In a quiet overnight session in which Japan was closed, European shares are mixed as financials and auto weigh, Asian stocks rise led by materials while S&P futures little changed against a backdrop of the continuing commodity rally with oil holding near $48 a barrel, up fractionally on the session. Against a basket of currencies, the dollar index was up slightly at 101.12, very close to a 14-year peak. The dollar also kept most of its recent hefty gains on the yen at 111.05 though it has met resistance around 111.35 in the last couple of sessions

“I think markets had been a bit euphoric in the wake of Trump and now they are coming around to the understanding that there is not going to be fiscal stimulus that is going to be good for everyone” said Rabobank strategist Lyn Graham-Taylor said.

Emerging markets have struggled in recent days as surging U.S. bond yields sucked much-needed capital out of Asia. President-elect Donald Trump’s past talk of trade tariffs has also weighed on sentiment in the export-intensive region.

With Japan on holiday, Australia’s main index led the action in Asia with a rise of 1.35 percent to a one-month top helped by strength in bulk commodity prices. China’s blue-chip CSI300 index advanced 0.5 percent to a near 11-month peak as the yuan touched its lowest in six years.

Ahead of tomorrow’s Thanksgiving holiday in the US, European stocks were little changed, with miners leading gains after a metals index rose to the highest since June 2015 on Tuesday. Oil fluctuated after OPEC left unresolved participation by Iraq and Iran in the group’s plan to cut output. German two-year note yields touched a new record-low amid a scarcity of collateral and speculation the European Central Bank will ease policy at next month’s meeting. Treasuries gained before the Federal Reserve releases minutes of its November meeting.

“The reflation theme in the U.S. is dominating all markets,” said Christian Stocker, a strategist at UniCredit Bank AG in Munich, Germany. “In Europe the picture is a bit more complicate.d”

As Bloomberg notes, markets are flat ahead of U.S. economic reports including jobless claims, durable goods orders and consumer confidence for confirmation the Fed will hike rates next month.  As the chart below shows, the market-implied probability of a rate hike has been at 100% for the past few days, just as S&P hit new all time highs above 2,200.

Developed-market shares and the dollar have been among the biggest winners since Donald Trump’s surprise election victory fueled speculation of more fiscal stimulus in the U.S., while government bonds and emerging markets have slumped.

Futures on the S&P 500 Index rose less than 0.1 percent at 10:12 a.m. in London, after all four major U.S. stock benchmarks climbed to records on Tuesday.

The Stoxx Europe 600 Index slipped 0.1 percent, while the U.K.’s FTSE 100 Index added 0.6 percent. U.K. Chancellor of the Exchequer Philip Hammond is scheduled to outline a series of measures to help “ordinary working-class families” and stress that a stable economy, fiscal discipline and better productivity are the best ways to raise living standards in his Autumn Statement to Parliament on Wednesday.

Earlier today Europe reported Flash November PMI Data, which largely came in stronger than expected. As BBG notes, Euro-area economic growth accelerated to its fastest pace this year as growing order books prompted companies to add more workers and raise prices. A Purchasing Managers’ Index for manufacturing and services rose to 54.1 in November from 53.3 a month earlier, IHS Markit said on Wednesday. That’s the strongest level in 11 months and above the 50 mark that divides expansion from contraction.

• Eurozone Nov. Flash Composite PMI 54.1; Est. 53.3
• Eurozone Nov. Flash Services PMI 54.1; Est. 52.9
• Eurozone Nov. Flash Manufacturing PMI 53.7; Est. 53.3
• Germany Nov. Flash Composite PMI 54.9; Est 55
• Germany Nov. Flash Services PMI 55; Est 54
• Germany Nov. Flash Manufacturing PMI 54.4; Est 54.8
• France Nov. Flash Composite PMI 52.3 Vs 51.6; Est 51.9
• France Nov. Flash Services PMI 52.6; Est 51.9
• France Nov. Flash Manufacturing PMI 51.5; Est 51.5

The signs that recovery is gathering momentum should give some relief to
the European Central Bank as it faces a complex decision on Dec. 8
whether to extend its 1.7 trillion-euro ($1.8 trillion)
quantitative-easing program. President Mario Draghi said this week that
the recovery remains reliant on continued monetary support. However, any hints of rising inflationary pressures will be met with disappointment by the market which expects no changes from the ECB’s QE for the foreseeable future.

