the worst levels of the session to trade flat, while Bunds were supported by the new depo rate which came into effect yesterday and allows the ECB to buy securities that trade below the yield of -0.20%. Material sector staged an impressive recovery having been under considerable selling pressure over the past few sessions, with Glencore (+9.5%) leading the pack after the commodity trading giant widened plan to cut debt.

Top European News:

• U.K. Oct. Trade Deficit GBP11.8B; Med. Est. Deficit GBP9.7B
• France Oct. Industrial Production +0.5% M/m; Est. Unchanged M/m
• France November Harmonized CPI +0.1% Y/y; Est. +0.2% Y/y
• Vodafone Seeks EU115m in Damages From KPN on Triple-Play Access: co. says KPN delayed its combined TV, Internet and phone offering by 3 years by not honoring existing commitments
• Technip Denies Merger Talks After Reports of FMC Discussions: co. comments in statement
• Centrica Says FY Earnings Outlook In Line With Expectations: says made good operational and strategic progress
• London Finance Vacancies Drop 32% as Banks Retreat, Survey Says: fall from October sharper than expected, Morgan McKinley says
• Billionaire-Backed Danfoss Seeks Takeovers as Cash Pile Grows: CEO says Danfoss can do bigger purchases with bond program

In FX, the most notable event of a relatively quiet European session saw the SNB kept rates unchanged as expected and reaffirm commitment to intervene which resulted in temporary volatility in CHF. While of note, GBP/USD traded relatively range-bound, with the price action contained by option related plays, with good size expiring strikes seen at 1.5200.

During Asia Pacific hours, Antipodeans were in focus, with AUD surging on the back of the blowout Australian jobs data , as the headline reading topped expectations printing the highest figure since July’00, which saw AUD/USD briefly break above 0.7300. While the stellar report also reinforces the RBA’s view that the economy’s prospects have improved. As noted last night, the Australian Employment Change (Nov) M/M 71.4K vs. Exp. -10.0K (Prey. 58.6K, Rev. 58.3K), highest reading since July 2000

In commodities, price action has been relatively choppy in the commodity complex overnight amid light news flow, with the likes of Brent and WTI drifting higher by around USD 0.40/bbl before paring back the gains ahead of the North American crossover. Separately Gold trade was mostly lacklustre and sideways during Asia hours as participants remain side lined ahead of the approaching Fed decision. Elsewhere, copper prices were stable overnight, while Dalian iron ore futures fell to a record low with the outlook subdued on speculation of weak demand from falling steel consumption.

On today’s calendar, key events include the latest initial jobless claims numbers as well as the November import price index print. Later this evening the November Monthly Budget Statement is due out. Away from this, the Bundesbank’s Weidmann is set to speak at a conference this evening.

Top Global News:

• Pound Gains Versus Euro as BOE Seen Maintaining Record-Low Rate: policy makers seen voting 8-1 to hold key rate at 0.5%
• BOE Is Caught Between Fed, ECB as Inflation Remains Below Target: ECB cut its deposit rate last week, Fed may hike next week
• Berenberg Pushes Back BOE Bank Rate Increase to May 2016: Only changes forecast date of move, bps amount stays the same
• SNB Keeps Deposit Rate at Record Low, Says Franc Overvalued; Jordan to brief reporters on SNB thinking at 10 a.m. in Bern
• Glencore Widens Plan to Cut Debt as Commodities Rout Deepens: commodities trader to cut debt to $18-$19 billion by 2016
• Greek Stocks Are World’s Worst as Banks Flood Market With Shares: lenders had record slump last month, trade near lowest ever
• Syngenta Shares Surge on Report of Renewed Offer From ChemChina: offer could trigger bidding war with Monsanto, Bernstein says

Bulletin Headline Summary from RanSquawk and Bloomberg:

