Monday’s “recession off” optimism lasted just one day, and global markets and US equity futures are once again falling as yields resume their slide and the US yield curve inverts further.

After a brief respite on Monday when mortgage hedgers appeared to take the day off, treasuries resumed their rally with the 10Y yield tumbling as low as 2.35%, following the slide in Bunds as Germany auctioned off its first negative yielding debt with a negative yield at auction, as investors again turned their attention to a deteriorating economic outlook and a shift toward accommodation by major central banks. As a result, stocks in Europe reversed gains along with U.S. equity futures.

Europe’s Stoxx 600 fell, led by utilities and telecommunications shares, while S&P500 futures slipped, even though so far the selling is contained, with the Stoxx 600 down only ~0.4%, far cry from last Friday’s 1.2% rout.

The MSCI Emerging Markets Index’s 0.1% decline also looks tame compared with Monday’s 1.1% slide. Cyclical sectors such as autos and miners are in the green – car makers in particular are getting a boost from Nissan-Renault M&A chatter – and declines are largely confined to bond-proxy sectors. Dividend-paying sectors such as consumer staples, real estate and utilities are outperforming in the lower-for-longer era, according to Bloomberg.

Mario Draghi said in a speech in Frankfurt an accommodative policy stance is still needed in the euro region, although he hinted at possible rate tiering, noting that banks are being hurt by NIRP.

Earlier, Asian markets were mixed, though Chinese shares pushed higher as a burst of diplomacy suggests Beijing and Washington remain determined to de-escalate their trade war.  Markets got a reminder of global growth risks after Chinese data showed industrial profits shrank the most since late-2011 in the first two months of the year. Chinese mainland shares bounced almost one percent as expectations deepened of more central bank stimulus.

“Our view is that reflation story remains on track. We do expect the (Chinese) government to come to the rescue and provide some respite,” said Justin Onuekwusi, portfolio manager at Legal and General Investment Management. “It feels to me that markets had priced in a lower-for-longer (interest rate) environment even before central banks. They had come a long way very quickly and now they are taking a bit of a breather. Global growth overall looks reasonably healthy, despite the slowdown,” he added.

All eyes remain on the US bond market, however, where the key recession indicator, the 3 Month – 10 Year yield hit fresh post crisis lows, sliding as low as -11bps before rebounding modestly.

The U.S. yield curve inversion, which has preceded every U.S. recession for the last 50 years, triggered a sharp stock selloff last week. The drop in yields picked up pace after the U.S. Federal Reserve signaled a halt to its rate increases.

Meanwhile, speculation that the Fed will need to cut rates spread overnight, with some such as Legg Mason’s Brandywine Global

unit even forecasting a cut this year. Stephen Moore, President Trump’s pick for an open Fed board seat, said in an interview with the New York Times that the central bank should immediately cut rates by half a percentage point.

“The money-market curve is telling us that the Federal Reserve needs to do more,” Francis Scotland, director for global macro research at Brandywine, told Bloomberg TV in Hong Kong.

With the global economy headed for recession, traders will be especially focused on the outcome of U.S.-China trade talks, which resume this week, as well as any developments in Britain’s ridiculously interminable Brexit.

In the latest Brexit news, PM May will be urged by her own MPs to name the date of her departure today as the price of getting her Brexit deal through Parliament. PM May will be meeting with the 1922 Committee at 1700GMT today, according to Sky News. UK PM May’s team are debating a potential timetable for her to stand down, which might not necessarily see her make the announcement before MV3, according to the FT.

Additionally, the UK Cabinet Minister is now not expecting free votes for tonight’s indicative votes as some demanded, risking further resignations; according to Sky News’ Faisal Islam. BBC’s Nick Eardley added, however, that no decision has been made as of yet. Opposition Leader Corbyn is preparing to whip his MPs to back a move today that would keep Britain in the single market and customs union.

In overnight FX moves, the pound wobbled as a key Brexit hardliner indicated he’s willing to back Theresa May’s departure deal. But it was the New Zealand dollar that was the standout, tumbling more than 1% after the central bank joined its peers in the United States and Europe by turning dovish – it flagged a possible interest rates cut, sending the kiwi dollar 1.6 percent lower to its lowest in 2-1/2 weeks. The move also weighed on the Australian dollar.

“The market was taken by surprise by the dovish tone,” Thu Lan Nguyen, an analyst at Commerzbank said of the Reserve Bank of New Zealand. “Most central banks have turned dovish. Even those that hiked interest rates did it with a very cautious outlook on rates.”