The yield on two-year German notes opened at a record low of minus 0.74 percent, before rising to minus 0.67 percent after the Reuters report. The rate on 10-year bunds jumped five basis points to 0.27 percent. Yields on 10-year U.S. notes were little changed at 2.32 percent. The U.S. will auction seven-year notes today. Japanese markets were for closed for Labor Thanksgiving Day. Banca Monte dei Paschi di Siena SpA said it expects holders of junior bonds to swap about a quarter of available notes for equity in the first crucial stage of its 5 billion-euro ($5.3 billion) rescue plan.

* * *

Bulletin Headline Summary from RanSquawk

• European equities trade mixed with participants awaiting Chancellor Hammond’s inaugural Autumn budget, while Bunds have been hampered by ECB source comments regarding measures of addressing bond scarcity
• Another relatively quiet morning in FX markets, but notable was the hit on EUR/USD, with players still gunning for 1.0500 on the downside
• Looking ahead, highlights include FOMC minutes, UK Autumn Statement, US mfg PMI, US Durables and DoEs

Market Snapshot

• S&P 500 futures up less than 0.1% to 2202
• Stoxx 600 down 0.1% to 341
• FTSE 100 up 0.6% to 6860
• DAX down 0.3% to 10680
• German 10Yr yield down less than 1bp to 0.22%
• Italian 10Yr yield up 6bps to 2.09%
• Spanish 10Yr yield up 2bps to 1.54%
• S&P GSCI Index down less than 0.1% to 370.9
• MSCI Asia Pacific up 0.5% to 136
• Nikkei 225 closed
• Hang Seng down less than 0.1% to 22677
• Shanghai Composite down 0.2% to 3241
• S&P/ASX 200 up 1.3% to 5484
• US 10-yr yield down 2bps to 2.3%
• Dollar Index up 0.11% to 101.15
• WTI Crude futures up 0.4% to $48.22
• Brent Futures up 0.3% to $49.26
• Gold spot up less than 0.1% to $1,212
• Silver spot up less than 0.1% to $16.66

Top Headline News

• US Oil Trades Near $48 as OPEC Fails to Agree on Iraq, Iran: Iraq, Iran output levels left for Nov. 30 meeting to resolve
• Facebook May Have Tool to Return to China, But No Government OK: Social network operator said to lack Beijing office license
• IAC Directors Sued Over Creation of Non-Voting Class of Shares: Chairman Diller accused of seeking to cement control
• Dollar Rally Cools Before Thanksgiving as Traders Mull 2017 Fed: Traders less certain Fed will hike aggressively in 2017
• Trump Shifts Tone on Climate Change, Environmentalists Scoff: Says there is ‘some’ link between humans and global warming
• Monsanto Sued Over Alleged CEO, Board Bayer Merger Conflicts: CEO Grant may collect $18 million through deal, investor says
• Engine Capital Said Pushing Del Frisco to Seek Options: Reuters: Co. pushed to seek alternatives, including a sale

* * *

Looking at regional markets, we start in Asia where stock markets traded higher across the board following a positive lead from the US where all 3 major US indices extended on record highs, with DJIA breaking above 19,000 for the first time. The increased risk appetite filtered through to ASX 200 (+1.3%) which led the region and was also boosted by gains in the materials sector. Hang Seng (+0.1%) and Shanghai Comp (-0.2%) traded mixed, with the latter failing to extend on its best levels seen in 10-months, while Japanese markets remained shut for Labour Thanksgiving Day. PBoC injected CNY 100bIn 7-day reverse repos, CNY 80bIn in 14-day reverse repos, CNY 10bIn in 28-day reverse repos. PBoC set mid-point at 6.8904 (Prey. 6.8779).

