Global stocks are pressured this morning after a plunge in the Thai stock market and currency on concerns about the king's health and Fed hikes coupled with some more bad news out of Samsung which cut profit estimates by a third, while European stocks are suffering after Swedish telecom giant Ericsson issued a profit warning, sending its shares plunging 17%.

The big macro story is the jump in the sterling which soared as much as 200 pips after Theresa May accepted a debate on a motion from the opposition Labour Party today who are arguing for a ‘full and transparent debate on the government’s plan for leaving the EU’ and which will allow for MP’s to be able to ‘properly scrutinize’ the government’s plan prior to the start of formal negotiations. The motion will be debated in Parliament today. However, according to Bloomberg May did table an amendment that added that there shouldn’t be an attempt to block Brexit or undermine the government’s position and while there is no binding result attached the fact that there will at least be some discussion amongst Parliament is slightly easing some of those hard Brexit concerns this morning.

“The vote is a major concession that does reduce the room to maneuver for Theresa May’s government in the negotiation,” said Hans Redeker, Morgan Stanley’s chief global currency strategist in London. “That is currently read as positive for sterling.”

Meanwhile, the next potentially interesting event for the fate of sterling comes tomorrow where the High Court will deem whether or not an Act of Parliament is needed for Article 50 to be triggered. A second hearing is scheduled for October 17th. A loss for the government would then force the issue into the House of Commons and House of Lords which could lead to delays although we’d expect appeals in such an outcome. One to watch however.

Ericsson AB sank 17 percent after the Swedish network maker reported a slump in third-quarter sales and profitability, dragging a gauge of technology shares to the worst performance of the Stoxx Europe 600 Index’s 19 industry groups. BASF SE rose 0.6 percent after the world’s largest chemical maker posted a smaller-than-expected decline in quarterly profit. Fresnillo Plc slipped 2.2 percent as the precious-metals miner said silver production slowed in the third quarter from a year earlier due to personnel issues and availability of equipment.

“The market will need some reassurance that a soft start to earnings season has been nothing more than a few outliers,” said Alan Higgins, chief investment officer at Coutts & Co. in London. His firm oversees the equivalent of $18 billion. “Investors are also building in a higher probability of a Fed hike as each week goes past. These next few months will be very busy.”

The MSCI Asia Pacific Index dropped 0.6 percent. Hong Kong’s Hang Seng Index retreated 0.6 percent in a third day of losses as Bank of China Ltd. and Bank of Communications Co. sank more than 2.8 percent. In Japan, the Topix lost 1 percent.

Aside from Europe, the MSCI Asia Pacific Index retreated to a three-week low. Thailand’s stock market and currency extended this week’s losses after the royal palace said Sunday that King Bhumibol Adulyadej’s condition was unstable.

Emerging markets are once again feeling the heat on concerns a Fed hike may lead to a return in capital outflows from EM, leading to preemptive. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after rising for the past two days and closing at the strongest level since July 25 on Tuesday. Investors will scrutinize minutes from the Fed’s latest decision due Wednesday, with odds of a U.S. rate increase by year-end climbing to 68 percent amid speculation the recent surge in oil prices will fuel inflation, based on futures data compiled by Bloomberg. 

Responding to the stronger dollar, China’s central bank weakened the yuan’s reference rate for a sixth day, pushing it to the lowest in 6 years with a USDCNY fixing of 6.7258, down 5.5% Y/Y, the longest run of cuts in nine months, amid speculation policy makers will allow further declines as the dollar rises.

S&P 500 Index futures were little changed, after falling Tuesday to an almost four-week low as an early batch of disappointing corporate results including those from Alcoa Inc. damped optimism over a rebound in earnings.

Oil climbed as OPEC received further commitments from Russia that the world’s largest energy exporter is willing to participate in a coordinated effort to curb production.