The dollar index versus a basket of six major currencies was up 0.1 percent at 96.745, building on modest gains overnight.

In emerging markets, there were renewed concerns over Turkey and Argentina where currencies have fallen sharply in recent days. The lira liquidity squeeze has sent overnight swap rates on lira to 700 percent.

In commodities, WTI gave back some of its gains in the previous session after Russia said it was on track with output cuts and disruptions to refiners along the Houston Ship Channel added to supply concerns.

Trade balance and current account figures are due. Companies reporting earnings include Vale, Lululemon and Lennar

Market Snapshot

• S&P 500 futures up 0.1% to 2,826.50
• STOXX Europe 600 down 0.3% to 376.33
• MXAP down 0.2% to 159.39
• MXAPJ down 0.06% to 523.53
• Nikkei down 0.2% to 21,378.73
• Topix down 0.5% to 1,609.49
• Hang Seng Index up 0.6% to 28,728.25
• Shanghai Composite up 0.9% to 3,022.72
• Sensex down 0.2% to 38,147.42
• Australia S&P/ASX 200 up 0.09% to 6,135.97
• Kospi down 0.2% to 2,145.62
• German 10Y yield fell 2.4 bps to -0.039%
• Euro down 0.04% to $1.1262
• Brent Futures up 0.3% to $68.20/bbl
• Italian 10Y yield fell 3.5 bps to 2.114%
• Spanish 10Y yield fell 3.0 bps to 1.062%
• Brent Futures up 0.3% to $68.20/bbl
• Gold spot down 0.1% to $1,314.90
• U.S. Dollar Index up 0.1% to 96.87

Top Overnight News

• Mario Draghi said the ECB is ready to soften the impact of negative interest rates if they are found to harm the transmission of monetary policy. The ECB has kept its deposit rate below zero since June 2014 with policy makers insisting negative rates remain part of the tool kit.
• U.K. PM Theresa May’s Brexit deal may finally be winning support from Conservative hardliners, though she may have to promise to step down to get it over the line. Meanwhile Parliament is preparing to vote on rival plans that could soften — or cancel — Britain’s departure from the European Union.
• Three months after news first emerged of a hedge fund blowup that threatens to saddle Citigroup Inc. with millions of dollars in losses, details of the fund’s implosion are becoming clearer. GTEC Pandion fund, whose prime broker was Citigroup, started unraveling in August on currency trades mainly involving the Turkish lira.
• U.S. and Chinese officials resume high-level trade talks this week as they close in on a deal that could just be the first step in the long road to economic peace.

Asian equity markets were mixed as the region somewhat failed to maintain the broad positive momentum from US where all majors finished in the green with the gains led by outperformance in energy and financials. ASX 200 (+0.1%) and Nikkei 225 (-0.2%) were both negative throughout the day although the Australian benchmark just about recovered at the close, while Tokyo stocks underperformed amid currency effects and mass ex-dividend day involving over 1000 stocks including blue-chips Mitsubishi UFJ, SoftBank and Sony. Elsewhere, Hang Seng (+0.6%) and Shanghai Comp. (+0.8%) were initially indecisive amid continued PBoC liquidity inaction and as participants mulled over another deluge of earnings, as well as discouraging data in which February YTD Industrial Profits slumped by the most in nearly a decade. However, sentiment in China then improved with energy names boosted by the recent advances in oil, while there was also reports confirming that China and Italy signed an MOU to make Italy the first western European country to join the Belt & Road initiative. Finally, 10yr JGBs were slightly higher as they tracked the marginal gains seen in T-notes and as the subdued risk appetite in Japan kept prices afloat.

Top Asian News

• Hong Kong Property Prices May Rise 7% on Liquidity: JPMorgan
• A $17 Billion Funding Challenge Facing China’s Evergrande
• Euro Extends Drop Before Draghi; Pound Slips as Volatility Rises
• Tata, GIC Buy $1.2 Billion Stake in Delhi Airport Operator

