A rally in global risk that started during last night's first presidential debate on the market's take that Hillary Clinton came out on top in the first head-to-head between the two candidates fizzled, and what was a 0.6% jump in futures faded to only a 0.2% rebound after news that the DOJ is assessing how big a criminal fine it can extract from Volkswagen (VLKAY) (-3.8%) over emissions-cheating "without putting the German carmaker out of business", while Iran's oil minister Zanganeh told reporters in Algiers that it is "not our agenda" to reach an agreement, and that the country is unwilling to freeze output at current levels, and instead if looking to raise output to 4mmbpd.

We start with the debate, where as we pointed out last night, both a post-debate poll and also the positive reaction in relevant markets hinted that Clinton has come out with the advantage following the exchange. A CNN/ORC poll (which targeted a predominantly democratic sample as CNN admitted) had 62% of viewers claiming that Clinton won the debate, compared to 27% which believed Trump was the victor. In terms of markets, following three consecutive weekly losses in which it weakened nearly 9%, the Mexican Peso – which is seen as a bit of a sentiment proxy for the debate given the trade subject - had rallied back 1.95% and the most since February while there are gains also for a number of other EM currencies which are seen as vulnerable if Trump scrutinises trade deals.

As a result, in early trading US equity futures were up over +0.60%, while safe haven barometers like the Yen (-0.38%) and Gold (-0.22%) are weaker.

However, that initial rebound faded on the above mentioned Volkswagen news. Adding to the pain, while Deutsche Bank (DB) shares rebounded in early trading, they have since sunk again, dropping to a fresh record low, down as much as -2.8% with CDS rising to new all time highs, as concerns over the troubled German lender persisted. Germany's second largest lender Commerzbank (-3.0%) also felt the squeeze on a report it plans to eliminate 9,000 jobs and suspend dividend payments.

The weakness spread to global stocks as well: the MSCI All-Country World Index of shares erased an advance, weighed down by the prospect of U.S. fines for Volkswagen AG and Deutsche Bank AG. Crude oil declined after Iran ruled out an immediate agreement on an output freeze, while Saudi Arabian stocks slumped on concern austerity will lower consumer spending. German bunds led gains in European government bonds and Finland’s 10-year yield dropped below zero for the first time.Norddeutsche Landesbank, Germany’s largest shipping lender, was said to pull plans to sell seven-year euro notes a day after Deutsche Lufthansa AG canceled a similar transaction.

Even Mexico’s peso pared gains, Bloomberg noted, after earlier surging as investors concluded Clinton had won the first presidential debate. An election victory for Republican candidate Donald Trump may hurt bonds in emerging markets such as China and Mexico by weighing on global trade, according to Aberdeen Asset Management.

“Had Trump been stronger then maybe we would have seen a stronger downside reaction in the market,” said Jasper Lawler, an analyst at CMC Markets in London. “Deutsche Bank is the eye of the storm because even if it’s listed in Germany it’s a multinational bank with a big role in U.S. markets and has a history of causing some troubles in the U.S. The European and U.S. banks have strong links in the end. This at least is the going excuse as markets don’t have the impetus to go higher.”

The Stoxx Europe 600 Index slid 0.5% after earlier advancing as much as 0.7%. The benchmark tumbled the most since July on Monday amid concern about the strength of Deutsche Bank’s capital buffers. S&P 500 Index futures were 0.2% higher, paring a gain of as much as 0.7%.

Market Snapshot

• S&P 500 futures up 0.2% to 2144
• Stoxx 600 down 0.3% to 339
• FTSE 100 down 0.2% to 6802
• DAX down 0.7% to 10317
• German 10Yr yield down 3bps to -0.14%
• Italian 10Yr yield down 2bps to 1.17%
• Spanish 10Yr yield down 3bps to 0.89%
• S&P GSCI Index down 0.8% to 353.5
• MSCI Asia Pacific up 0.7% to 142
• Nikkei 225 up 0.8% to 16684
• Hang Seng up 1.1% to 23572
• Shanghai Composite up 0.6% to 2998
• S&P/ASX 200 down 0.5% to 5406
• U.S. 10-yr yield down less than 1bp to 1.58%
• Dollar Index up 0.08% to 95.37
• WTI Crude futures down 1.5% to $45.22
• Brent Futures down 1.7% to $46.54
• Gold spot down 0.2% to $1,336
• Silver spot down less than 0.1% to $19.44

