Everything in moderation, including moderation. The extremes of markets are the stuff alpha is made from, emotional roller coasters eventually end like this week, but the results speak for themselves. Facts and your PnL can’t be ignored. The good news was China shares bounced back up while the bad is China GDP was lower along with industrial production, but FAI and retail sales were better than feared. The good news is driven by the China vice premier Liu hosting a joint group interview, where he listed detailed plans to revive an economy straining under growing protectionism pressures, weak consumption and declining investment. The PBOC also promised in another press conference to lend money to the private sector that has been squeezed significantly in the reform push over the last 12-months. More spending, easier money – both put the focus on the CNY to hold together – and leave some doubters about the ability of China to spend its way out of the present crisis. For traders this means a boost up in commodities and in commodity currencies – particularly AUD, NZD and CAD – and a modest uptick for EM FX,  ignoring rates and all else.

The other stories for today that distract from moderation on this Friday are wrapped around oil and the US problem with Khashoggi leaving the Saudis facing some consequences and making the Iran sanctions look less easy to absorb. Oil will be watching WTI $70 for the week as this is the key pivot for the 3Q upmove. Similarly, Brexit and Italy just won’t go away as dark clouds over risk-taking.But as in all things in markets the micro beats the macro (at least since 2009), the main story will be about earnings and the ability for the S&P500 to diversify away from the rest of the world.The risk mood seems better than the US close but still very mixed with the key difference being China and for that keep an eye on the CNH for a breakout over 6.95.

Question for the Day: Does the China data mean risk returns to markets? The fear that the US/China trade disputes will drive down global growth has eased a bit overnight thanks to better China retail sales, FAI and a less than whispered drop in GDP. There are many that will argue this 3Q slowing has yet to fully reflect the US tariffs impact and that much of the consumption is just a reflection of the bringing forward demand ahead of higher prices. Stockpiling of goods before they cost more. This slowdown in 3Q has been swept aside also by promises from the Government to increase lending to the private sector, to keep policy easy despite FOMC rate hikes continuing, and to further add to stimulus via government spending.There are limits to all of these measures and they rest on the cost of debt. The slower the economy, the worse the debt-to-GDP issue becomes – just ask anyone that lived through 2007-2009.Markets are going to think about the China data today and react – as this was the dominant worry and theme for 3Q that hangs over 4Q. 

Chart on debt-to-GDP from this blog – well worth reading fully as it touches on the other key point about China – employment where jobs have seemingly improved despite the slowing economy.

What Happened?

• China 3Q GDP 1.6% q/q, 6.5% y/y after 1.8% q/q, 6.7% y/y – weaker than 6.5% y/y – expected – slowest since 2009. For the first three quarters, the GDP grew 6.7%, recording a total value of CNY65.0899 trillion. Final consumption expenditure accounted for 78% of economic growth in the first three quarters of the year, highlighting the fundamental role played by consumption in China's growth model. "Pains from domestic structural changes continue to manifest, as the economy, while stable, exhibits changes and slowdown," the bureau said. China’s leadership has faced "exceptionally complicated and grave international situations" as well. The NBS spokesman Mao also noted, China's domestic consumption growth and structural reform can help absorb the impact from challenging global trade environment marked by the ongoing trade war with the US.Mao pointed out relatively stable employment in export-driven businesses and foreign investments as signs that the Sino-U.S. trade war hasn't significantly hurt the economy. 

• China September retail sales up 0.8% m/m, 9.2% y/y after 9% y/y – better than 9.1% expected. Grain/Food rose 13.6% from 10.1% y/y while oil and products slows to 19.2% from 19.6% y/y. For the housing group – non-durables rose 17.4% from 15.8% y/y, home appliances 5.7% from 4.8% y/y, Furniture 9.9% form 9.5% y/y and building decoration 8.4% from 7.9% y/y. Also, notable gains in communications equipment 16.9% from 6.4% y/y while autos fell to -7.1% from -3.2% y/y. 

