It has been a night of relentless and pervasive disappointing economic data from just about every point on the globe: first the Chinese HSBC manufacturing data was well short of expectations (50.2 vs. Exp. 50.5), which was promptly spun as bullish and a reason for more stimulus by the PBOC even though the central bank has been constantly repeating it will not engage in western-style shotgun easing. Then Japanese wages, household spending and industrial production came in far below expectations - in fact at levels which suggest Japan is once again in a recession - which once again was spun as bullish, because the BOJ has no choice but to do more of the same failed policies that have made Abenomics the laughing stock of the world. Finally, moments ago Europe reported the lowest inflation data in 5 years, as well as core CPI sliding to just 0.7%, and which was, wait for it, immediately spun as bullish for risk as once again the local central bank would have "no choice but to ease." In other words, thank god for horrible news: because how else will the rich get even richer?

As DB summarizes, in terms of the latest from Hong Kong, the government has withdrawn riot police from the streets as protestors began to calm down. Still that has not deterred tens of thousands of people from pouring into the Central/Admiralty district on Monday night although in comparison with the heated street clash on Sunday evening the mood has been rather peaceful over the last 24 hours. Protests are still ongoing on Tuesday morning as we type although the crowds are smaller. But again this has become somewhat of a routine over the last few days, where protestors tend to diminish during the day but return in the evening and stay throughout the night. The event has attracted international headlines and attention from the West although China is seemingly taking a firm stance on this.

Indeed a spokeswoman from the Foreign ministry has said that Beijing "vehemently objected to illegal actions that undermine the rule of law and social security," adding that any international intervention in China's matters was also unacceptable?. These came just before comments from Britain’s call for "constructive talks" and hopes that it would eventually lead to ?a meaningful advance for democracy?. A White House spokesman has also urged Hong Kong authorities to "exercise restraint" and protesters to "express their views peacefully". Chinese authorities have also tightened its grip on social media with the number of restricted Weibo (a Twitter like service) posts increasing fivefold between last Friday and Sunday SCMP. Instagram has also been banned in China.

Looking ahead, a bigger crowd is expected to flood the streets leading up to China’s 1 October National Day Holiday on Wednesday. Pro-democracy organisers have also set a Wednesday deadline for a response from the government to meet their demands for reforms and for him to step down as a leader of HK AP. S&P has said that the protests have minimal implications on HK’s AAA/Stable rating in the near term unless the situation deteriorates severely. The rating agency says HK’s economic performance could be modestly affected but the impact on Hong Kong’s banking system is manageable. Clearly this is still a ‘live’ situation so developments in HK and how it will ultimately be managed by the authorities will be closely watched.

Turning to markets, the Hang Seng (-1.2%) is extending its losses for the fourth consecutive day now and has broken past what is thought to be a support level of 23,000 for the index. Interestingly Chinese equities are faring relatively better (Shanghai Composite -0.1%) despite further data weakness. The final September HSBC Chinese manufacturing PMI index came in at 50.2, versus an initial reading of 50.5 a week ago. Elsewhere in Asia, bourses in Korea, Taiwan and Japan are down -0.5%, -0.2% and -1.2%, respectively. A stronger JPY is perhaps adding pressure to the local markets. Asian IG credit spreads continued to lead 2-4bp wider across the board. That said Indonesia USD bonds is seeing some intraday support with the benchmark 2024 bonds largely unchanged as we go to print.

In Europe, equities trade firmer across the board, with the Spanish IBEX-35 leading the way after Madrid postponed Catalonia’s independence bid. The FTSE-100 slightly underperforms as UK retailer Next warned that the warm weather at the end of September dented its sales growth at the end of Q3, and the Co. may have to revise guidance lower. As such, Next shares fell sharply, and dragged down Marks & Spencer with it, countering the upside in RBS shares today, which rose as the Co. are seen significantly outperforming their guidance due to lower impairment costs.