Global Headline Summary

• Clinton, Trump Draw Stark Contrasts With Sharp Debate Attacks: Debate devolved into exchange of accusations, blame regarding each others’ past statements, records.; MXN Jumps, Stocks Rally as Clinton Seen Winning Debate
• BlackRock (BLK) Issues Warning on Treasuries as Fed Moves Toward Hike: “It’s time to rethink the role of U.S. Treasuries in portfolios,” chief strategist Richard Turnill wrote. “We are cautious on long-term U.S. Treasuries.”
• Rice Energy to Acquire Vantage Energy for About $2b: Deal for closely held Vantage is Rice’s biggest deal yet in core of Marcellus shale.
• Wells Fargo (WFC) Faces ‘Top-to-Bottom’ Review: Labor Department: Agency agreed to conduct review of WFC requested by lawmakers who said bank may have pressured employees to meet sales quotas; Wells Fargo Sued by Shareholders Over Cross-Selling Scandal
• Possible Disney (DIS) -Twitter (TWTR) Merger Poses Risks for Iger Legacy: Deal may let Iger leave knowing he’s given Disney big presence in digital media, advertising.
• AmEx Can Bar Merchants From Steering Users to Rival Cards: A federal judge had found AmEx’s policy violated antitrust law, but higher court said retailers aren’t obliged to accept AmEx cards, pay its fees.
• Mylan (MYL), Lupin Said to Weigh Bids for Bayer Dermatology Unit: Leo Pharma, Cadila Healthcare, Torrent Pharmaceuticals are also weighing offers.
• Over 50% of Shoppers Turn First to Amazon (AMZN) in Product Search: Co. widening lead over major retailers like WMT, search engines as starting point for online shopping.
• SolarCity Accused of Taking Shingling Technology Secrets: Co. accused of misappropriating trade secrets, other IP in lawsuit over development of shingled-cell solar modules.
• HomeAway CEO Steps Down to Make Way for Former Expedia Exec: CEO Brian Sharples, who co-founded in 2005, took it public in 2011 and oversaw its takeover by Expedia, stepped down.

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Looking at regional markets we start in Asia, where markets shrugged off the broad-based losses from Wall Street and traded mixed, with an improvement in risk appetite seen amid the first US Presidential Debate and strong Chinese industrial profits. ASX 200 (-0.5%) and Nikkei 225 (+0.8%) began with firm losses following the financial-led weakness in EU and US markets. However, Nikkei 225 rebounded off its lows alongside a recovery in risk appetite as markets reflected a composed and consistent effort from Clinton. Chinese markets benefited from strong industrial profit figures which rose by the most in nearly 3 years of 19.5% Y/Y vs. 11% increase in the prior month, resulting to outperformance in Hang Seng (+1.1%) while Shanghai Comp. (+0.6%) traded choppy as a weak liquidity injection capped gains. 10yr JGBs saw minor gains despite the improvement in risk appetite in Japan with the 10yr yield declining to its lowest since early September, while today's 40yr auction also failed to spur demand with the b/c and lowest accepted price declining from prior.

Top Asian News

• Wall Street Shrinking in Asia Continues With Goldman, BofA Cuts: Goldman Sachs said to be planning steep reductions
• Citigroup (C) Said to Plan India Branch Cuts in Digital Banking Push: Lender may close five outlets in smaller cities
• China’s Shibor Climbs to Seven-Week High as PBOC Withdraws Funds: PBOC policy tilted toward curbing leverage, Huafu says
• Maersk May Target Hanjin, Hyundai in New Acquisition Plan: Jefferies says Maersk needs to buy and Korean lines need help
• Takata Lifelines Scrutinized by Carmakers Stuck in Cost Bind: Troubled supplier said to meet customers on bids, liabilities
• Billionaire Wang in Talks to Buy Producer of Golden Globe Awards: Hollywood Reporter reported that the talks are valuing Dick Clark Productions at ~$1b.