• China September industrial production up 0.5% m/m, 5.8% y/y after 6.1% - weaker than 6.0% expected – worst since Oct 2015. The ytd rates is 6.4% down from 6.7% in 1H2018. Mining rose to 2.2% from 2.0% and Electricity/Water/Gas rose to 11% from 9.9% but Manufacturing fell to 5.7% from 6.1%. By industry the only drop was in communications equipment – slowing to 12.6% from 17.1% while electric machinery jumped to 5.2% from 3.3%. By product, autos fell to -10.6% from -4.4%, electricity slowed to 4.6% from 7.3% while steel rose to 9.8% from 6.4% and coal to 5.2% from 4.2%. 
• China September unemployment improves to 4.9% from 5.0% - with 0.1% drop m/m.For the 31-big cities urban unemployment fell to 4.7% 
• China Jan-Sep FAI (Fixed Asset Investments) rose to 5.4% y/y from 5.3% - better than 5.3% y/y expected.Property was lower at 9.9% ytd from 10.1% in August. This was linked to tightening policy measures. The gains were in manufacturing 8.7% from 7.5% y/y, Culture/Sports 19.3% from 18.7% while Education was flat at 8.3% y/y and health care fell to 8.3% from 10% y/y. 
• BOJ Kuroda: Vital to maintain easy policy, eyeing risks. "Compared with the economic expansion and the tightness of labor market conditions, price moves remained weak," Kuroda said at the credit union meeting in Tokyo. He added, it is vital for the BOJ to keep up the momentum toward the 2% price target, by maintaining the current powerful easy policy. Kuroda noted there is not sign of overheating in asset prices or 

In activity.“The BOJ will examine the risks considered most relevant to the conduct of
monetary policy and make policy adjustments as appropriate, taking account of
developments in economic activity and prices as well as financial conditions,” he noted.

• Japan September core CPI rose 1% y/y after 0.9% y/y – more than 0.9% y/y expected. The core-core was steady at 0.4% y/y – as expected.Energy prices were key to the headline prices rise, up 8.1% y/y after 7.4% y/y – this added 0.6pp to total CPI. Processed food rose 1.5% y/y from 1.2% in August reflecting higher energy and labor costs. The eating out costs slowed to 1% y/y from 1.1% suggesting some limits to passing on labor costs. 
• UK September PSNB GBP3.259 after GBP5.89bn in August and GBP4.094bn in Sep 2017 – slightly more than GBP4.6bn expected. Nevertheless, year-to-date borrowing is down 30.5% to GBP19.9bn best in 11-years. The UK debt/GDP ex BOE borrowing is 75.3% down from 79.5% last year. The better job market lifted PAYE receipts by GBP700 million in September, boosting income and capital gains taxes by 7.2% ytd to GBP5.8 bn. However, uncertainty over Brexit seems to be dampening corporate tax receipts, which fell slightly in September. Over the fiscal year, corporate taxes are up by just GBP300 million, the weakest growth since 2013.

Market Recap:

Equities: The S&P500 futures are up 0.1% after losing 1.44% yesterday. The Stoxx Europe 600 is off 0.4% with focus on earnings and warnings along with Italy issues. The MSCI Asia Pacific was off 0.1% despite the China bounce with Japan and India dragging. The MSCI EM is flat while the all-country World Index is off 0.2%.

• Japan Nikkei off 0.56% to 22,532.08
• Korea Kospi up 0.37% to 2,156.26
• Hong Kong Hang Seng up 0.42% to 25,561.40
• China Shanghai Composite up 2.58% to 2,550.47
• Australia ASX off 0.12% to 6,042.80
• India NSE50 off 1.43% to 10,303.55
• UK FTSE so far flat at 7,029
• German DAX so far off 0.4% to 11,539
• French CAC40 so far off 0.9% to 5,070
• Italian FTSE so far off 1.3% to 18,834

Fixed Income: Focus in Europe is on Italy and Brexit and both are negative stories driving safe-haven focus.The UK Gilt 10-year yields are flat at 1.535% with UK May facing further party push-back on Brexit plans. The German Bunds are flat at 0.41% and French OATs up 1.8bps to 0.81% watching periphery – Italy up 3bps to 3.71%, Spain up 5.5bps to 1.78%, Portugal up 4bps to 2.06% and Greece up 3.5bps to 4.43%.