We have Chicago PMI today which is usually seen as a good preview of ISM manufacturing tomorrow. The market is looking for the headline to slide a touch lower to 62.0 from 64.3 in August. We also have the Consumer Confidence Index and Case-Shiller Home Prices in the US.

Market Wrap

• S&P 500 futures up 0.3% to 1975
• Stoxx 600 up 0.2% to 341.6
• US 10Yr yield up 2bps to 2.5%
• German 10Yr yield at 0.97%
• MSCI Asia Pacific down 0.5% to 140.5
• Gold spot down-0.9% to 1208

Bulletin Headline Summary from RanSquawk and Bloomberg

• Eurozone Core CPI equals the lowest on record, suggesting the Eurozone’s disinflationary spiral cannot be wholly attributed to falling energy prices
• EUR and bond yields fall as equity futures rise on hopes that lower-than-expected inflation will drive the ECB to do more
• Chicago PMI the highlight of a busy data calendar, with Fed’s Powell and BoE’s Miles also due to be speaking
• Treasuries sold off in overnight trading, with 2Y yield reaching level not seen since May 3, 2011 as Euro-area CPI slowed in September, raising speculation that ECB will use further monetary policy moves to prevent prices from adjusting lower.
• The dollar’s strongest year since 2008 is a source of growing concern among some Federal Reserve policy makers, who say further gains have the potential to curb economic growth and keep inflation too low
• Money-market investors who have endured almost-zero interest rates for about six years are bracing for even worse returns after the Federal Reserve limited how much cash it is willing to sop up
• On his first full business day at Janus Capital Bill Gross got a blue-chip endorsement of his economic outlook from a group of former central bankers
• Morningstar Inc. cut the rating of Pimco’s Total Return Fund, the world’s largest bond fund, to bronze from gold after co-founder Bill Gross’s exit
• U.K. economy grew faster than estimated in 2Q, extending a recovery that’s been more robust than previously thought. GDP rose 0.9%, fastest pace in nine months and above the 0.8% previously published
• Protesters continued to block roads in central Hong Kong in the fifth day of pro-democracy demonstrations as leaders warned the standoff would escalate in the coming days if their demands aren’t met
• Turkey sent troops to its border with Syria and pondered military options as an Islamic State onslaught against Syrian Kurds drew Turkey deeper into its neighbor’s fighting
• Sovereign 10Y yields mostly higher, led by Greece. USD strengthens, at highest level since June 11, 2010. Asian stocks mostly lower, European stocks rise. U.S. equity-index futures rise. WTI crude higher, gold, copper falls

US Economic Data Calendar

• 9:00am: ISM Milwaukee, Sept., est. 61 (prior 59.63)
• 9:00am: S&P/Case Shiller Home Priced m/m, July, est. 0.0% (prior -0.2%)
  • S&P/CS Composite 20 y/y, July, est. 7.4% (prior 8.10%, revised 8.07%)
  • S&P/CS Composite Index NSA, July, est. 174.45 (prior 172.33)
• 9:45am: Chicago Purchasing Manager, Sept., est. 62 (prior  64.3)
• 10:00am: Consumer Confidence Index, Sept., est. 92.5 (prior 92.4)
• 3:00pm: Fed issues QE schedule for Oct.

ASIA

The Hang Seng (-1.3%) closed lower amid political unrest in Hong Kong, with the bourse set for its biggest monthly drop (-7.4%) since May. The Nikkei 225 (-0.8%) is also markedly lower in the wake of disappointing Japanese Industrial Production and Household Consumption data, further weighed by Softbank (-7%) after their takeover bid for DreamWorks fell through. Elsewhere, the Shanghai Comp closed up 0.3% despite Chinese HSBC mfg. reading falling short of expectations (50.2 vs. Exp. 50.5), as it showed a 4th consecutive month of expansion and the exports component was the strongest in four years. As a reminder, mainland Chinese markets will be closed after today's trade until next Wednesday for Golden Week, while Hong Kong markets will closed tomorrow and Thursday.