European equities have failed to hold on to their Presidential-debate inspired gains as ongoing concerns around the fragility of Deutsche Bank and Volkswagen continue to hamper sentiment and energy prices ebbed lower as changes of an agreement at Algiers continue to dissipate. More specifically, Deutsche Bank's (shares -2.8%) 5 year subordinated CDS hit a fresh record high as markets remain concerned about the future of the company in the context of Chancellor Merkel's unsupportive comments over the weekend. Elsewhere, for financials, Commerzbank (-3.0%) have felt the squeeze as markets were less than impressed with their restricting and dividend plans. Volkswagen (-3.8%) shares have been dealt a fresh blow amid reports that the US are said to vet whether criminal fine would bankrupt the Co. while pondering what size diesel penalty VW can withstand. Finally, downbeat comments from the Algiers meeting have weighed on energy prices with the latest rhetoric indicating the unlikelihood of a deal being struck this week. Given the downside in equities, Bunds have been dealt a fresh bid throughout the session with the yield falling to it's lowest level since July with prices reclaiming 166.00 (Dec'16 contract at all time highs). Supply today comes in the form of a US 5yr auction with focus for fixed income markets also centred on a slew of Fed speakers today and for the rest of the week.

• Top European News
• Renzi Starts 10-Week Fight for Italian Referendum, His Job: Push for “the mother of all reforms” being closely watched by markets.
• Maersk May Target Hanjin, Hyundai in New Acquisition Plan: Co., which will try to grow through acquisitions, targeting South Korea’s 2 biggest shipping firms: Jefferies.
• VW Scandal Spreading to Audi Risks Hitting Carmaker’s Cash Cow: Audi head Rupert Stadler under increased scrutiny as investigators seek to untangle origins of VW diesel cheat.
• London Mayor Khan Urges Labour to Win Cities in Push for Power: Khan to say at conference that effective local government can prove that Labour is ready for power nationally.
• Carney Enters Corporate Bond Market in Post-Brexit Stimulus: Central bank to seek to buy notes issued by cos. including GE, United Utilities, Rio Tinto, according to list.
• Poland at Risk of Being Left Behind Cheap Debt on Refusal: Amundi, Pekao think government should prefinance 2017 budget, capitalizing on emerging-market debt rally.
• Fast Growing Nordea AM Hits the Brake on Inflows: New money of EU14.6b through Aug. making it harder for Nordea to generate excess returns.

In FX, US election fever put the focus on the likes of USD/MXN and USD/JPY in particular, with Clinton's narrow lead, giving the MXN some near term relief. USD/JPY is still testing the downside in tandem with the selling pressure seen in stocks. For GBP, Cable has attempted a recovery through 1.3000, but this was short lived, though the pressure from the EUR/GBP rate looks to have eased somewhat as a return to .8700 looks tame as yet. Early days as yet, but the signs are that the market still intends to test and post fresh Brexit lows. No new drivers to prompt this today however. For USD/CAD, the breach of 1.3250 overnight was prompted by comments from BoC Poloz, who stated that the Canadian economy may take 3-5 years to recover from the impact from low Crude prices. The pair snapped back sharply to base out in the mid 1.3100's, but is back on a 1.3200 handle, with reports the Iran are no willing to freeze Oil output at current levels. Later today we have US services and composite ISM

In Commodities, WTI and Brent crude futures enter the North American crossover in negative territory as the latest rhetoric from the IEA meeting suggests that it is unlikely that markets will be presented with a formal agreement this week. More specifically, the Russian and Saudi energy ministers this morning have firmly stated that this week's summit will not result in an agreement and that this week's meeting is purely for consultative purposes. This was then followed up by comments from the Iranian oil minister that the nation is not willing to freeze oil output and therefore it appears that little will be achieved this week in Algeria. Gold has been stuck in a 3-day range between USD 1343/oz and USD 1331.19/oz. Silver today has retraced some of the losses seen in the last 2 days, and is currently consolidating at the USD 19.50/oz.