• US Bonds see slight bear steepening with focus on US equities, Fed speakers – 2Y flat at 2.875%, 5Y up 0.2bps to 3.03%, 10Y up 0.2bps to 3.18% and 30Y up 0.5bps to 3.37%. 
• Japan JGBs bid, tracking equities – BOJ left Rinban unchanged with Y180bn in 10-25Y and Y50bn in 25+Y.  2Y flat at -0.125%, 5Y off 0.7bps to -0.068%, 10Y off 0.3bps to 0.139% and 30Y off 0.2bps to 0.904%. 
• Australian bonds bid on negative equities, China data – 3Y off 2.7bps to 2.035%, 10Y off 4.5bps to 2.677%. 
• China PBOC net adds CNY30bn in liquidity via 7-day reverse repos. Money market rates were higher 7-day rose 2.5bps to 2.608%, O/N rose 3bps to 2.431%. China 10Y bond yields rose 2bps to 3.565%. 

Foreign Exchange: The US dollar index is flat at 95.89 with 95.85-96.09 range – watching 96 for breakout to retest 97. In Emerging Markets – USD weaker tracking China – EMEA: ZAR up 0.8% to 14.334, TRY up 0.4% to 5.615, RUB up 0.3% to 65.58; ASIA: TWD flat at 30.93, KRW up 0.25% to 1132 – tested 1140 again – INR up 0.4% to 73.325

• EUR: 1.1470 up 0.15%. Range 1.1433-1.1477 with bounce back from 1.1435 notable given ongoing Italy jitters, focus is on US rates/equties/earnings and 1.14 barrier.
• JPY: 112.50 up 0.25%. Range 112.14-112.54 with rate spread to US supporting despite equities and 112 key still. The EUR/JPY 129.10 up 0.45% with equities key and 128.00 next focus. 
• GBP: 1.3030 up 0.1%. Range 1.3012-1.3047 with Brexit politics key, 1.30 pivot for 1.2850 retest. EUR/GBP up 0.1% to .8805 – watching politics.
• AUD: .7140 up 0.5%. Range .7089-.7140 with China share bounce and bid commodities helping. .7050-.7250 yawn – NZD up 0.8% to .6595 with .6601 highs and risk for .6680 again – rates key
• CAD: 1.3030 off 0.4%. Range 1.3028-1.3088 with focus on commodities and China overnight but data ahead key for BOC and risk that 1.2990 base holds.
• CHF: .9960 flat. Range .9950-.9977 with EUR/CHF 1.1425 up 0.2% - less fear with JPY leading. 
• CNY: 6.9387 fixed 0.18% weaker from 6.9275, trades stronger to 6.9315 into London, now up 0.1% to 6.9295.

Commodities: Oil up, Gold up, Copper up 0.3% to $2.8030.

• Oil: $69.08 up 0.6%. Range $68.56-$69.21. WTI watching $68.16 100-day against $69.55 55-day with $70 key for the week. Bid back on Saudi fears. Brent up 0.9% to $80 with focus on 55-day at $78.06 as base and $82 as resistance
• Gold: $1227.10 up 0.1%.Range $1225-$1228. Watching $1201 tht 55-day against $1235 still. Silver $14.61 up 0.25% - watching 55-day at $14.57 and then $14.24 Oct 10 lows against $14.91 Oct 2 highs. 

Conclusions: Don’t chase the needles? The latest speech from the Vice Chairman of the Fed Quarles should be required reading as he isn’t a voice usually heard on macroeconomics as his mandate is supervision, so when he talks about the economy its important and interesting. He uses the pilot analogy for the FOMC decision process. Here is the key point - Today uncertainty around many of the macroeconomic inputs to monetary policy decisions argues for just the same approach to navigation. Rather than meaning that policy will drift because of this uncertainty, it means that policymakers should chart a course that is stable, gradual, and predictable; communicate it clearly; and then follow that course through the temporarily shifting and sometimes conflicting signs from the economy unless some strong and steady signal requires a firm but moderate correction.

Economic Calendar:

• 0830 am Canada Aug retail sales (m/m) 0.3%p 0.4%e / ex autos 0.9%p -0.2%e 
• 0830 am Canada Sep CPI (m/m) -0.1%p -0.1%e (y/y) 2.8%p 2.7%e / Core 1.7%p 1.8%e
• 0900 am Dallas Fed Kaplan speech
• 1000 am US Sep existing home sales (m/m) 0%p -0.3%e / 5.34mn p 5.30mn e
• 1200 pm Atlanta Fed Bostic Speech