The big event for today is likely in the FOMC minutes as investors dissect the true meaning of removing the word “accommodation” from the Fed Statement. This removal brought out a raft of analysis on where US neutral rates are and could be over the next few quarters. Some think the Fed is already tightening – read President Trump, others see them behind the curve. Inflation showed them more in the Goldilocks zone and so the bounce back in US shares yesterday after being oversold might make some sense but be aware that the minutes won’t be softer nor gentler towards future hikes. The second event is UK May addressing the EU Brexit summit in Brussels as she tries to buy more time for talks after spending nearly 3 hours with her cabinet on the subject. What seems obvious is that the GBP is not going to find this speech softer or gentler in her approach. What already happened hasn’t derailed the feel-good bounce completely but it has dented the momentum.

The global extension just stalls in Europe with UK CPI lower, EU Construction lower, EU car registrations plummeting and EU HICP unrevised – all aren’t enough to change the big dynamic but clearly do shift the mood into a lower gear. With FOMC Powell warning that a disorderly Brexit could harm the US economy, with India’s Modi underfire for his silence on their version of #MeToo and his cabinet, with Turkey back to the bond markets with $2bn 5Y sale with spread wider to US at 4.48%. On the day, the focus is GBP as it’s the logical mix of US and UK news risks ahead but the chart remains biased to risk higher with 1.2950 the key for trouble and a less gentle end to a soft start. 

Question for the Day:Are earnings the key to risk-on? The bounce back in risk yesterday mattered and many see it linked to the 3Q Goldman and Morgan Stanley earnings. 

The question is whether its earnings or outlooks that matter in the weeks ahead as CEOs comment on trade policy, political uncertainty at home and abroad and the global demand picture. The interesting thing so far has been that blame for trouble ahead isn’t about those issues as much as inflation and FX. A weaker USD maybe the key to risk-on more than earnings beating 19.5% in 3Q.  

What Happened?

• RBA Debelle: Sees lower unemployment before higher wages. His explanation merits attention – “On any of the measures, wages growth has been low over the last few years (Graph 7). One of the factors contributing to this is the low level of voluntary job turnover. Workers tend to choose to leave their job for a better job – be it in conditions or pay. The fact that little of this is occurring is likely to be contributing to the subdued wages growth. Recently, some of our liaison contacts are now reporting that turnover is increasing.” 

• China September M2 8.3% y/y from 8.2% y/y – as expected. The new CNY loans rose 1.38trn after 1.28trn – more than 1.30trn expected. The Total Social Finance rose to 2.21trn from 1.52trn – more than 1.53trn expected.  M1 was 4% y/y from 3.9% y/y while CNY deposits rose to 8.5% from 8.3% y/y while loans were flat at 13.5% y/y. 

• UK September CPI up 0.1% m/m, 2.4% y/y after 0.7%, 2.7% y/y – less than 0.5% m/m, 2.8% y/y expected – back to 18-month lows. The core CPI flat m/m, 1.9% y/y after 2.1% - in line. The CPIH fell to 2.2% y/y from 2.4% y/y.  Recreation and Culture, contributed -0.08pp to the overall CPI change, transport (-0.09pp, of which -0.07pp was sea fares) and food (-0.09pp) all relieved inflationary pressure. An upward influence came from energy prices (+0.05pp). RPI was 0% m/m, 3.3% y/y from 3.5% y/y – as expected. Meanwhile, house price growth continued to ease at 3.2% y/y – smallest rise since August 2013 with London prices off for the 7th time in the last year.
• UK September PPI output prices up 0.4% m/m, 3.1% y/y after 0.2% m/m, 2.9% y/y – more than 2.9% y/y expected. The Core PPI output rose 0.1% m/m, 2.4% y/y after 2.1% y/y – also more than 2.3% y/y expected. The September PPI input prices rose 1.3% m/m, 10.3% y/y after 8.7% y/y – more than the 6% expected. 
• Eurozone September final HICP unrevised at 0.2% m/m, 2.1% y/y after 2.0% y/y – as expected. Core CPI also unrevised at 0.9% y/y as expected. Energy inflation was 9.5% y/y from 9.2% y/y while food/alcohol/tobacco was 2.6% from 2.4%. 

• Eurozone August Construction Output -0.5% m/m, +2.5% y/y after revised +0.1% m/m, 2.6% y/y – worse than -0.1% m/m expected. The July output revised lower from +0.3% m/m. For 2Q output is 1.5% q/q from -0.2% q/q. August structural construction -0.3% m/m while civil engineering fell 1.1% m/m. 

Market Recap:

Equities: The US S&P500 futures are off 0.1% after a 2.15% bounce yesterday – Netflix beat after hours still a key focus. The Stoxx Europe 600 are flat after opening up 0.2% with autos the key focus of selling against technology buying. The MSCI Asia Pacific Index rose 0.9% - to best levels in a week. 