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US Event Calendar

• 8:55am: Redbook weekly sales
• 9am: S&P CoreLogic CS US HPI m/m SA, July (prior 0.21%)
• 9:45am: Markit US Services PMI, Sept. P, est 51.2 (prior 51)
• 10am: Consumer Confidence Index, Sept., est. 99 (prior 101.1)
• 10am: Richmond Fed Manufacturing Index, Sept., est. -2 (prior -11)
• 11:15am: Fed’s Fisher speak at Howard University
• 4:30pm: API weekly oil inventories

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities trade lower as ongoing concerns surrounding Deutsche Bank and Volkswagen trim opening Presidential election-inspired gains
• Energy prices enter the North American crossover in negative territory as the latest rhetoric from the !EA 
  meeting suggests that it is unlikely that markets will be presented with a formal agreement this week
• Looking ahead, highlights include US Services PMIs, API Crude Oil Inventories and comments from Fed's Fischer and ECB's Coeure
• Long-end Treasuries rally, European equities lower, driven by losses in banks; Treasury auctions continue with sale of $34b 5Y notes, WI 1.135%; last sold at 1.125% in August, lowest 5Y auction stop since 1.045% in May 2013.
• As Merkel considers running for a fourth term, any whiff of government action on behalf of Deutsche Bank would be electorally toxic just as she faces a backlash against her refugee policy, unrest in her party bloc and slumping poll ratings
• Even a record acquisition spree by Chinese companies isn’t enough to ease pressure on investment banks to cut costs in Asia, with Goldman Sachs and Bank of America becoming the latest firms to prepare job reductions
• Commerzbank AG extended losses after a media report that the lender plans to eliminate 9,000 jobs and suspend dividend payments as part of an overhaul under new Chief Executive Officer Martin Zielke
• Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said the bank is mulling further cost reductions at the global markets unit that blindsided him with losses earlier this year
• Jamie Dimon and Sergio Ermotti starred in the roadshow promoting Postal Savings Bank of China Co.’s share sale. Yet the executives’ participation in this year’s biggest initial public offering also serves as a reminder that investing in Chinese banks isn’t what it used to be
• The head of the bankers’ association in Denmark, where interest rates have been negative longer than anywhere else on the planet, says the policy may not be as punishing for lenders as once thought
• Iran is not willing to freeze its oil output at current levels and doesn’t intend to forge an agreement with other major crude producers at talks in Algiers this week, said the nation’s oil minister
• Saudi Arabia canceled bonus payments for state employees and cut ministers’ salaries by 20%, steps that further spread the burden of shoring up public finances to a population accustomed to years of government largesse
• The U.S. Justice Department is assessing how big a criminal fine it can extract from Volkswagen AG over emissions- cheating without putting the German carmaker out of business, according to two people familiar with the negotiations
• The U.S. Department of Labor agreed to conduct a review of Wells Fargo & Co. requested by lawmakers including Elizabeth Warren, who said the bank may have put undue pressure on employees to meet sales quotas

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DB's Jim Reid concludes the overnight wrap

Nowhere else to start this morning other than the most watched televised election debate in history and the first of three between Clinton and Trump. Both the post-debate poll just released and also the positive reaction in relevant markets suggests that Clinton has come out with the advantage following the exchange.

Indeed a CNN/ORC poll out a short time ago had 62% of viewers claiming that Clinton won the debate, compared to 27% which believed Trump was the victor. This is the only poll that we have seen officially released so far. In terms of markets, following three consecutive weekly losses in which it weakened nearly 9%, the Mexican Peso – which is seen as a bit of a sentiment proxy for the debate given the trade subject - has rallied back 1.95% and the most since February while there are gains also for a number of other EM currencies which are seen as vulnerable if Trump scrutinises trade deals. US equity index futures are up over +0.60%, while safe haven barometers like the Yen (-0.38%) and Gold (-0.22%) are weaker.

