US futures were little changed, with European shares lower, and Asian stocks higher as caution returned after last night's Chinese economic data did little to clear up how the world's second largest economy is performing, and provided few positives for investors ahead of the third and final U.S. presidential debate; imminent announcements from both the ECB and the Fed also will keep traders on their toes today.

All eyes, however, will be on the third U.S. presidential debate on Wednesday night in Las Vegas, which comes as opinion polls show a substantial lead for Hillary Clinton over Donald Trump.

The U.S. dollar fell from a seven-month peak on Wednesday, combining with signs of an easing supply glut to help lift oil prices back towards a one-year high. The weaker dollar boosts oil, which gained over 1 percent on Wednesday, pushing WTI over $51. The bounce in commodity prices has helped bolster inflation expectations in the euro zone, nudging the bloc's bond yields further away from the record lows struck after Brexit.

The overnight mood was set by a relatively uneventful set of Chinese economic reports, which saw a GDP and Retail sales meet expectations, while Industrial Production missed modestly.

• Chinese GDP SA (Sep) Q/Q 1.80% vs. Exp. 1.80% (Prey. 1.80%); Chinese GDP (Q3) Y/Y 6.70% vs. Exp. 6.70% (Prey. 6.70%).
• Chinese Industrial Production (Sep) Y/Y 6.10% vs. Exp. 6.40% (Prey. 6.30%); Chinese Industrial Production YTD (Sep) Y/Y 6.00% vs. Exp. 6.10% (Prey. 6.00%).
• Chinese Retail Sales (Sep) Y/Y 10.70% vs. Exp. 10.70% (Prey. 10.60%): 8-month high. Chinese Retail Sales YTD (Sep) Y/Y 10.40% vs. Exp. 10.30% (Prey. 10.30%).

The MSCI All Country World Index of shares was unchanged after rallying in the last session by the most in almost a month. Hong Kong stocks swung to a loss, while Chinese equities and the Australian dollar erased gains after an unexpected slowdown in China’s industrial output cast a cloud over gross domestic product figures that matched estimates. The Dollar remained near a one-week low following U.S. inflation data that damped expectations for interest-rate hikes. Crude oil rose after data showed American supplies fell, while aluminum dropped.

“China won’t do anything new in terms of policy because the economy isn’t sliding,” said Ben Kwong, a Hong Kong-based director at KGI Asia Ltd. “Under these conditions, the market doesn’t really have a direction. It needs to wait for news on U.S. rates.”

European stocks retreated as investors assessed Chinese data for indications of the health of the global economy, while awaiting updates from the European Central Bank and Federal Reserve. The Stoxx Europe 600 Index was down 0.2 percent as of 8:16 a.m. London time, after surging 1.5 percent on Tuesday. ASML Holding NV jumped by the most in eight months after Europe’s largest semiconductor-equipment maker forecast profitability above analysts’ estimates for the final three months of the year.

The MSCI Asia Pacific Index added 0.3 percent, having been up 0.4 percent prior to the China data. The Hang Seng Index declined 0.5 percent and the Shanghai Composite Index was little changed. China’s gross domestic product expanded 6.7 percent in the last quarter from a year earlier, the third straight period at that pace. Industrial output rose 6.1 percent, less than the median forecast for a 6.4 percent gain.

S&P 500 futures slipped were unchanged after the underlying gauge added 0.6 percent on Tuesday. While only 57 of the benchmark’s members have reported results so far, about 80 percent announced earnings that exceeded analysts’ estimates, according to data compiled by Bloomberg.

The yield on US 10Y Treasuries was little changed at 1.74%. It fell three basis points on Tuesday as core inflation, which excludes energy and food costs, came in weaker than economists estimated. The probability of the Fed hiking interest rates this year slipped by three percentage points in the last session to 63 percent, futures prices indicate. Australia’s 10-year bonds gained for the first time in four days, pushing their yield four basis points lower to 2.30 percent. The rate on similar-maturity U.K. notes increased by two basis points to 1.10 percent.

Market Snapshot

• S&P 500 futures down less than 0.1% to 2131
• Stoxx 600 down 0.2% to 342
• FTSE 100 down 0.1% to 6992
• DAX down 0.2% to 10611
• German 10Yr yield down 1bp to 0.02%
• Italian 10Yr yield down 2bps to 1.37%
• Spanish 10Yr yield down less than 1bp to 1.09%
• S&P GSCI Index up 0.6% to 377.9
• MSCI Asia Pacific up 0.4% to 140
• Nikkei 225 up 0.2% to 16999
• Hang Seng down 0.4% to 23305
• Shanghai Composite up less than 0.1% to 3085
• S&P/ASX 200 up 0.5% to 5435
• US 10-yr yield up less than 1bp to 1.74%
• Dollar Index down 0.2% to 97.7
• WTI Crude futures up 1.4% to $51.01
• Brent Futures up 1.4% to $52.42
• Gold spot up 0.7% to $1,271
• Silver spot up 0.6% to $17.72

