European stocks were little changed and oil fell as investors assessed declining prospects for an OPEC deal and risks from Italy’s referendum. Asian stocks declined, while S&P futures pointed to a fractionally higher open, erasing 3 points from yesterday's drop.

Trader attention today - and tomorrow - will be focused on oil which retreated back under $47 as OPEC members failed to bridge differences on production cuts, while a rally in metals ran out of steam. The rand plunged after President Jacob Zuma survived a leadership threat.

“We have a very important OPEC meeting and there’s a flow of expectations in front of this meeting, therefore the oil price is shaky as well as oil-related companies,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg. The market is giving just 30% odds to an agreement to end the oil supply glut, according to Goldman Sachs; pessimism about the make-or-break talks is helping to damp a commodities rally.

Commodity and energy producers were the biggest decliners in the Stoxx Europe 600 Index. Crude slid as Iraq and Iran raised objections over the distribution of output reductions and Russia said it’s not planning to attend crucial talks with the Organization of Petroleum Exporting Countries on Wednesday (more in a subsequent update on oil prices). “What we are seeing now is a tug of war among OPEC members to get their share of the pie,” Son Jae Hyun, a global market analyst at Mirae Asset Daewoo Co., said by phone from Seoul. “If a deal isn’t made this time, none of them will benefit.”

Copper slumped for the first time in seven days and the Bloomberg Dollar Spot Index ended a two-day loss. The rand was the biggest decliner among major currencies.

European shares posted modest gains in early trading on Tuesday, after taking a battering from banks the previous day, but weak oil prices before a meeting of OPEC producers limited gains. 8 out of 19 Stoxx 600 sectors fall with basic resources, oil and gas underperforming while financial services outperforming; about half of Stoxx 600 members decline.

Italian banking stocks staged a recovery but miners came under renewed selling pressure after a sharp decline in commodities prices. Oil prices fell more than 1.5% on jitters over whether OPEC would be able to hammer out a meaningful output cut during a meeting on Wednesday to rein in a global supply overhang and prop up prices.

The miner-heavy FTSE 100 index was down 0.38% but the FTSE Mid 250 was up 0.15% 0940 GMT (5:40 a.m. ET). "The fact that the FTSE 100 is going one way and the FTSE 250 is going the other way suggests that there is a sector specific event going on, as the FTSE 100 is more commodities heavy," said Investec economist Philip Shaw cited by Reuters.

There was a slew of European economic data reported this morning, most of which either met or exceeded expectations:

• (FR) 3Q P GDP 0.2% QoQ; est. 0.2%, prior 0.2%
• (FR) 3Q P GDP 1.1% YoY; est. 1.1%, prior 1.1%
• (FR) Oct. Consumer Spending 0.9% MoM; est. 0.25%, prior -0.2%
• (FR) Oct. Consumer Spending 1.5 YoY; est. 1.0%, prior 0.7%
• (EC) Nov. Economic Confidence 106.5; est. 106.8, prior 106.3
• (EC) Nov. Industrial Confidence -1.1; est. -0.5, prior -0.6
• (EC) Nov. Services Confidence 12.1; est. 12.5, prior 12
• (EC) Nov. Consumer Confidence -6.1; est. -6.1, prior -6.1
• (EC) Nov. Business Climate Indicator 0.42; est. 0.6, prior 0.6

The MSCI index of Asia-Pacific shares outside fell 0.27% after two days of gains. Tokyo stocks slipped 0.3% hit by a stronger yen. Asian stocks fell after a three-day rally as investors adopted a cautious tone ahead of key events from OPEC talks to the U.S. jobs report and Italy’s referendum.8 out of 10 sectors fall with industrials, energy underperforming and telcos, financials outperforming.Chinese stocks rose by 0.2% with the Shanghai Composite reaching 3,283: “The government is tightening property so maybe some of that excess liquidity is flowing into the A-share market again,” said Ben Kwong, a Hong Kong-based director at KGI Asia Ltd.