Top Asian News

• Ex-StanChart Global Rates Head Said to Open Singapore Hedge Fund: Three Bamboo said to plan raising external money next year
• The ‘Widow-Maker’ Returns as Shorts Target Australian Banks: Short interest in big four lenders has climbed in past month
• China Selfie App Said in Talks for $5 Billion Valuation in IPO: Meitu plans to test demand with investors in U.S., London
• Crown Staff Face at Least Two Months Detainment on Arrest: Group of Crown employees were arrested last Friday
• HSBC Said to Advise Saudi Pension Fund on Financial Hub Sale: Parties discussing sale of struggling $8b district in Riyadh

In Europe, equities trade mixed with participants awaiting the Chancellor Hammond’s inaugural Autumn budget in which there are some expectations that the budget will entail a ban on letting fees. As such, property names have come under pressure thus far with Foxtons falling as much as 11%. Additionally, after yesterday’s debacle whereby Vinci shares fell just shy of 20% following a false report the company of pared the entirety of those losses. Fixed income markets have seen a bid this morning with much of the focus in the German 2yr after the yield fell to record lows of -0.745%, however has pulled off in recent trade. While political uncertainty in Italy remains at the forefront of investors’ minds which has been observed in the ITA-GER 10yr spread, now at the widest in 3-yrs. Heading into the US crossover, ECB sources suggested that the ECB are reportedly set to issue more bonds in order to avoid a market freeze, however, details may not be finalised in December. This subsequently weighed on prices given the supply impact with the Dec’16 Bund contract falling circa 50 ticks.

Top European News

• Euro-Area Economic Growth Gathers Pace as Orders and Prices Rise: Euro-area Nov. services PMI rises to 54.1 from 53.3
• German Two-Year Yields Drop to Record as ECB Speculation Mounts: Benchmark 10-year bunds hold gain before 2026 auction
• Lufthansa Cancels About 900 Flights Amid 2-Day Pilot Strike: Walkout extended to Thursday after effort to block strike
• Ericsson Falls After Reports of Corruption in Costa Rica, Poland: Reports on wireless network contracts at end of 1990s
• Credit Suisse’s Dougan Said to Land $3b for Merchant Bank: Firm backed by royal families, state funds to stake venture
• Innogy, Galapagos, Cembra to Be Added to Stoxx Europe 600 Index: Effective as of Europe market open on Dec. 19
• Crunch Time for Monte Paschi, and Italy, as Share Sale Looms: New CEO Morelli criss-crosses globe to pitch crucial offering

In commodities, the Bloomberg Commodity Index, which measures returns on raw materials, headed lower for the first time in four days, ending the longest bullish run in a month. Brent crude fluctuated after a three-day rally, trading little changed at $49.17 a barrel. Preliminary talks in Vienna ended without finalizing how OPEC’s second- and third-largest producers will participate in the deal to reduce production, deferring the matter until the group’s formal meeting on Nov. 30, two delegates said Tuesday. U.S. crude stockpiles fell last week, the industry-funded American Petroleum Institute was said to report. Government data due Wednesday is forecast to show a gain. The London Metal Exchange LMEX Index of base metals on Tuesday reached the highest level since June 2015. Copper was little changed Wednesday after the highest close in more than a year. Zinc fell while lead and tin rose.