Top Global Headlines

• Donald Trump and Hillary Clinton face off in final presidential debate at University of Nevada in Las Vegas
• China Life Invests in $2b of Starwood Capital Hotels: Insurer, other companies buy stake in portfolio of 280 hotels
• Saudi Arabia Says Many Nations Will Join OPEC Output Cuts: Producers will start with output freeze, maybe a small cut
• Airlines Would Provide Refunds for Late Bags Under U.S. Plan: U.S. announces additional consumer protections for passengers
• For Wells Fargo, Angry Questions About Profiling Latinos: Employees step forward after scandal over bogus accounts
• Imperva Sale Process Said to Be on Hold as It Seeks Better Price: Potential suitors wait to see if the company’s growth can improve enough to justify a higher price
• Staples Turns to Licensing to Push Brand Beyond Office Supplies: First product is online service for managing records
• Clinton Has 9-Point Lead as Comeback Obstacles Loom for Trump: Bloomberg Politics survey taken after leaked video
• Salesforce M&A Draft Document Included Adobe, ServiceNow: WSJ

Looking at regional markets, we start in Asia, where stocks traded mostly higher following the positive lead from the US although gains were capped as participants digested a slew of tier-1 Chinese data including GDP, Industrial Production and Retail Sales. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) traded modestly higher as oil names benefitted from advances in WTI after an unexpected drawdown in API crude inventories, while consumer discretionary outperformed in Australia on M&A news flow regarding an AUD 11bIn merger between Tabcorp and Tatts Group. Chinese markets were mixed with Shanghai Comp. flat, while Hang Seng (-0.4%) lagged after mixed data in which GDP printed in line with estimates and Retail Sales posted an 8-month high, however Industrial Production fell short of estimates and several HK firms issued profit warnings. 10-yr JGBs were flat despite mild gains seen in Nikkei 225, as the BoJ were also in the market to the tune of JPY 1.12tIn in 1yr-25yr-F government debt.

For those who missed China's economic data, here is a quick summary:

• Chinese GDP SA (Sep) Q/Q 1.80% vs. Exp. 1.80% (Prey. 1.80%); Chinese GDP (Q3) Y/Y 6.70% vs. Exp. 6.70% (Prey. 6.70%).
• Chinese Industrial Production (Sep) Y/Y 6.10% vs. Exp. 6.40% (Prey. 6.30%); Chinese Industrial Production YTD (Sep) Y/Y 6.00% vs. Exp. 6.10% (Prey. 6.00%).
• Chinese Retail Sales (Sep) Y/Y 10.70% vs. Exp. 10.70% (Prey. 10.60%): 8-month high. Chinese Retail Sales YTD (Sep) Y/Y 10.40% vs. Exp. 10.30% (Prey. 10.30%).
• China National Bureau of Statistics said the economy is better than expected, although still faces uncertainty. The stats bureau also stated that employment is better than expected and that China is to ensure it will achieve its annual growth target.

Top Asia News

• Hedge Fund Startups Plummet in Asia Amid Low Returns, High Fees
• Standard Chartered Moving Past India Woes With Essar Payment
• Mitsubishi Motors Shares Surge on Report Ghosn to Be Chairman
• Minsheng Bank Said to Explore Setting Up Bad-Loan Asset Manager
• Super Typhoon Threatens Philippines, May Also Hit Hong Kong
• ‘Quick Learner’ Jokowi Building Momentum After Slow Start

In Europe, equities (EuroStoxx -0.2%) are trading softer this morning after data from China failed to inspire gains. Chinese GDP came inline with expectations but the weak industrial production number seems to have dampened sentiment across markets. In terms of a sectors, Industrials are underperforming after FTSE listed Travis Perkins opened lower by 5.6% after announcing jobs cuts and store closures citing uncertain trading conditions. Bunds opened relatively flat, although we have seen some outperformance in the long end of the yield curve ahead of upcoming supply, which was eventually absorbed with a solid b/c of 1.7. Furthermore, participants may also be sitting on the sidelines ahead of the ECB rate decision where we could see an extension of its bond buying program which was due to finish in March 2017.