In terms of the debate itself, the subjects of trade, foreign policy, the US economy and race were all debated along with various personal charges of both candidates. It was far from smooth however and at times the moderator lost control of both candidates as the exchanges descended into a tirade of accusations. As a report from the Washington Post out just a short time ago suggested, Clinton came across overly rehearsed but tended to stay more on topic while also coming across as competent and deliberate, and surprisingly didn’t face too many challenges. Trump, meanwhile, was a lot more restless and unprepared. Having said all this Trump has been written off many times and has repeatedly confounded his critics with strong on the ground support. Roll on the next two battles on October 9th and 19th.
The majority of bourses in Asia have rebounded from early declines meanwhile. The Nikkei is back to +0.46% having been down as much as -1.50% prior to the debate, while the Hang Seng (+1.10%) and Kospi (+0.62%) also gained as the debate progressed. China stocks are reasonably flat and just the ASX (-0.56%) is lagging. Sovereign CDS markets in the likes of China and Korea were initially 2-3bps wider but also pared those moves as the debate wore on and are back to flat now.

Moving on to today, we see the start of the BoE's corporate bond purchases with reverse auctions across the energy, industrial, transport, property, water and financial sectors. Tomorrow and Friday sees more of the same across the communications, consumer cyclical and non-cyclical sectors tomorrow, and electricity and gas sectors on Friday. We published a quick Credit Bites yesterday reviewing where we stand with regards to the market ahead of this new regime. Let Michal.Jezek@db.com know if you didn't get a copy. Staying with central bank bond purchases, yesterday saw the latest weekly ECB CSPP holdings released. It was another strong week, the fourth largest since the scheme launched in June. Three of the top four weeks have occurred this month suggesting that the ECB is using the rebound in primary to stock up on bonds. They bought €2.316bn last week which equates to €463mn/day. The average daily run rate so far is €372mn.

So central banks continue to keep yields at ultra low levels however there's obviously been a lot of discussion on whether there is a fresh desire to steepen curves to help financials. Easier said than done but our European Equity strategists have discussed the implications in a note this morning. They suggest that if they could steepen curves there would be scope for significant sector rotation in the European equity market from over-owned defensives into financials and cyclicals. However, they note that yields have continued to track market expectations for the future Fed funds rate, which in turn has continued to move in line with global growth momentum. This suggests low bond yields are not principally due to discretionary central bank policies (which could be reversed at will), but to the weakening in the global growth picture, to which central banks have only responded by making policy more accommodative. They expect global growth momentum to continue weakening (due to rising recession risks in the US and the fading of the Chinese credit stimulus) – and, hence, see limited upside for bond yields. If central banks were to attempt to push up nominal yields against the backdrop of weak growth and low inflation expectations, this would likely lead to higher real bond yields, a negative re-pricing in risk assets and, ultimately, a renewed drop in nominal bond yields. As a consequence, they remain overweight the bond proxies in the European equity market (real estate and our basket of sustainable dividend payers) and are cautious on financials.

Moving on. It was a risk off day to start the week yesterday led by the European banking sector that had its worst day (Stoxx 600 Banks index -2.32%) for nearly 8 weeks. European markets underperformed relative to their US counterparts as a result with the Stoxx 600 and DAX closing -1.55% and -2.19% respectively. The S&P 500 finished -0.86% while the Dow nudged down -0.91%. A sharp leg higher for WTI Oil (+3.26%), which wiped out the bulk of Friday’s losses on the first day of the OPEC meeting, didn’t appear to translate into gains for the energy sector. It appears that prices were up on higher expectations of some sort of action or agreement with the latest headlines suggesting that the UAE is also in favour of freeze should all other participants agree. There were also upbeat comments from Nigeria but it would be no great surprise to see a flurry of back and forth headlines over the next two days before the meeting draws to a close tomorrow.