The moved higher on the yen to reach 112.62 after month-end flow profit-taking pulled it down as far as 111.58. It remains over 7% higher for the month. Dealers reported Japanese buying for the new month with orders today settling on Dec. 1. Against a basket of currencies, the dollar held at 101.280 .DXY and not far from last week's 14-year peak. The greenback was still on track for its strongest two-month gain since early 2015, underpinned by expectations the Federal Reserve is almost certain to hike interest rates next month.

European government bond markets were also trending in this direction, with safe-haven Germen government bond yields up 1-2 basis points and lower-rated Italian, Spanish and Portuguese bond yields lower. Italian 10-year bonds posted a modest advance, with the yield falling five basis points to 2.02%, but the gain comes just days after the bond yields hit their highest level since September 2015. The rebound came after Prime Minister Matteo Renzi’s office denied news reports that he is considering stepping down even if he wins the Dec. 4 referendum on constitutional reform.

Italian bond yields have been rising before Sunday's referendum on constitutional change, on which Prime Minister Matteo Renzi has staked his future.

"Citi's base case is for a No vote to prevail with political uncertainties likely to remain elevated over the near-term," wrote analysts at Citi. "It's worth watching whether PM Renzi resigns in the event of a No vote as promised, before rushing into euro shorts." The event has brought Italy's ailing banking sector sharp relief, and earlier this week Italian banking stocks hit their lowest point since end-September on continued worries over a cash call at troubled Monte dei Paschi.

In the US, 10Y Treasury yields rose two basis points to 2.34% after falling five basis points on Monday.

Later today, investors will get further insight on the U.S. economy with gross domestic product data, followed by Friday's payrolls report on Dec. 2.

Bulletin Headline Summary from RanSquawk

• European equities trade modestly higher amid some mild reprieve in banking names while the FSTE 100 lags amid a firmer GBP
• A modest resumption in the USD buying seen today, despite reports that fund managers will — on balance — be selling the greenback into month end
• Looking ahead, highlights include German CPI, Eurozone sentiment figures, US GDP, API Inventories, Fed's Dudley and Powell

Market Snapshot

• S&P 500 futures up 0.2% to 2204
• Stoxx 600 unchanged at 340
• FTSE 100 down 0.6% to 6759
• DAX up 0.1% to 10593
• German 10Yr yield down less than 1bp to 0.2%
• Italian 10Yr yield down 5bps to 2.02%
• Spanish 10Yr yield down less than 1bp to 1.56%
• S&P GSCI Index down 1.2% to 365.8
• MSCI Asia Pacific down 0.3% to 136
• Nikkei 225 down 0.3% to 18307
• Hang Seng down 0.4% to 22737
• Shanghai Composite up 0.2% to 3283
• S&P/ASX 200 down 0.1% to 5457
• US 10-yr yield up 2bps to 2.33%
• Dollar Index unchanged at 101.33
• WTI Crude futures down 1.8% to $46.23
• Brent Futures down 1.7% to $47.43
• Gold spot down 0.5% to $1,188
• Silver spot down 0.4% to $16.54

Top Headlines

• OPEC Said to Remain Split as Russia Says It Won’t Attend Meeting: Delegates said to fail to bridge divisions after 10-hour talks
• Samsung (SSNLF) Plan to Boost Share Value Falls Short of Elliott Goals: Stock buybacks, increased dividends will make up cash return
• Chicken Producers Asked for Affidavits Confirming Price Data: U.S. chicken producers including Tyson Foods and Sanderson Farms are being asked by the Georgia Department of Agriculture to meet new requirements for a price index
• Korea’s Scandal-Hit President Says She’s Willing to Resign: Park says will follow what parliament decides on her future
• Strategists Shun Aging U.S. Bull Market for New One in Japan: Morgan Stanley upgrades Japan stocks, downgrades U.S. equities
• Facebook (FB) Fake News Doesn’t Need Policing, Publisher Says: Axel Springer CEO says Facebook shouldn’t regulate content
• Apple’s (AAPL) iPhone India Sales Surged Immediately After Note Ban: ET