• European equities initially saw significant weakness before coming off the worst levels of the session to trade flat, while Bunds were supported by the new depo rate
• SNB kept rates unchanged as expected and reaffirm commitment to intervene
• Today’s highlights include the latest US weekly jobs report, EIA natural gas storage change report and BoE policy decision/minutes
• Treasuries steady as European shares erase losses amid rise in mining companies; week’s auctions conclude with $13b 30Y bonds, WI 2.97% vs. 3.07% in November.
• China’s pared-back minimum growth rate may still be too high. So says a sizable minority of economists who flag the limitations of traditional policy tools
• OPEC’s crude production rose by 230,100 b/d in November to 31.695m b/d, highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia
• Glencore Plc pledged to cut debt to as low as $18b by end of 2016, scale back operations and sell more assets, becoming the latest mining company to respond to the deepening slump in commodities prices
• Iraq sought to increase pressure on Turkey to withdraw hundreds of soldiers from the semi-autonomous Kurdish region, escalating the dispute to the UN and threatening to cut trade ties with the government in Ankara
• While in power Sweden’s Moderate party urged voters to “open their hearts” to the waves of refugees flowing out of the world’s trouble spots. A year later — and now in opposition — the party is driving a wedge through the ruling coalition with calls for the borders to be closed
• $17.75b IG priced yesterday, no HY. BofAML Corporate Master Index OAS up 1bp to +166, YTD range 180/129. High Yield Master II OAS widens 7bp to +672, YTD range 683/438
• Sovereign 10Y bond yields lower. Asian stocks lower, European stocks mixed, U.S. equity-index futures gain. Crude oil lower, copper and gold higher

US Event Calendar

• 8:30am: Import Price Index m/m, Nov., est. -0.8% (prior -0.5%)
• Import Price Index y/y, Nov., est. -9.6% (prior -10.5%)
• 8:30am: Initial Jobless Claims, Dec. 5, est. 270k (prior 269k)
• Continuing Claims, Nov. 28, est. 2.155m (prior 2.161m)
• 9:45am: Bloomberg Dec. U.S. Economic Survey
• 9:45am: Bloomberg Consumer Comfort, Dec. 6 (prior 39.6)
• 12:00pm: Household Change in Net Worth, 3Q (prior $695b)
• 1:00pm: U.S. to sell $13b 30Y bonds
• 2:00pm Monthly Budget Statement y/y, Nov., est. -$66b (prior -$56.8b)

DB’s Jim Reid completes the overnight wrap

It’s certainly an uncomfortable December so far for risk. The commodity super cycle that occurred post the GFC continues to unravel fairly spectacularly. The problem being that a fair amount of debt was raised on the back of it which is why US HY and EM in particular are now in focus. In observing the commodity bubble burst one can’t help but shudder at the prospect of the bond bubble one day unraveling. For now while central banks remain big buyers and global inflation remains so low there is virtually no short term risk of such an event occurring. However imagine a scenario at some point in the future where DM inflation (even if only temporarily) looks like moving notably north of 2% and central banks aren’t able to buy bonds due to mandate constraints. Everything we’re seeing with commodities at the moment will be magnified many times over around the globe. Over the last 10-20 years most of the rolling bubbles have eventually mean reverted so it’s debatable whether bonds can escape the same fate. To stress again such an outcome is nowhere on the horizon at the moment but the commodity experience should be a warning sign that nothing lasts forever.

The focus for markets yesterday was once again on the huge volatility in the Oil complex, as it has been for the last week or so now. WTI finished the day down -0.93% and a bit above $37 and has made a new low for the fourth consecutive session now. That was after prices peaked at $39 in the mid-afternoon having surged nearly 4% after the US EIA said that crude inventories were down 3.6m barrels last week. That rally was short lived however with prices at one stage falling 5.5% from those highs, before stabilizing somewhat into the close, albeit still lower on the day. It was a similar pattern of trading for Brent which closed the day -0.37% and just above $40.

Those moves dictated much of the price action in risk assets. In Europe the Stoxx 600 (-0.43%) retreated into the close having looked like it was set to finish in positive territory before that tumble for Oil. In the US the S&P 500 finished down -0.77%, again also paring an earlier gain. Some of the weakness was also driven by tech names however with the Nasdaq (-1.48%) suffering a particularly steep fall as Apple (-2.2%) highlighted a broad-sell off for the sector. Meanwhile gains of nearly 12% each for Dow Chemical and DuPont on the back of the news of a potential mega merger failed to help offset the weaker tone in markets generally yesterday.