A relatively choppy session for European equities thus far [Eurostoxx 50 -0.4%] as sentiment soured after a mixed lead from Asia. Sectors are mostly lower although the consumer discretionary sector (+0.2%) is driving the gains amid the slew of positive news-flow for the auto sector. Renault (+3.4%) shares spiked higher at the open amidst fresh merger talks with Nissan ahead of a bid for Fiat Chrysler (+3.3%), whilst Daimler (+1.2%), BMW (+0.5%), and Volkswagen (+0.4%) shares also march in tandem. Reports stated Daimler was close to selling its 50% “Smart” stake to Geely, meanwhile Volkswagen struck a multi-year partnership with Amazon. Elsewhere utilities underperform despite its defensive properties with Centrica (-1.3%), National Grid (-1.4%), E.ON (-1.6%) all near the foot of their respective bourses. In terms of notable movers, Wirecard (-4.5%) shares shed some of yesterday’s gains after the company announced that some of its Singapore employees may face criminal liability regarding the ongoing accounting scandal. Finally, Swedbank (-7.8%) shares declined after the company confirmed that a search is currently underway at the head office, following on from reports that an internal investigation has been initiated by the Swedish Economic Crime Authority.

Top European News

• May’s Deal Gains Support Ahead of Votes on Plan B: Brexit Update
• Billionaire Ashley Weighs Bid Valuing Debenhams at $81 Million
• Bank of Russia Says Inflation Expectations Fell Again in March
• Wirecard CEO Braun: We Have No Plans to Release Full Report

In FX, all eyes were on the NZD/AUD as the Antipodean Dollars are back on the rack, with the Kiwi sharply underperforming in wake of OCR cut revelations from the RBNZ overnight after an unexpected switch from neutral to easing mode amidst a bleaker assessment of the economy and heightened risks of a more pronounced downturn. Nzd/Usd slumped over a big figure in response and is clinging to 0.6800, as the Aud/Nzd cross extended recovery gains well beyond 1.0300 to circa 1.0450 before consolidating, and with Aud/Usd retreating to sub-0.7100 at one stage on the back of worrying Chinese data in the form of industrial profits (-14% y/y and weakest in almost 10 years).

• NOK – Another G10 laggard following a rise in Norwegian unemployment vs the consensus for an unchanged jobless rate, with Eur/Nok back up above 9.6500 vs a more stable SEK around 10.4200 vs the single currency amidst mixed Swedish sentiment indicators, a wider trade surplus and 2019 GDP forecast upgrade via the NIER.
• JPY/CHF/EUR – Relative outperformers and all firmer vs the Greenback as the Jpy benefits from renewed safe-haven positioning within a 110.70-30 range and moves further away from decent option expiry interest sitting between 110.70-75 (1.4 bn). Similarly, the Franc is benefiting from another downturn in risk sentiment and revisits recent highs around 0.9900 and through 1.1200 against the Euro, which looked vulnerable independently when testing Tuesday’s lows vs the Buck around 1.1250 before some timely support from ECB President Draghi who contended that a more sustained downturn in external demand and other factors have merely hampered rather than scuppered Eurozone inflation convergence towards target. Eur/Usd has subsequently rebounded relatively firmly to challenge Fib resistance at 1.1280, but could be capped ahead of 1.1300 given hefty expiries spanning 1.1255-65 (1.5 bn).
• GBP/CAD – The Pound remains rangebound around 1.3200 vs the Usd awaiting the next chapter of Brexit and up to 16 amendments to be voted on in Parliament after the Letwin approval – see our headline feed for a situation update and detailed analysis of all the motions tabled that could be selected by the HoC Speaker later today. Note, Cable survived an early downside attempt, and like Eur/Usd held around yesterday’s base, but is likely to face some offers around 1.3250 by the same token. Elsewhere, the Loonie is losing some support from oil prices with Usd/Cad towards the top of a 1.3407-1.3376 band ahead of trade data from Canada and the US.
• DXY – The index has come up against some psychological and chart resistance just shy of 97.000, with a Fib at 96.956 only marginally and briefly breached. Moreover, the broad Dollar has conceded ground to the aforementioned comeback in rival currencies.