In FX, the Bloomberg Dollar Spot Index was steady after climbing 4 percent since the election. Minutes of the Fed’s November policy meeting are expected to confirm officials were creeping closer to their first rate increase in a year even before Trump’s victory. “A December Fed funds 25 basis-point rate hike is fully priced in,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “The dollar will continue to be driven by the pace of the Fed’s tightening cycle beyond December.” The pound declined before Hammond’s budget update. The Australian dollar strengthened 0.4 percent, buoyed by a 7.3 percent gain in iron-ore futures in China. Malaysia’s ringgit fell 0.5 percent against the dollar, declining for an 11th day in the longest losing streak since December 2013 even as the central bank said it will continue providing liquidity for an orderly currency market. Bank Negara Malaysia held its overnight policy rate at 3 percent, a sign that policy makers have shifted their focus from spurring economic growth to supporting the ringgit. China’s yuan declined to a record in offshore trading, sliding as much as 0.1 percent to 6.9222 per dollar. The extra cost of options to sell the yuan against the dollar over contracts to buy rose to the highest since June 30.

Looking at the day ahead, the early release will be the October durable and capital goods orders data which generally speaking would be considered an important release however given that the data is for the month prior to the Election, the more important release will probably be next month’s print where we’ll get a better idea of the possible shift in order flow. Also due out in the US is the latest weekly initial jobless claims print, new home sales, FHFA house price index, flash manufacturing PMI and the final revisions to the University of Michigan consumer sentiment survey. The focus then turns to the FOMC minutes from the meeting earlier this month where most will be looking for a confirmation that the Fed will be tightening next month. Away from the data, the other big event today is the aforementioned UK Chancellor Hammond’s long awaited post-Brexit Autumn statement.

US Event Calendar

• 7am: MBA Mortgage Applications, Nov. 18 (prior -9.2%)
• 8:30am: Durable Goods Orders, Oct. P, est. 1.7% (prior -0.3%); Capital Goods Orders, Oct. P, est. 0.3% (prior -1.3%)
• 8:30am: Initial Jobless Claims, Nov. 19, est. 250k (prior 235k); Continuing Claims, Nov. 12 est. 2.008m (prior 1.977m)
• 9am: FHFA House Price Purchase Index q/q, 3Q (prior 1.2%)
• 9:45am: Bloomberg Consumer Comfort, Nov. 20 (prior 45.4)
• 9:45am: Markit U.S. Manufacturing PMI, Nov. P, est. 53.5 (prior 53.4)
• 10am: New Home Sales, Oct., est. 590k (prior 593k)
• 10am: U. of Mich. Sentiment, Nov. F, est. 91.6 (prior 91.6)
• 10:30am: DOE Energy Inventories
• 11am: EIA natural-gas storage change
• 1pm: Baker Hughes rig count
• 2pm: FOMC Minutes, Nov.

* * *

DB’s Jim Reid concludes the overnight wrap

Over in markets the pre-Thanksgiving holiday cheer has continued with the four major US equity markets once again recording fresh all time highs last night. Indeed the S&P 500 (+0.22%), Dow (+0.35%), Nasdaq (+0.33%) and Russell 2000 (+0.92%) all nudged higher despite a wobble midway through the session after Oil pared gains following a fresh batch of OPEC headlines (more on that shortly). It was also a decent session for risk in Europe with the Stoxx 600 recording a +0.23% gain with the miners leading the way following moves higher for base metals including the likes of iron ore (+6.48%), copper (+0.97%) and aluminium (+2.21%).

It was a good recovery day for European sovereign bond markets too with 10y Bund yields finishing 5.4bps lower at 0.216% and in fact having their strongest day since September 22nd. Yields in the periphery were also 5-9bps lower with the market seemingly playing catch up to the accommodative Draghi and ECB comments on Monday. In fact 2y Bund yields tumbled to -0.753% yesterday and to a fresh record low. With that move it now means that the spread between 2y Bunds and 2y Treasuries has blown out to 183bp which is in fact the highest now since 2005. It’s amazing to think that just 5 years ago Bunds traded about 130bps on top of Treasuries.