European credit markets were under pressure again yesterday with Crossover closing some +12bps wider. Moves were a lot more muted in US credit where indices closed broadly unchanged, although it was a busy day in the primary market there with nearly $18bn of deals pricing in what was the highest volume session since late October. That volume was dominated primarily by one issuer, Visa, who was out with a bumper 6-part $16bn offering – the fourth largest deal in US investment grade this year. Meanwhile the latest move in Oil saw US HY energy spreads finish +10bps wider, a smaller move relative to the +40bps, +45bps and +24bps seen in the prior 3 days, but still another leg wider and extending the record wides now to 1185bps.

Looking at the latest in Asia this morning, it’s been a bit of a mixed start across equity markets in the region. Gains are being led out of China where the Shanghai Comp (+0.40%) and CSI 300 (+0.64%) are both up modestly. The Nikkei (-1.23%) appears to be following more of the lead from the US last night, while the ASX (-0.84%) has fallen steeply despite some strong employment data out of Australia this morning, instead reflecting perhaps the reduced risk of any more near term cuts from the RBA. The Aussie Dollar is up 1% post the data. Meanwhile the NZD has pared back a little but was up a similar amount despite a cut from the RBNZ late last night, lowering the cash rate by 25bps to 2.5%. The currency stronger on the expectation that the move may also mark the end of the current easing cycle. Elsewhere this morning, Oil markets have rebounded nearly 1% in early trading, which has helped US equity futures to edge higher.

Brazil generated a few headlines again yesterday after the sovereign’s Baa3 rating from Moody’s was put on review for downgrade, moving it one step closer to junk. Brazil’s 10y yield jumped about 8bps post the news although a lot of chatter suggested it wasn’t a great surprise given S&P already has the sovereign at BB+. Our EM Economists did however highlight that the pace at which Brazil looks set to lose IG status from at least two agencies is happening a bit quicker than they expected. Shortly following the news Moody’s also announced that it had cut Petrobras’ rating deeper into junk at Ba3 (from Ba2), while also warning that the rating could be lowered further. All this adding to the woes for a company which is very much in focus at the moment given the current corruption investigations. In terms of what a Brazil downgrade to junk means for other Brazilian names, our Economists expect about $12bn of senior bank bonds to be at risk of forced selling giving the potential for a number of banks to lose IG status. They do however highlight that a potential loss of IG status has been well flagged in the market and so positioning is likely already reflecting this to some extent.

In terms of the economic data yesterday, in the US there was some softer than expected wholesale inventories (-0.1% mom vs. +0.2% expected) and trade sales (0.0% mom vs. +0.2% expected) data to report of for October. The USD was actually under pressure for much of the session, the Dollar index eventually closing -1.15% and while the data at the margin wouldn’t have helped, it’s probably a reflection of more of a bounce back for commodity sensitive currencies yesterday. In Europe the only data of note was out of Germany where the October trade surplus came in a tad higher than expected (EUR 22.5bn vs. EUR 21.7bn) as imports (-3.4% mom) fell stronger than exports (-1.2% mom).

There was a bit of ECB chatter as well yesterday, with ECB policymaker Nowotny out saying that markets had misjudged the state of the Euro area economy. Nowotny said that ‘it was absurd what expectations were expressed’ and that ‘I don’t believe the ECB’s communications policy gave a false signal’.

Looking at the day ahead now, we’re kicking off the European session this morning with data out of France where we’ll get the latest CPI print along with industrial and manufacturing production. Shortly following this will be the October trade numbers for the UK before we get the BoE rate decision around midday (no change expected). Over in the US this afternoon we’ll get the latest initial jobless claims numbers as well as the November import price index print. Later this evening the November Monthly Budget Statement is due out. Away from this, the Bundesbank’s Weidmann is set to speak at a conference this evening.