Top European News

• U.K. Labor Market Slows as Squeeze on Household Incomes Begins: Real incomes rise at the slowest rate since early 2015. Employment growth slows to 106,000 in quarter through August
• ASML Forecasts Higher Profit Margins, Says EUV Sales Advance: Chip-equipment maker sees gross margins up to 48% of sales. Customers order three of its latest extreme ultraviolet gear
• Monte Paschi Jumps as Board Presses Ahead With Business Plan: Lender’s board set to approve new business plan on Oct. 24. Bank continues with recapitalization, disposals of bad loans
• Apple Supplier Laird Plunges on ‘Brutal’ Price Competition: Expected pick-up in smartphone-related orders later than usual. Parts maker highlights increased margin pressure due to prices
• Reckitt, Travis Perkins Drops After Earnings Drag Down FTSE 100: British equities fell for the second time this week amid disappointing earnings results

In FX, the Bloomberg Dollar Spot Index was little changed after losing 0.5 percent over the last two days.The measure advanced over the last two weeks as speculation the Fed was getting closer to a rate hike prompted hedge funds and money managers to boost bullish bets on the greenback. The pound weakened 0.2 percent versus the dollar. The U.K.’s departure from the European Union could lead to a 4.5 percent drop in gross domestic product by 2030, the Guardian newspaper reported, citing an average of estimates that was included in a paper circulated at a Brexit cabinet committee meeting. Australia’s dollar was steady, after earlier strengthening as much as 0.3 percent. New Zealand’s currency was up 0.1 percent, having recorded a gain of 0.6 percent in the run-up to the Chinese data. Both countries count China as their biggest export market. “If the Aussie and Kiwi are looking for fresh fuel, they didn’t find it in the China data,” said Sean Callow, a senior strategist at Westpac Banking Corp. in Sydney.

In commodities, West Texas Intermediate crude climbed 1.3 percent, rising over $51.00 a barrel in New York. U.S. oil stockpiles dropped by 3.8 million barrels last week, API reported yesterday, on expectations of an inventory build. Oil has risen about 14 percent since OPEC reached a deal to manage supply last month. Aluminum declined 0.7 percent, after earlier rallying as much as 0.8 percent. China, which accounts for more than half of world output, reported Wednesday that its production surged to a 15-month high in September as new and idled plants were fired up. “The smelters are coming back in a rush now, so that’s a concern,” said Paul Adkins, managing director of aluminum consultancy AZ China Ltd. “For the rest of this year, two million tons of annual capacity is guaranteed to come in and guaranteed not to exit.” That’s “going to put a lot of pressure on prices when we get to November or December onwards,” he said. Rubber futures in Japan fell 3.4 percent, the most in a month. Global production is increasing and China’s economic data also weighed on sentiment, according to Gu Jiong, an analyst at Yutaka Shoji, a commodity broker in Tokyo.

Looking at the day ahead, the focus will be on the housing market with the release of the September housing starts and building permits data. Both are expected to have rebounded last month. The Fed will release its latest Beige Book this evening. Away from the data the Fed’s Williams is scheduled to speak, followed by Kaplan. Earnings wise Morgan Stanley (prior to the open), eBay and American Express (both after the close) are among the 25 S&P 500 companies reporting today. Of course the other big focus is the third and final US Presidential debate at 2am BST tomorrow morning (or 9pm ET tonight).

* * *

US Event Calendar

• 7am: MBA Mortgage Applications, Oct. 14 (prior -6%)
• 8:30am: Housing Starts, Sept., est. 1.175m (prior 1.142m)
• 8:45am: Fed’s Williams speaks in Newark, N.J.
• 10:30am: DOE Energy Inventories
• 1:30pm: Fed’s Kaplan speaks in Fort Worth, Texas
• 2pm: Fed Beige Book
• 7:45pm: Fed’s Dudley speaks in New York

DB's Jim Reid concludes the overnight wrap

We’re straight to China this morning where the latest GDP data is in. There have been few surprises however with Q3 GDP printing bang in line with the market at 6.7% yoy for the quarter. Remarkably that follows identical 6.7% readings for both Q1 and Q2 this year too and puts the economy on track to meet the government’s full year target of at least 6.5% growth. Released alongside the GDP data were the September activity indicators. Both retail sales (+10.7% yoy from +10.6%) and fixed asset investment (+8.2% yoy from +8.1%) rose one-tenth from the prior month and matched the consensus estimates, however the one negative from this morning’s data was industrial production (+6.1% yoy vs. +6.4% expected) which declined two-tenths unexpectedly last month.

Markets have been fairly muted in response to the data. In China the CSI 300 and Shanghai Comp are +0.05% and +0.16% respectively which isn’t too different to where the bourses were prior to the release suggesting that there's little change in policy expectation from the PBoC. Elsewhere the Nikkei is +0.14%, Hang Seng -0.12%, ASX +0.39% and Kospi +0.33%. The Aussie Dollar is flat and has pared earlier gains while US equity index futures are modestly higher.