Meanwhile, as we’ve been somewhat accustomed to recently, a fresh flurry of OPEC headlines has had Oil whipsawing about again over the past 24 hours. WTI is hovering little changed around $48/bbl this morning but traded in a $2 range around that level yesterday after headlines suggested that OPEC talks in Vienna yesterday had failed to yield an agreement on whether or not Iran and Iraq would join production cuts, and instead deferred the decision to ministers at the meeting this time next week. That was despite Libya’s OPEC governor suggesting that the meeting had ended with a consensus. Yesterday our commodity strategists published a report looking ahead to the meeting. In it they sketched out a range of possible outcomes with their central case being a freeze with loose compliance in which production would be established in the 32.5 to 33.0 mmb/d range for a period of six months, to be revisited and possibly renewed. However they also believe that this is still likely to mean that compliance will both be difficult to achieve and also doubted by the market, hence their revised forecast production rate of 33.4 mmb/d in 2017 versus actual output of 33.8 mmb/d in October.

Refreshing our screens this morning, with little new news flow to change things, the positive tone on Wall Street last night has continued into the Asia session this morning with the Hang Seng (+0.37%), Shanghai Comp (+0.23%), Kospi (+0.50%) and ASX (+1.23%) all higher. Markets in Japan are closed for a public holiday while US equity index futures are also a shade higher in early trading.

Moving on. The potentially most interesting event today is the long anticipated post-Brexit UK Autumn Budget Statement at 12.30pm GMT. As a reminder our Economists last week highlighted that Chancellor, Philip Hammond, has reduced expectations for the volume of his fiscal ‘reset’. Resources are not unlimited. Even with a modest relaxation, our economists expect a GBP30bn increase in Public Sector Net Borrowing (PSNB) on average over the 5-year planning period given the general deterioration in public finances (GBP10bn in 2017/18). They also expect Hammond to say there is some “fiscal space” in reserve if needed. There may be some space relative to the UK’s low Gross Financing Needs, but the more Hammond uses this fiscal space, the steeper the debt trajectory. The more credible the fiscal down-payment, the easier it will be to convince the markets of sustainability if the policy needs to be scaled up later. Credibility is a function of how well the policy targets the problems and the balance Hammond’s new fiscal rules achieve between flexibility and commitment. The Chancellor’s ability to target spending at boosting potential GDP growth (e.g. infrastructure spending) and protect it in weaker-than-expected economic scenarios will determine the success and sustainability of the Autumn Statement. Ahead of the Statement today, yesterday we got October public finances data in the UK which showed that net borrowing excluding banking groups amounted to £4.8bn in October which was a bit less than expected (vs. £6.0bn expected) and also down from £6.4bn a year earlier.

The rest of the more interesting newsflow is unsurprisingly politics orientated again. Following on from his policy agenda video announcement, President-elect Trump confirmed that he has no intention to prosecute or investigate Hilary Clinton over the handling of her secret email information saying that it would be ‘very divisive for the country’ in an interview with the NY Times. Interestingly, in the same interview Trump also suggested that he might abandon another campaign pledge in saying that he would ‘keep an open mind’ about whether or not to withdraw the US from the climate change treaty signed last year in Paris.

Meanwhile in Italy the deputy-secretary of PM Renzi’s Democratic Party, Lorenzo Guerini, confirmed that Renzi’s party would seek early elections by the summer of 2017 in the event that Renzi loses the upcoming referendum. That news shouldn’t come as a big surprise however with Guerini also declining to say whether the premier would stay on to lead the party or honor his promise to resign, should he be defeated.

Before we wrap up, once again it was another relatively quiet day for dataflow yesterday. In the US we learned that existing home sales climbed +2.0% mom in October (vs. -0.6% expected) to an annualised rate of 5.60m which is actually the highest level since February 2007. Meanwhile the Richmond Fed’s manufacturing index rose 8pts to +4 in November with the new orders index in particular up a rather robust 19pts to +7. In Europe the flash November consumer confidence print rebounded to -6.1 from -8.0 which is actually the best print this year. Finally in the UK the CBI Distributive Trends Survey for November showed an improvement in firms’ order books with total orders rising from -17 to -3.