In rates, the big movers were Sterling corporate borrowing costs which have risen back to early August levels, reversing a decline sparked by an interest-rate cut and the Bank of England’s announcement of plans to buy company bonds to help ease the economic impact of Brexit. The average yield has climbed to 2.48 percent, based on a Bloomberg Barclays index. Australian government debt extended declines, with 10-year yields rising for a seventh straight day, adding five basis points to 2.30%. Spanish bonds led declines in the euro region’s fixed-income market on speculation that caretaker Prime Minister Mariano Rajoy may face a confidence vote this month. The vote could come on Oct. 28, El Mundo reported on Wednesday, using its own calculations pegged to the King of Spain’s talks with parties. The 10-year yield rose four basis points to 1.06 percent.

10Y US Treasuries have lost 5.8% in the three months through Monday, the most among 144 government bond indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies. The nation will auction $24 billion of three-year notes and $20 billion of 10-year securities on Wednesday.

Market Snapshot

• S&P 500 futures down 0.1% to 2131
• Stoxx 600 up less than 0.1% to 340
• FTSE 100 down 0.4% to 7040
• DAX down 0.1% to 10565
• German 10Yr yield up 1bp to 0.04%
• Italian 10Yr yield up 2bps to 1.4%
• Spanish 10Yr yield up 4bps to 1.06%
• S&P GSCI Index up 0.4% to 377.2
• MSCI Asia Pacific down 0.6% to 139
• MSCI Asia Pacific down 0.6% to 139
• Nikkei 225 down 1.1% to 16840
• Hang Seng down 0.6% to 23407
• Shanghai Composite down 0.2% to 3058
• S&P/ASX 200 down less than 0.1% to 5475
• US 10-yr yield up less than 1bp to 1.77%
• Dollar Index up 0.05% to 97.74
• WTI Crude futures up 0.5% to $51.03
• Brent Futures up 0.7% to $52.79
• Gold spot up 0.3% to $1,256
• Silver spot up 0.4% to $17.53

Top Global Headlines

• Trump’s attacks on GOP leaders ignite civil war inside party: GOP nominee escalates feud with party’s most visible figures; poll shows Trump trailing Clinton by nine points.
• Pound advances as Brexit angst eases with May accepting that Parliament should be allowed to vote on Brexit plan; crude oil Holds Above $50; sterling snaps drop with Parliament to discuss Brexit plan; MSCI’s Asian equity index falls to lowest level in three weeks.
• Sprint seeks to raise $3.5b from spectrum, WSJ says: U.S. carrier to mortgage about 10% of airwaves; CFO said in March up to $5b could be raised on spectrum.
• Deutsche Bank said to increase size of private bond issue; raised $1.5b following a $3b deal; yield on notes 290 bpss more than benchmark.
• Samsung cuts profit outlook by $2.3b after killing Note 7 phone.
• Thailand stocks, currency slump amid concern over king’s health; SET Index falls almost 9% this week in biggest drop in world: Baht weakens after foreigners sell sovereign bonds.
• Fed minutes could show depth of hawkish rebel camp in FOMC: Fed watchers looking to tally hike support among non-voters; critical debate likely to center on labor market, inflation.
• OPEC hails Putin production pledge as internal disputes persist; Russian companies fall into line as Putin backs supply accord: Iraq, Venezuela dispute output estimates underpinning deal.
• ‘Flash-Crash’ Trader Faces End of Road in U.K. Extradition Fight: Navinder Sarao will ask judge to reconsider extradition appeal; Sarao charged in U.S. with making millions spoofing markets.

Looking at regional markets, Asia stocks traded lower across the board and tracked the losses seen in the US where healthcare names underperformed as Hillary Clinton widened her lead in the US Presidential race, while a pullback in oil, further increases December Fed hike expectations and Alcoa missing at the start of earning season also dampened sentiment. This pressured Asian markets from the open with ASX 200 (-0.2%) dragged by commodity names, while Nikkei 225 (-0.9%) was weighed by a firmer JPY. Shanghai Comp. (-0.3%) and Hang Seng (-1.0%) were subdued after the PBoC kept its liquidity injections light, while the property sector continued to lag following recent measures to cool the rampant market. BoJ Governor Kuroda said he will ease further if it is deemed to be beneficial and would lower rates further into negative territory if merits outweigh costs.