FIXED INCOME

After a tepid start, core and peripheral European government bonds rallied after Eurozone core CPI fell to 0.7% vs. Exp. 0.9%, suggesting the Eurozone’s price level woes cannot be attributed solely to the slide in commodities prices. As such, markets have accelerated their expectations of further action from the ECB, with all eyes now turning to the press conference from the ECB President Draghi on Thursday. Spain outperforms all others, with the Spanish curve trading markedly flatter after the Constitutional court suspended Catalonia’s ability to vote on independence, stemming the speculative outflow that Spain has suffered since the beginning of the week.

Pan Euro Agg month-end extensions +0.08yrs (Prev. +0.03yrs), 12-month average +0.07yrs (IFR)

RANsquawk sources report large Sterling month-end extensions, ranging between +0.28yrs to +0.31yrs – Unconfirmed.

EQUITIES

Equities trade firmer across the board, with the Spanish IBEX-35 leading the way after Madrid postponed Catalonia’s independence bid. The FTSE-100 slightly underperforms as UK retailer Next warned that the warm weather at the end of September dented its sales growth at the end of Q3, and the Co. may have to revise guidance lower. As such, Next shares fell sharply, and dragged down Marks & Spencer with it, countering the upside in RBS shares today, which rose as the Co. are seen significantly outperforming their guidance due to lower impairment costs.

FX

EUR/USD tumbled to September 2012 lows after Core CPI in the Eurozone fell sharply, suggest the ECB may have to provide further monetary stimulus (perhaps even QE) should the disinflation spiral not bottom. As such, EUR/USD tripped stops on the way through YTD lows, targeting a touted large option barrier at 1.2615, below which, S3 lies at 1.2608. The USD-index has soared to a fresh four year high on the back of EUR weakness, lifting USD/JPY close to YTD highs of 109. In Scandinavian currencies, NOK trades at monthly highs against the EUR after Norway announced they are to buy NOK for first time from the oil fund in order to cover domestic budget requirements. Norway will purchase NOK 250mln per day in October for this purpose.

COMMODITIES

WTI and Brent crude futures both trade higher as China’s lower than expected final HSBC manufacturing PMI is shrugged off, as traders read into the  greenshots within the report, as the exports component rose to four year highs. Nonetheless, precious and industrial metals have fallen throughout the session, with gold down over USD 5.50/oz as the stronger USD weighs on prices. Looking ahead, Heating Oil and RBOB October'14 futures expire at 1930BST/1330CDT.

DB's Jim Reid concludes the overnight recap

So it wasn’t exactly the start that the bulls were hoping for with risk assets kicking off the week generally lower across the board. There weren’t any specific drivers for markets per se but the combination of the political uncertainty in Hong Kong, the selloff in selected parts of EM, and the fresh violence in Ukraine was probably just enough to keep markets on the back foot for now.

We’ll start off with Asia today with Hong Kong and China still the key focus for markets. In terms of the latest from Hong Kong, the government has withdrawn riot police from the streets as protestors began to calm down. Still that has not deterred tens of thousands of people from pouring into the Central/Admiralty district on Monday night although in comparison with the heated street clash on Sunday evening the mood has been rather peaceful over the last 24 hours. Protests are still ongoing on Tuesday morning as we type although the crowds are smaller. But again this has become somewhat of a routine over the last few days, where protestors tend to diminish during the day but return in the evening and stay throughout the night. The event has attracted international headlines and attention from the West although China is seemingly taking a firm stance on this.

Indeed a spokeswoman from the Foreign ministry has said that Beijing "vehemently objected to illegal actions that undermine the rule of law and social security," adding that any international intervention in China's matters was also unacceptable?. These came just before comments from Britain’s call for ‚constructive talks? and hopes that it would eventually lead to ?a meaningful advance for democracy?. A White House spokesman has also urged Hong Kong authorities to "exercise restraint" and protesters to "express their views peacefully". Chinese authorities have also tightened its grip on social media with the number of restricted Weibo (a Twitter like service) posts increasing fivefold between last Friday and Sunday SCMP. Instagram has also been banned in China.