Looking at the day ahead, this morning in Europe it’s all eyes on the November flash PMI’s for the Euro area, Germany and France. The consensus is for a stabilisation in the Euro area composite at 53.3. Across the pond this afternoon we’ve got a reasonably busy diary with the data packed in ahead of Thanksgiving tomorrow. The early release will be the October durable and capital goods orders data which generally speaking would be considered an important release however given that the data is for the month prior to the Election, the more important release will probably be next month’s print where we’ll get a better idea of the possible shift in order flow. Also due out in the US this afternoon is the latest weekly initial jobless claims print, new home sales, FHFA house price index, flash manufacturing PMI and the final revisions to the University of Michigan consumer sentiment survey. This evening, the focus then turns to the FOMC minutes from the meeting earlier this month where most will be looking for a confirmation that the Fed will be tightening next month. Away from the data, the other big event today is the aforementioned UK Chancellor Hammond’s long awaited post-Brexit Autumn statement.

Submitted by Michael Shedlock via MishTalk.com,

The EU fired a major global trade war tit-for-tat retaliation today against US banks and the UK in a single action.

Brussels will raise costs for foreign lenders while simultaneously taking a pot shot at London.

Please consider EU to Retaliate Against US Bank Capital Rules.

Brussels is proposing to tighten its grip over overseas banks operating in the EU in a tit-for-tat step against the US that will raise costs for big foreign lenders and potentially hurt the City of London after Brexit.

The European Commission will unveil provisions on Wednesday that mirror controversial US “intermediate holding company” rules that ringfence foreign bank capital. When these were announced in 2014, the EU complained to Washington of “protectionism” and threatened to retaliate.

If adopted into EU law, the commission’s proposals would force big US investment banks such as Goldman Sachs and JPMorgan to hold additional capital and liquidity in the EU so their subsidiaries can be separately wound up in a crisis by European authorities.

The counterblow from Brussels, slipped into late drafts of the proposal, will be welcomed by European banks that have been complaining about an unlevel playing field with their US rivals. But it underlines the accelerating trend towards further fragmentation in financial rules, as jurisdictions assert control even at the risk of duplicating international requirements.

Although EU officials insist the proposal was drafted without Brexit in mind, the reforms would potentially affect London as a non-EU financial centre. The proposal could add costs and complexity to UK-based banks by forcing them to establish a separate pool of capital in the EU after the country leaves the bloc.

“This is a taste of what is to come,” said one adviser to an investment bank that would be affected by the rules. “At a time when everyone is rethinking bank structures, it adds one more point of uncertainty.”

He added: “If you must create an EU holding company that acts as your hub, the question becomes: how many European hubs do you want?”

The move is likely to stoke tensions between the US and Europe, which have already been ignited by a $14bn claim on Deutsche Bank from the US Department of Justice to settle claims of mis-selling mortgage securities.

European officials have also pushed back against US-led pressure for tough capital requirements to be introduced by the Basel Committee of global regulators in a move that some European banks claim would put them at a disadvantage to their US rivals.

US banks say they are already forced to hold significant amounts of capital and liquidity in their large UK operations. But if Europe presses ahead with the latest proposals, it could force them to increase the amount of resources they have tied up in Europe.

In 2014 Michel Barnier, then EU’s financial services commissioner, warned that US plans to force foreign banks to hold more capital were “protectionist” and risked bringing a “fragmentation of global banking markets”. Mr Barnier is now the commission’s chief Brexit negotiator.

The US and EU both want to be in control of a very fragmented and essentially insolvent global banking system.

It appears the UK was caught in the middle of a US-EU dispute, but in reality, the EU wanted to punish the UK and would have done this anyway.

Regardless, this adds fat to the fires of retaliations even as far bigger problems loom. Italy may be one vote away from leaving the Eurozone.