* * *

Looking at regional markets, Asia stocks traded mixed following a negative lead from Wall St, where financials were pressured alongside weakness in their European peers and the S&P 500 testing 2200 to the downside. Nikkei 225 (-0.3%) was lower amid recent JPY strength weighing on the index after USD/JPY briefly fell below 112.00, while losses in ASX 200 (-0.1 %) were stemmed by health care and financials. Chinese markets were mixed amid continued reports China is to tighten capital controls and restrict outbound flows with profit taking in the Hang Seng (-0.2%) after yesterday's Shenzhen stock connect-inspired gains, while the Shanghai Comp (+0.2%) initially took a breather before extending on 11-month highs. Elsewhere, the Kospi (+0.2%) rose 0.4% in reaction to news that South Korean President Park apologized for causing concern with her short-comings and stated that she will leave it to parliament to decide all affairs including reducing her term. 10yr JGBs traded flat despite a cautious tone for riskier assets, with the curve steepening as the short-end outperformed following a 2yr bond auction in which the lowest bid surpassed estimates and tail in price remained non-existent.
PBoC injected CNY 90bIn in 7-day reverse repos, CNY 70bIn in 14-day reverse repos and CNY 30bIn in 28-day reverse repos. PBoC set mid-point at 6.8889 (Prey. 6.9042).

Top Asian News

• UBS Wealth Sees Trump Bubble Burst Driving Yen to 98 per Dollar: Protectionist policies to precede fiscal stimulus, Ibayashi says
• Macquarie to Merge Trading Businesses Into Unit Led by Downe: Brings together securities and commodities & markets groups
• Thailand’s Parliament to Invite Vajiralongkorn to Become King: Vajiralongkorn would succeed the late King Bhumibol Adulyadej

In Europe, equities spent the morning in modest positive territory (Euro Stoxx 50: +0.6%), with the exception of the FTSE 100 (-0.3%), which has been weighed on by a stronger GBP as well as energy and material names. Elsewhere, sentiment has also been bolstered on the continent by upside in Banca Monte dei Paschi shares (+5.6%), paring some of the significant downside seen yesterday in the wake of their debt to equity swap green light. Elsewhere, Actelion (-5%) are among the worst performers this morning after reports in the FT that the Co. is considering a complicated deal to combine with part of Johnson & Johnson (JNJ), without seeing a full takeover as was previously touted. Fixed income markets have been relatively quiet with participants amid the looming month-end and Italian referendum, as such volumes are somewhat on the light side. Today has also seen a noticeable narrowing of the IT/GE spread, in terms of reports from Italy Italian PM Renzi's office denied premarket reports suggesting that the Italian leader would resign, even in the event of Sunday's referendum seeing a 'yes' vote.

Top European News

• Actelion Slumps on Report J&J Talks Will Leave It Independent: Financial Times reported that a complex transaction being discussed with Johnson & Johnson would allow the Swiss company to remain independent.
• Sweden’s Economy Slows as Investments Stall in Third Quarter: Growth slowed in the third quarter as an expansion in the Nordic region’s largest economy continues to abate from last year’s output peak.
• Tesco’s Ex-CEO Clarke Avoids Prosecution Over Accounting Scandal: Clarke informed by Serious Fraud Office he won’t be charged
• VW, BMW, Ford to Set Up Charging Network to Spur E-Car Demand: Automakers plan first stations on European highways in 2017

In currencies, Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, increased 0.1%. The yen weakened 0.6 percent to 112.57 per dollar, set for its biggest monthly drop since 2009, amid speculation that Trump will pursue inflationary spending and tax policies prompting a faster pace of monetary-policy tightening by the Federal Reserve. The rand depreciated 1.5 percent after Zuma staved off a bid by officials in the ruling party to oust him. The Norwegian krone dropped 0.3 percent. The South Korean won edged 0.1 percent higher as President Park Geun-hye said she’s willing to resign amid an influence-peddling scandal.