Looking ahead, a bigger crowd is expected to flood the streets leading up to China’s 1 October National Day Holiday on Wednesday. Pro-democracy organisers have also set a Wednesday deadline for a response from the government to meet their demands for reforms and for him to step down as a leader of HK AP. S&P has said that the protests have minimal implications on HK’s AAA/Stable rating in the near term unless the situation deteriorates severely. The rating agency says HK’s economic performance could be modestly affected but the impact on Hong Kong’s banking system is manageable. Clearly this is still a ‘live’ situation so developments in HK and how it will ultimately be managed by the authorities will be closely watched.

Turning to markets, the Hang Seng (-1.2%) is extending its losses for the fourth consecutive day now and has broken past what is thought to be a support level of 23,000 for the index. Interestingly Chinese equities are faring relatively better (Shanghai Composite -0.1%) despite further data weakness. The final September HSBC Chinese manufacturing PMI index came in at 50.2, versus an initial reading of 50.5 a week ago. Elsewhere in Asia, bourses in Korea, Taiwan and Japan are down -0.5%, -0.2% and -1.2%, respectively. A stronger JPY is perhaps adding pressure to the local markets. Asian IG credit spreads continued to lead 2-4bp wider across the board. That said Indonesia USD bonds is seeing some intraday support with the benchmark 2024 bonds largely unchanged as we go to print.

Much of the overnight action was largely an extension of the US and European session yesterday with equities, credit and the Dollar all weaker. The S&P 500 (-0.25%) finished off the lows after having declined nearly 1% at the open. Credit markets are still weighed by concerns around PIMCO unwinds which saw widening pressure across IG and HY. In synthetic markets, the CDX IG index was around 4bp wider whilst the HY index was down by nearly a point. US HY ETFs continue to drop lower with both the SPDR Barclays HY Bond ETF (-0.27%) and the iShares iBoxx $ HY Corporate Bond ETF (-0.21%) down for their 6th consecutive day. In reality balance sheet constraints around month/quarter end likely contributed to the volatility/weakness as well. Treasuries enjoyed their flight-to-quality moment with the 10yr yield closing 5bps lower at 2.477%. Some dovish comments from Fed’s Evans also helped as he sad that the strong USD will make it harder for the Fed to achieve its inflation target.

In the world of EM, Brazil’s benchmark equities dropped over 4% and 5yr CDS widened by 16bps yesterday after latest polls suggests that the Brazil’s President Rousseff has opened up a nine point lead over Ms Silva in a likely second round runoff (WSJ). In Ukraine, pro-Russian insurgents launched an attack which saw 13 soldiers and civilians killed in 24 hours in a move that is seen as the worst violence since a truce was struck few weeks ago. The Russian Micex index closed 1.8% lower whilst 5yr CDS widened by nearly 10bps.

Quickly updating the data flow yesterday, US personal income (+0.3%) was as expected whilst personal spending (+0.5% v 0.4% expected) was slightly ahead. Pending home sales was disappointing though with a 1.0% mom decline in August. In reality though yesterday’s data flow was hardly inspirational but today’s releases should be more interesting.

Indeed we have Chicago PMI today which is usually seen as a good preview of ISM manufacturing tomorrow. The market is looking for the headline to slide a touch lower to 62.0 from 64.3 in August. We also have the Consumer Confidence Index and Case-Shiller Home Prices in the US. In Europe the highlights will be consumer spending updates from Germany and France but the main focus will be on the first September inflation reading for Europe as it will likely weigh on the QE debate ahead of the ECB meeting on Thursday. Markets are looking for a 0.3% yoy increase in the headline and 0.9% yoy increase at the core level.