Top Asian News

• Australia Sells $5.8 Billion of 30-Year Bonds in Record Deal New 2047 notes priced to yield 3.27%.
• UBS Said to Hire Top Asia Private Bankers From Deutsche Bank: Latest defections amid growing competition for Asian wealth.
• Saka Shuts Credit Hedge Fund as Low Rates Offer Muted Gains: Singapore-based asset manager returns money to investors.
• Samsung Cuts 3Q Op Profit to 5.2t Won From 7.8t Won on Note 7: Co. also revises 3Q sales to 47t won from 49t won.
• Kirin Said to Buy Stake in Brooklyn Brewery in Craft Beer Chase: Japan brewers are seeking ways to grow as consumption falls.
• Analysts’ Perfect Stock Plunges as China Property Risks Grow: China Resources Land is falling fastest on Hang Seng Index

European markets remain subdued this morning (DAX -0.16%) with IT the major laggard across the continent, as Ericsson issued a profit warning with the CEO stating the result is significantly lower than we expected, with a particularly weak end of the quarter. Elsewhere, healthcare (-0.37%) names also traded softer as Presidential candidate Clinton edges ahead in the polls (previously criticised excessive pharma Co. profits). In Fixed income markets, Bunds are largely flat only up 8 ticks with fixed income markets awaiting FOMC minutes.

Top European News

• Ericsson Profit Plunges as Equipment Maker’s Woes Intensify
• Germany, Utilities Said to Agree Nuclear Deal From Feb. 2017
• Brexit Proves Bane for This U.K. Stock Index as Peers Rally
• VTB to Continue Cutting Back London Operations: CEO Kostin
• Ericsson Slumps to Lowest Since 2008 on Earnings Miss: Chart
• Costly Rule Changes to Spark More M&A by Europe’s Asset Managers
• Goldman Sees ‘Sharpening of Knives’ in South Africa’s ANC

In FX, the pound climbed 1.1 percent to $1.2250 in early trading London, rebounding from near a three-decade low. Parliament will debate on Wednesday a motion from the opposition Labour Party calling for a “full and transparent debate on the government’s plan for leaving the EU” and for lawmakers to be able to “properly scrutinize that plan” before May begins formal talks. In response, May tabled an amendment that effectively accepted the motion, adding that there shouldn’t be an attempt to block Brexit or “undermine the negotiating position of the government.” The Bloomberg Dollar Spot Index was little changed after rising for the past two days and closing at the strongest level since July 25 on Tuesday. Investors will scrutinize minutes from the Fed’s latest decision due Wednesday, with odds of a U.S. rate increase by year-end climbing to 68 percent amid speculation the recent surge in oil prices will fuel inflation, based on futures data compiled by Bloomberg. China’s central bank weakened the yuan’s reference rate for a sixth day, the longest run of cuts in nine months, amid speculation policy makers will allow further declines as the dollar rises. The currency was little changed at a six-year low. South Africa’s rand swung between gains and losses after tumbling 3.9 percent on Tuesday, the most in more than three months, after Finance Minister Pravin Gordhan was summoned to appear in court.

In commodities, West Texas Intermediate crude added 0.3 percent to $50.96 a barrel after Saudi Arabia’s oil minister left Istanbul with a pledge that Russia would join efforts to limit oil production. That leaves internal OPEC disagreements over how to share the burden of the cuts as the last obstacle to a global deal. Russia’s two largest oil producers said Tuesday they would comply with any government instructions to curb oil output, following President Vladimir Putin’s backing on Monday for a supply deal with the Organization of Petroleum Exporting Countries. Gold for immediate delivery gained 0.2 percent to $1,255.64 an ounce following a 0.5 percent drop last session, its ninth decline in 12 days. Zinc rallied 0.3 percent after sliding the most in 10 months, while copper added 0.2 percent on the London Metal Exchange.