In commodities, WTI crude slipped 1.9 percent to $46.20 a barrel as of 10:45 a.m. in London, after rising 2.2 percent on Monday, as jitters returned that OPEC will fail to reach a successful deal when it meets tomorrow. Copper futures dropped 1.6 percent on the London Metal Exchange, nickel lost 2.2 percent while zinc declined 1.1 percent. Gold for immediate delivery fell 0.5 percent following last session’s 0.9 percent jump.

Among today's key events, we’ll get the second reading of Q3 GDP where the market is expecting growth to be revised up modestly to +3.0% qoq from +2.9% in the first estimate. In addition to the data the BEA will also release new information concerning corporate profits which is usually worth taking a look at. Also due out across the pond will be the November consumer confidence survey and also the S&P/Case-Shiller house price index. There is also some Fedspeak with Dudley due to speak at 1.15pm GMT (albeit on the Puerto Rico economy) while Powell speaks at 5.40pm GMT.

US Event Calendar

• 8:30am: GDP Q3 Est. 3% (prior 2.9%)
• 8:55am: Redbook weekly sales
• 9am: S&P CoreLogic CS 20-City y/y NSA, Sept., est. 5.20% (prior 5.13%)
• 9:15am: Fed’s Dudley speaks in Puerto Rico
• 10am: Consumer Confidence Index, Nov., est. 101.5 (prior 98.6)
• 4:30pm: API weekly oil inventories

* * *

DB's Jim Reid concludes the overnight wrap

Sunday's referendum in Italy is coming into full view now and even though a rejection is probably the most likely scenario, what happens after that is still open to much debate. Indeed DB’s Marco Stringa published an updated report yesterday looking at the risks after and beyond Italy’s referendum. He notes that given the recent underperformance in Italian assets, the impact of a rejection may already have partially been reflected in valuations. But when looking at implied moves from options, the equity market seems to be mostly pricing in limited probability of extreme scenarios. An apparent lack of concern over contagion risks is even more apparent in broader European indices. The report goes through Marco’s various downside and upside scenarios for which his central case still remains a muddle-through government with limited scope and duration. In this case he expects an early election from June 2017.

The last 24 hours suggests, certainly in Europe, that markets have started to turn their focus fully towards Sunday. Italy’s FTSE MIB (-1.81%) was the standout underperformer yesterday with Italy’s banking sector under pressure following a number of negative newswire reports. The Stoxx 600 edged down -0.77% although the Stoxx 600 Banks index tumbled -1.90% for its biggest one-day loss since November 2nd with Italian lenders unsurprisingly at the heart of that.

Markets in the US also slipped yesterday. Having touched record highs on Friday the S&P 500 (-0.53%), Dow (-0.28%), Nasdaq (-0.56%) and Russell 2000 (-1.29%) all simultaneously declined with banks also at the forefront of the weakness. In fact that drop for the Russell 2000 was, amazingly, the first since November 3rd (15 sessions) with the run of gains since the longest for that index since 1996. Elsewhere, Treasuries seem to have hit their yield ceiling for now. 10y yields were over 4bps lower yesterday at 2.315% and are now 10bps or so down from the intraday highs in yield last week. Sovereign bond markets were also a bit stronger in Europe yesterday. 10y Bund yields dropped 3.5bps to 0.201% while BTP’s underperformed at the margin, although still edged a couple of basis points lower to 2.064%.

The other obvious mover and shaker right now ahead of tomorrow’s meeting is Oil. Yesterday WTI rebounded +2.21% to a shade above $47/bbl again, although it has dropped below that level again this morning in Asia. The constant barrage of will-they-won’t-they headlines has the makings of the next great soap opera. The suggestion yesterday was that Iran and Iraq have continued to express objections to Saudi Arabia demands for their share of output cuts and for now that appears to be the main sticking point. We’ll wait to see what the latest round of headlines bring us today.