In commodities, the oil complex is extending losses as the risk-off sentiment took the wheel. WTI (-0.8%) futures gave up the recently claimed USD 60/bbl and flirts closer to USD 59.50/bbl whilst Brent futures (-0.3%) rests just below USD 68.00/bbl. Last night’s APIs showed a surprise build of 1.9mln barrels (vs. Exp. draw of 1.2mln) with trader eyeing the release of this week’s DoEs as a fresh catalyst. Further supply side news-flow may also be contributing to the downside as sources stated that Russian oil output in March (so far) stood at 11.30mln BPD, only marginally lower from February’s 11.34mln BPD. Finally, oil officials noted that crude loading operations have resumed in Iraq’s Southern Terminals following a stoppage. Elsewhere metals are largely benefiting from the marginal pullback in the buck with gold (-0.2%) gains also exacerbated by safe-haven demand. However, dollar-induced upside in copper is capped by the risk averse sentiment as the red metal trades sideways. Finally, the majority of miners and port operators in Australia have resumed after 4-6 days of disruption following cyclone activity.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 1.6%
• 8:30am: Trade Balance, est. $57.0b deficit, prior $59.8b deficit
• 10am: Current Account Balance, est. $130.0b deficit, prior $124.8b deficit
• 12pm: Revisions: Industrial Production and Capacity Utilization

DB’s Jim Reid concludes the overnight wrap

For those of you reading this today who manage people, imagine if your team kept on saying to you that you weren’t doing a very good job and were the worst boss ever (to my team please don’t get any ideas). Then imagine that they got together and first tried to get rid of you but then realised that they couldn’t. Instead, they organised a coup to relieve you of your powers for a day so they could prove they could do a better job.

Well that’s the position the U.K. government finds itself in today as we welcome in what will be another extraordinary day in U.K. politics. Backbenchers will take over proceedings for a day with indicative votes on the agenda with the aim being to try to break the impasse in the most important legislative process faced by the country in a couple of generations.

As things currently stand, Speaker Bercow will announce what options will be considered at 3pm today, the vote will take place at 7pm, and results will be announced around 8:30pm. The vote will reportedly be a single ballot containing every option with a yes/no decision to be made. So it’s quite possible that we end up getting a muddled outcome with no clear majority position. It’s also not yet clear if the government will whip votes or if MPs will be given free reign. The latter seems unlikely. Meanwhile, Sir Oliver Letwin, who had brought forward the motion for parliamentarians to take control of Brexit earlier in the week, has said that there is a little chance that the House of Commons will produce a majority for an alternative way forward today in just a single vote. He further added that, we will have to use this process today “and on Monday to try to work towards a consensus that can carry a majority”. So indicating that a further set of votes on narrowed down alternative options could happen early next week. Sterling is down (-0.18%) this morning.

Obviously, the outcome to today’s indicative votes will depend on what options are actually offered up to be voted on, but when the House of Commons held indicative votes on reforming the House of Lords in 2003, they voted against the status quo of an all-appointed upper house, but then went on to vote against all the alternatives that were presented! With parliament having already voted against May’s deal twice, voted in amendments against a no-deal Brexit and against a second referendum, it seems a big step to think a majority will be found unless horse trading around customs union / single market membership is done cross benches. Whatever happens, it’s worth noting that as things stand, with the Withdrawal Agreement still not approved by MPs and no further extension agreed right now, the legal default remains a no-deal Brexit on April 12.

In terms of yesterday’s developments, Jacob Rees-Mogg, who chairs the European Research Group of Conservative MPs favouring a hard Brexit, said on Twitter that “The choice seems to be Mrs May’s deal or no Brexit.” The implication being that if a no-deal outcome isn’t going to happen, he would reluctantly back the deal rather than risk losing Brexit altogether. Also Boris Johnson said that if “we” vote down May’s deal again there is “an appreciable risk” that Brexit won’t happen. He later said on the BBC that the next stage of negotiations need a new approach with some suggesting it was a hint that he’d consider backing the deal if Mrs May stepped aside.

These two potential key conversions might be too late in the day, especially as Sky News reported yesterday that the DUP would prefer a long extension over accepting Prime Minister May’s deal, and the party’s Brexit spokesman, Sammy Wilson, wrote in the Telegraph that this was a “toxic deal”. For reference, in the last meaningful vote on 12 March, the government lost by 149 votes, so they’d need 75 MPs to switch sides in order for the deal to win. However, the noise is that there may be one last try tomorrow or Friday. Importantly, Mrs May will speak at a private meeting of Conservative politicians early this evening where she will try to persuade them to vote for her deal while many of her party members are expecting her to use the meeting to announce a date when she will quit as prime minister in return for voting for her WA.