Looking at the day ahead, the lone data is the JOLTS job openings report. Remember that this data is closely followed by Yellen however given that the data corresponds to August and we have since had the September employment report, the numbers will probably look a bit stale. The focus today will of course be on those September FOMC meeting minutes which are out at 2pm ET. Away from the data the Fed’s Dudley (1pm BST) and George (2.40pm BST) are both scheduled to speak today along with the ECB’s Mersch and Coeure. The other event worth watching today, with obvious implications for Sterling and FX markets, is the UK Parliament debate about the government’s plan for leaving the EU.

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Bulletin Headline Summary from Ransquawk and Bloomberg

• European bourses remain subdued this morning with IT the major laggard across the continent
• Wednesday's market was expected to be a day of consolidation, but from early Asia, we have again seen GBP taking the headlines
• Looking ahead, highlights include FOMC Meeting Minutes, US JOLTs, WASDE Crop Report, EU Industrial Production and comments from BoE's Cunliffe, Fed's George and Dudley

US Event Calendar

• 7am: MBA Mortgage Applications, Oct. 7 (prior 2.9%)
• 8am: Fed’s Dudley speaks in Albany, New York
• 9:40am: Fed’s George speaks in Chicago
• 10am: JOLTS Job Openings, Aug., est. 5.800m (prior 5.871m)
• 2pm: FOMC Minutes, Sept. 20-21
• 4:30pm: API weekly oil inventories

DB's Jim Reid concludes the overnight wrap

It feels that markets have been experiencing the Great British Sell-Off of late and it was another challenging session for the pound yesterday but we've seen a strong bounce back in Asia as PM May agreed late last night to allow Parliament to debate the type of Brexit we'll see today. More on this below but across the wider global market, the last 24 hours have seen a combination of forces weaken sentiment. Fears over central banks reaching the end of the road in the current regime, slowly increased expectations that the Fed's hurdle rate for hiking is getting lower, Oil's recent strong rally, a plunging pound and hard Brexit talk are all factors that have destabilised bond markets over recent weeks and yesterday these factors combined with a weak start to the US earnings season to prompt a sharp turnaround in equities. The S&P 500 (-1.24%) fell by the most in a month to a near 4-week low and dipped below the 100 day moving average.

Given that a lot of the concerns focus on central banks at the moment tonight is a timely look at how close the FOMC came to raising rates last month with the minutes being released. Remember there were three dissenters so it's likely that these will be one of the more hawkish set of no rate change minutes. While we've always thought the Fed would get practically nowhere in terms of rate hikes in this cycle it's becoming clearer that they are now prepared to hike on much shakier economic foundations than at virtually any point in their history.

Aside from those minutes tonight the other big focus today will almost certainly be on all things Brexit and Sterling related. Before this morning's bounce back, yesterday the Pound suffered a late-day sell off to close down -1.93% versus the Dollar at $1.2123. That is actually the worst one-day fall for Sterling since July 5th although it did actually touch $1.2090 intraday which compares to the flash crash low on Friday (assuming you use the reported Bloomberg level) of $1.1841. A generally strong day for the US Dollar certainly didn’t help matters however comments from BoE MPC member Michael Saunders didn’t exactly exude confidence. He said that ‘given the scale and persistence of the UK’s current account deficit, I would not be surprised if sterling falls further’ and that while the largest part of the drop ‘is an adjustment to the prospect of an EU exit, we don’t know yet the exact shape of Britain’s post-exit arrangements’.

It’s a very different story this morning however with the Pound bouncing back +1.60% as we type to $1.2316. The renewed optimism appears to reflect the news late last night that PM Theresa May has accepted a debate on a motion from the opposition Labour Party today who are arguing for a ‘full and transparent debate on the government’s plan for leaving the EU’ and which will allow for MP’s to be able to ‘properly scrutinize’ the government’s plan prior to the start of formal negotiations. The motion will be debated in Parliament today. According to Bloomberg May did table an amendment that added that there shouldn’t be an attempt to block Brexit or undermine the government’s position and while there is no binding result attached the fact that there will at least be some discussion amongst Parliament is slightly easing some of those hard Brexit concerns this morning.