To the latest in Asia now where it’s been another relatively mixed start to trading. The Nikkei (-0.26%) in particular is trading lower despite some signs of improvement in the data this morning. Overall household spending, while still soft, did improve to -0.4% yoy in October from -2.1% in the month prior. Retail sales were also reported as rising +2.5% mom last month (vs. +1.1% expected) – the quickest since May 2014 - while over in the labour market the jobless rate was unchanged at 3.0%. Elsewhere this morning the Hang Seng (-0.02%), ASX (+0.06%) and Kospi (-0.03%) are little changed, while the Shanghai Comp (+0.30%) has edged higher. Rates markets are similarly mixed, although moves are relatively modest, while US equity index futures are fairly flat.

Moving on. Yesterday the OECD released their twice-yearly economic outlook including updated growth forecasts. Summing up, growth was revised up for the UK to 2.0% for 2016 (from 1.8% at the September projections) and 1.2% in 2017 (from 1.0%). Growth in 2018 is expected to be 1.0% but unsurprisingly the OECD used the caveat that the unpredictability of the exit process from the EU is the major downside risk. For the US, growth has been revised up to 1.5% for this year (from 1.4%) while 2017 growth was revised up two-tenths to 2.3%. Growth is expected to be 3.0% in 2018 with the organisation painting a fairly positive picture about of the impact of President-elect Trump’s proposed infrastructure spending plans on US growth. According to the OECD, world growth is expected to be 2.9% this year (unchanged) and 3.3% in 2017 (up from 3.2%).

Meanwhile, the data flow in Europe was a little bit soft at first glance. The ECB’s money and credit aggregates revealed a slowing in M3 money supply growth to +4.4% yoy in October from +5.1% the month prior. Market expectations had been for little change. However, after adjusting for sales and securitisation household lending rose +1.8% yoy and was unchanged versus September, while the three-month average for total credit was little changed at +1.7% yoy. Private sector credit rose with the three-month average up to +0.9% yoy from +0.6%. Meanwhile, the sole release in the US was the Dallas Fed’s manufacturing survey for this month which showed headline business conditions as rising nearly 12pts to +10.2 which is actually the highest reading since July 2014.

Also released yesterday was the latest ECB CSPP holdings data. As of November 25th, total holdings amounted to €46.231bn. That implies net purchases settled last week of €1.909bn or an average daily run rate of €382m. In fact, the daily average more or less matches the daily average since the program started (€385m) so we’re still yet to see any obvious signs of a slowdown into yearend just yet.
Staying with the ECB and wrapping up, President Draghi also spoke yesterday in a testimony to European Parliament, although his comments weren’t particularly groundbreaking. Draghi spoke about the ECB’s perspective on economic and monetary developments post Brexit and talked about the ‘encouraging resilience’ that the Euro area has so far displayed. Unsurprisingly Draghi said that longer term potential spillover effects will ‘vary across countries depending on their trade links with the UK’. Following the various press reports suggesting a possible delay in the decision concerning an extension of the ECB’s stimulus program, Draghi said that the Governing Council will assess the various options that will allow the Council to ‘preserve the very substantial degree of monetary accommodation necessary to secure the sustained convergence of inflation towards level below but close to 2%’.

Looking at the day ahead, this morning in Europe we’re kicking off in France where we’ll get the second Q3 GDP reading. Following that we turn over to the UK where money and credit aggregates data is due to be released, including last month’s mortgage approvals data. Confidence indicators for the Euro area then follow before we get the flash November CPI report for Germany. Over in the US this afternoon we’ll get the second reading of Q3 GDP where the market is expecting growth to be revised up modestly to +3.0% qoq from +2.9% in the first estimate. In addition to the data the BEA will also release new information concerning corporate profits which is usually worth taking a look at. Also due out across the pond will be the November consumer confidence survey and also the S&P/Case-Shiller house price index. There is also some Fedspeak with Dudley due to speak at 1.15pm GMT (albeit on the Puerto Rico economy) while Powell speaks at 5.40pm GMT.