Back into a world that carries on outside of our domestic bubble, the S&P 500 rebounded yesterday, advancing +0.72%, with every sub-index rallying. The energy sector advanced +1.45% as Brent crude oil rose +1.31% to within 1% of its four-month high. Comments from Russia’s energy minister Alexander Novak heightened confidence that OPEC+ will maintain its output cap agreements to limit supply and support prices. The DOW and NYFANG indexes lagged a bit, gaining +0.55% and +0.37% respectively, largely due to underperformance by Apple (-1.03%). A US trade judge ruled against the tech giant and recommended bans on imports of certain iPhones (iPhone 7 and iPhone 7 Plus), saying that the products had violated a patent owned by chipmaker Qualcomm (+2.40%). After the US markets closed, the International Trade Commission came up with a second ruling where the full commission ruled against Qualcomm in a different case, which would have led to an import ban on a broad range of iPhones, including the iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus, and the discontinued iPhone X. Apple was up +0.62% in after-market trading while Qualcomm was down -0.78%.

European equities also recovered, with the STOXX 600 closing +0.77%, while the FTSE 100 (+0.58%), CAC 40 (+0.26%) and the DAX (+0.89%) all advanced. Government bond yields made a comeback too, with ten-year yields in the UK and Germany up +2.1bps and +1.1bps, respectively, although 10yr Bunds stayed below zero. Italy was an exception however, where yields on ten-year BTPs fell by -3.3bps, reflecting more positive risk appetite, while the flight from safe havens also saw gold lose ground, down -0.44%. US 2 and 10yr yields were both up 2.5bps, mirroring the slight global reversal of the sharp yield rally seen over the preceding few days. This morning, 2yr and 10yr US yields are down -2.7bps and -0.5bps, respectively, steepening the 2s10s curve to 17.9bps from 15.7bps yesterday. This is now near the top of the YTD range having got to the bottom of it last Friday. The move comes in the light of an interview from the Fed Governor nominee Stephen Moore to the New York Times overnight, where he walked back some of his prior critical rhetoric of the Fed but also said that he would want to immediately cut rates by 50bps. The market will take note of this and it could be construed as an attempt by Mr Trump to more politicise the Fed.

Overnight, markets in Asia are trading mixed with the Hang Seng (+0.64%) and Shanghai Comp (+0.55%) up while the Nikkei (-0.42%) and Kospi (-0.04%) are down. Elsewhere, futures on the S&P 500 are up +0.13% while the New Zealand dollar is down -1.56% this morning after the country’s central bank joined the growing global bandwagon of dovish central banks by saying that its next move is more likely to be a rate cut.

Mary Daly, President of the San Francisco Fed, gave a speech on inflation and reiterated the recent Fed position in favour of patience on the rates front. She noted that “data have been coming in a little bit slower than we thought” and that “we’ve seen financial conditions tighten up.” With inflation persistently below target and “inflation expectations edging lower,” Daly is in favor of maintaining an easy policy stance. She mentioned that she is “in the curiosity stage” when asked about changes to the Fed’s inflation targeting framework, a topic that will certainly remain in focus this year.

Back to yesterday and the risk rally came in spite of negative data from the US, where the Conference Board’s consumer confidence measure unexpectedly fell to 124.1 in March (vs. expected 132.5). Both the present situation (160.6) and the expectations measure (99.8) fell from February’s figure, with the present situation figure reaching an 11-month low. The labour diffusion subindex, which measures perceptions on the availability of jobs, fell by -5.7pts, its biggest drop ever outside of a recession, going back to 1967. Added to this, housing starts declined in February, coming in at 1162k (vs. 1210k expected) and building permits fell to 1296k (vs 1305k expected), although the FHFA House Price Index rose by 0.6% mom (vs 0.4% expected) in January. Finally, the Richmond Fed’s manufacturing survey in March fell back to 10, in line with expectations.

In terms of European data, yesterday we had Germany’s GfK Consumer confidence reading for April, which fell slightly to 10.4 (vs 10.8 expected), its second successive decline. In France, the final GDP reading for Q4 was confirmed at 0.3% qoq, in line with previous readings, although full-year GDP growth for 2018 was revised up to 1.6% (from 1.5% previously). However, the Insee’s survey of French manufacturing confidence in March fell to 102, its lowest level since November 2016.

Turning to the day ahead, in addition to the indicative votes on Brexit in the House of Commons, we’ve got French consumer confidence figures for March and February’s PPI release. From Italy, we also have consumer confidence figures, along with manufacturing confidence and economic sentiment, while from the US, we’ll get data on the trade balance for January. Otherwise, we’ve got a number of ECB speakers, including President Draghi, Vice President de Guindos and Chief Economist Praet, and from the US, Kansas City Fed President George will be speaking.