Meanwhile in FX markets Sterling was busy again, touching an intraday low of $1.292 at one stage (about -0.40% on the day) before then recovering into the close in the US to finish relatively flat. Unsurprisingly it’s a number of negative news articles concerning Brexit which was attributed to the early weakness again. A couple in particular caught our attention. The first was a survey released by KPMG yesterday morning (Source-Reuters) suggesting that three-quarters of CEO’s (in a sample of 100) said that they would consider moving headquarters or operations out of the UK as a result of Brexit. The second was an article in the FT suggesting that senior City figures were growing increasingly alarmed that political momentum is growing behind a ‘hard Brexit’. ECB President Draghi spoke on the subject yesterday and said that ‘any outcome should ensure that all participants are subject to the same rules’ and that ‘it is very hard to imagine that any agreement that will be perceived as discriminatory against some subjects or in favour of other subjects could be a source of stability for the future of our EU’.

Staying with Europe, we’ve got a new date for readers to put into their diaries this morning, that being Italy’s high stake Senate Reform referendum which has been officially scheduled for December 4th. The 10 week countdown is underway then. While we’re in the periphery, yesterday DB’s Marco Stringa published a note touching on what the Spain regional election results from the weekend mean. Following the heavy defeats to the centre-left PSOE and decent performance for the PP, he has left unchanged his 60% indicative probability of a government being formed before the 31st October and continues to see a third election as the only feasible alternative. That said he is becoming increasingly concerned by the lack of progress and sees the balance of risks clearly tilted towards a new election, which would be the third in twelve months, possibly in mid-December.

Elsewhere, in terms of the minimal data that was released yesterday, a bumper IFO survey reading in Germany seemingly did little to boost sentiment. The headline business climate reading printed at 109.5 for September which was up an impressive 3.2pts from August and also well ahead of the consensus expectation of 106.3. It also puts the index at the highest level since mid-2014. The expectations component also jumped 4.4pts to 104.5 which is the largest rise since re-unification, while the current assessment index printed at 114.7, up 1.8pts from the month prior. Our economists in Germany noted that while this data brings the manufacturing IFO roughly in line with the manufacturing PMI, the discrepancy between the two surveys with respect to the services sector has gotten wider with the services and retail IFO improving, too. Moreover, at their September level IFO expectations points to a strong GDP growth pick-up in Q4, while the weakening PMI points to slowing growth. Overall, this data release brought little clarity in the view of our colleagues. On the plus side, it somewhat eases downside risks to their Q4 GDP expectations. On the negative side, they fear that part of the IFO surge is a "relief rally" after initial fears of an immediate large negative Brexit-impact have eased.

Away from this the data in the US was a bit of a sideshow. New home sales declined less than expected in August (-7.6% mom vs. -8.3% expected) to an annualized rate of 609k, while the Dallas Fed’s manufacturing survey rose 2.5pts but to a still softish -3.7.

There was also a bit of chatter out of the Fed yesterday too. The Dallas Fed’s Kaplan said that ‘I would have been comfortable in seeing some removal of accommodation in September’ and that ‘I am concerned about distortions rates this low are creating’. The Minneapolis Fed’s Kashkari said on the other hand that the decision to hold this month was the right move and that he was in support of it. Richmond Fed President Lacker appeared to side with the former after saying in an interview yesterday that ‘our benchmarks point to interest rates that are substantially higher than they are now, and I think we need to get on with it’.

Looking at today’s calendar, this morning we kick off in Germany where we’ll firstly get the import price index reading for August. Shortly following that we’ll get the latest M3 money supply growth reading for the Euro area, followed then by the September CBI retail reported sales numbers in the UK. This afternoon in the US the early data is the S&P/Case-Shiller house price index reading for July. The remaining flash PMI’s then follow (services and composite – the former of which is expected to improve 0.2pts to 51.2) along with September consumer confidence (expected to decline to 99.0 from 101.1) and the Richmond Fed manufacturing survey (expected to improve 9pts to -2). Elsewhere the Fed-Vice Chair Fischer is due to speak this afternoon at 4.15pm BST however there’s no indication that either the economic outlook or monetary policy will be discussed, while the BoE’s Haldane is also due to speak at 6.30pm BST.