• Japan Nikkei up 1.29% to 22,841.12
• Korea Kospi up 1.04% to 2,167.51
• Hong Kong Hang Seng closed for holiday.
• China Shanghai Composite up 0.60% to 2,561.61
• Australia ASX up 1.16% to 6,047.10
• India NSE50 off 1.26% to 10,451.15
• UK FTSE so far up 0.15% to 7071
• German DAX so far off 0.55% to 11,713
• French CAC40 so far flat at 5,171
• Italian FTSE so far off 0.4% to 19,644

Fixed Income: EU bonds are bid with focus on Brexit summit and US data and FOMC ahead while equity turn drives buyers back to bonds. UK Gilt 10-year yields off 1.2bps to 1.595%, German Bunds off 1.5bps to 0.475%, French OATs off 2bps to 0.82%, The periphery lags with Italy off 1bps to 3.437%, Spain off 0.5bps to 1.633%, Portugal off 0.5bps to 1.925% and Greece off 1bps to 4.22%. 

• Germany sold E1.154bn of 30Y 2.5% July 2044 Bunds at 1.04% with 1.058 cover– previously 1.06% with 0.822 cover – after the Bundesbank holdings 1.4 cover from 1.2. 
• US Bonds are lower, curve steeper, watching equities, FOMC minutes, housing– 2Y up 0.4bps to 2.87%, 5Y up 0.4bps to 3.027%, 10Y up 0.4bps to 3.167%, 30Y up 0.7bps to 3.34%
• Japan JGBs front end finds support from BOJ– 2Y off 0.3bps to -0.125%, 5Y up 0.1bps to -0.066%, 10Y off 0.4bps to 0.136% and 30Y off 0.4bps to 0.899%. Rinban amount unchanged at Y1.1trn had the following offer to cover ratios – Y300bn of 1-3 year at 3.64 from 2.90; Y350bn of 3-5 year at 2.21 from 2.18; Y450bn of 5-10 year at 2.73 from 2.28. 
• Australian bonds rally after RBA Debelle sees less wage pressures, more housing price issues, weaker A$ with more Fed hikes–3Y off 1.3bps to 2.03% and 10Y off 1bps to 2.697%.  The AOFM sold A$1bn of 10Y 2.75% Nov 2029 bonds #TB154 at 2.7298% with 3.095 cover – previously 2.722% with 4.683 cover.  
• China PBOC skips open market operations, leaves liquidity unchanged. DimSum 5Y flat at 3.615% and 10Y flat at 3.845%. Domestic rates 2Y flat at 3.08%, 5Y up 0.5bps to 3.37%, 10Y off 0.5bps to 3.565%. 

Foreign Exchange: The US dollar index is up 0.1% to 95.14 with range 95.05-95.25. 

• EUR: 1.1565 off 0.1%.Range 1.1548=1.1581 – blame autos and rates with 1.1520-1.1620 keys. 
• JPY: 112.20 flat.Range 112.15-112.42 with EUR/JPY 129.75 off 0.15% - focus is on equities turning again.
• GBP: 1.3145 off 0.25%.Range 1.3126-1.3193 with EUR/GBP .8795 up 0.2% - focus on Brexit speech with 1.30 pivot or 1.3250. 
• AUD: .7135 off 0.1%.Range .7130-.7160 with crosses and RBA key, NZD still bid but flat at .6575 from .6602 highs.
• CAD: 1.2965 up 0.2%.Range 1.2933-1.2964 with rates and oil dragging – data matters. 
• CHF: .9920 up 0.1%.Range .9900-.9927 with EUR/CHF 1.1465 flat. Nothing to see here move on? .9850-1.00 still. 
• CNY: 6.9103 fixed 0.02%stronger from 6.9119, now off 0.2% to 6.9250 with range 6.9086-6.9309

Commodities: Oil lower, Gold up, Copper up 0.2% to $2.8298.

• Oil: $71.67 off 0.35%.Range $71.59-$72.43. API reported a surprise 2.13mb draw down in oil, puts EIA report as key for direction today. Saudi/US tensions are easier and that also continues to hang over market. Oil watching $69.52 55-day as base with $70 pivot for $72.85 and $74.50 resistance. 
• Gold: $1227.50 up 0.2%.Range $1224-$1228. Gold watching 55-day at $1200.70 as base against $1236 resistance for $1266 July 9 highs. Silver up 0.3% to $14.70 - watching 55-day at $14.60 as base for $14.912 Oct 2 highs, then $15.00 Aug 28 highs. Platinum flat at $841.70 and Palladium up 0.2% to $1093.

Conclusions: Does Mary Daly represent the consensus? The FOMC minutes will likely be the US event risk for today but the new San Francisco Fed President Daly spoke late yesterday and maybe a foreshadowing of the consensus view – as Bloomberg noted – she sees "inflation is effectively at the Fed's 2% target," while she believes that the "labor market is beyond a state of full employment," and described growth as "robust.”  There isn’t much news here but perhaps in the repudiation of short-term financial condition watching as she said recent stock market moves weren’t “worrisome.” 

Economic Calendar:

• 0830 am US Sep housing starts 9.2%p -4.5%e / 1.282mn p 1.237mn e
• 0830 am Canada Aug manufacturing shipments (m/m) 0.9%p -0.6%e
• 1030 am US weekly EIA crude oil stocks +5.987mb p +2mb e
• 1210 pm Fed Gov Brainard speech
• 0200 pm FOMC Minutes