Meanwhile, the next potentially interesting event comes tomorrow where the High Court will deem whether or not an Act of Parliament is needed for Article 50 to be triggered. A second hearing is scheduled for October 17th. A loss for the government would then force the issue into the House of Commons and House of Lords which could lead to delays although we’d expect appeals in such an outcome. One to watch however.

Despite weaker Sterling yesterday, Gilts actually had a better day with the 10y yield falling 4.4bps to 0.976%. That follows a run of five consecutive sessions of yields rising steadily higher. Other European sovereign bond yields also edged a bit lower although 10y Treasury yields were up nearly 5bps to 1.765% and the highest since June 3rd. Despite WTI Oil slipping -1.09% we’d put the rise in Treasury yields yesterday down to a bit of catch up from that big Oil rally on Monday.

As we noted earlier, it was a tough start to earnings season yesterday in the US. Alcoa missed at both the earnings and revenue lines and painted a slightly bleaker than expected outlook on the call. Shares tumbled 11% however that wasn’t the only damage from earnings season yesterday. Fastenal also missed versus earnings expectations which saw shares fall more than 5%. The big mover yesterday however was the biotech company Illumina whose shares fell nearly 25% after cutting revenue guidance. That weighed on the wider health care sector (-2.51%) in the S&P 500 while the Nasdaq Biotech index (-3.77%) had its worst day since June 24th.

While US equity index futures are a touch firmer this morning, bourses in Asia have generally followed the lead from the close on Wall Street last night. The Nikkei (-0.58%), Hang Seng (-0.80%), Shanghai Comp (-0.28%), Kospi (-0.12%) and ASX (-0.36%) are all currently in the red, while it’s been a similarly weak start for most credit indices. Sovereign bond markets are more mixed. Also of note were comments from BoJ board member Harada. He said this morning that the ‘bank should take additional easing measures without hesitation’ in the event that a situation arises where the inflation target becomes difficult to achieve.

Moving on. There was a little bit of economic data to highlight yesterday. In the US the NFIB small business optimism reading declined a fairly modest 0.3pts to 94.1 (vs. 95.0 expected) in September. While that reading has declined for two consecutive months, perhaps as a reflection of some jitters ahead of the US election, the current level is in line with the 2016 average. Meanwhile the labour market conditions index weakened -2.2pts in September (vs. +1.5 expected). It’s the second straight month that the index has fallen. Prior to this the lone release in Europe came in Germany where the ZEW survey for this month revealed an increase in both the current situation index (+4.4pts to 59.5; 55.5 expected) and expectations index (+5.7pts to 6.2; 4.0 expected).

Before we look at today’s calendar, there was also some more chatter out of the Fed with Minneapolis Fed President Kashkari speaking. A voter next year, he came across as relatively dovish, saying that ‘my view is let’s let the economy keep creating jobs, bringing workers off the sidelines so long as it’s not creating inflation’. He also added that the Fed continues to undershoot its inflation target and so ‘I don’t see the urgency’.

Looking at the day ahead, this morning shortly after this hits your emails we’ll get the final revisions to CPI in France during September. Following that we then get the August industrial production print for the Euro area which the market is expecting to print at +1.5% mom. This afternoon in the US the lone data is the JOLTS job openings report. Remember that this data is closely followed by Yellen however given that the data corresponds to August and we have since had the September employment report, the numbers will probably look a bit stale. The focus today will of course be on those September FOMC meeting minutes which are out at 7pm BST. Away from the data the Fed’s Dudley (1pm BST) and George (2.40pm BST) are both scheduled to speak today along with the ECB’s Mersch and Coeure. The other event worth watching today, with obvious implications for Sterling and FX markets, is the UK Parliament debate about the government’s plan for leaving the EU.