So it’s been a pretty busy last 24 hours for important data. Yesterday we got the double dose of inflation numbers from both the UK and US which were interesting. In the UK we learned that headline CPI rose +0.2% mom in September and a bit more than expected (+0.1% expected), helping the YoY rate to rise to +1.0% from +0.6% which is the highest since November 2014. Sterling weakened -1.26% in September but is down another -5.00% in October so it’s still early days to assess the full impact of the FX pass through which might appear more in the data next year. The core reading also increased two-tenths and a bit more than expected to +1.5% yoy (vs. +1.4% expected). Sterling outperformed following the data sending the Pound up +0.94% to $1.2298 for its best day since September 6th while 10y Gilt yields rallied 4.3bps to close at 1.078%, outperforming the wider market. The Pound was mostly boosted by softening Brexit concerns following comments from James Eadie, a UK government lawyer. He suggested that the Brexit process was ‘very likely’ to be subject to ratification process in parliament following a court hearing yesterday. According to the BBC, the vote would take place after negotiations have taken place and Article 50 already triggered. By then it will probably be too late for Parliament to have much influence but perhaps markets felt that it would ensure that the government negotiated a less hardline Brexit given the scrutiny of MPs.

Meanwhile, inflation in the US was a little bit more underwhelming. Headline CPI rose +0.3% mom in September as expected however the core (+0.1% mom vs. +0.2% expected) missed with the YoY core rate dipping one-tenth to +2.2% as a result. The YoY headline rate did rise to +1.5% from +1.1%. Our US economists made some interesting observations yesterday and noted that the categories that have been underpinning the core CPI have been nondiscretionary sectors such as housing rents and medical care. This is partly the result of a near double-digit surge in prescription drug prices over the last few months. In their view, surging medical care inflation is not necessarily indicative of robust underlying consumer demand. Demographics, particularly the aging of the baby boomers, are exerting upward pressure on demand for healthcare. For example, over the two years ending in Q2, healthcare services and pharmaceuticals spending have accounted for 33% of the improvement in inflation-adjusted personal consumption expenditures. This is usually only the case during a recession, when nondiscretionary spending is curtailed. Two sectors within the core CPI that are more discretionary, apparel and recreation costs, are not showing nearly as much inflationary pressure. In point of fact, the year-over-year changes of these series, which in September were -0.1% and +0.8%, respectively, are running well below that of the overall core CPI (+2.2%).

The end result in markets was for Treasury yields to track lower. The benchmark 10y yield fell 2.8bps to close at 1.739% having touched 1.786% intraday, while 30y yields ended close to 2bps lower. The Greenback pared early declines to finish more or less unchanged while it was a broadly stronger day for risk assets with corporate earnings also well in focus. In Europe the Stoxx 600 initially closed up +1.50% with financials driving the gains, before the S&P 500 finished the day +0.62% making it nine sessions in a row now that the index has alternated gains and losses day to day. The healthcare sector was at the forefront of gains following a decent earnings report from UnitedHealth while the Banks were under the spotlight again following Goldman Sachs’ Q3 results. As has been the theme so far in the sector, Goldman reported beats at both the revenue and earnings lines with revenues from FICC jumping +49% yoy and much more than expected by the market. While the consensus EPS estimate of $3.88 was more or less the lowest in the last twelve months for the quarter, the reported number of $4.88 was still well ahead of the highest ($4.57) consensus forecast in that time, unlike what we saw with Citi and JP Morgan.

Elsewhere, credit markets were also slightly stronger yesterday with CDX IG and the iTraxx Main both finishing 1bp tighter. Energy credits also got a boost after WTI bounced back +0.70% to close just above $50/bbl. It’s up another +1% this morning after the American Petroleum Institute reported that inventories dropped by 3.8m barrels last week.

Speaking of issuance, it was hard to ignore Professor Otmar Issing’s comments from earlier this week. According to the Telegraph, the first chief economist of the ECB warned that the ‘decline in the quality of eligible collateral is a grave problem’ and that ‘the ECB is now buying corporate bonds that are close to junk and the haircuts can barely deal with a one notch credit downgrade’. He went on to say that the ‘reputational risk of such actions by a central bank would have been unthinkable in the past’. He also warned that the ECB is on a ‘slippery slope’, has ‘crossed the Rubicon’ and ‘realistically it will be a case of muddling through, struggling from one crisis to the next’. He summed this up by saying that ‘one day, the house of cards of will collapse’ when asked about the future of the ECB and the euro. That’s one to ponder over your morning coffee.

Staying with existential European matters, with Italy’s constitutional referendum looming it was interesting to see the latest poll yesterday conducted by IPR Marketing for RAI’s Porta a Porta. The poll showed that 48.5% of Italian voters would vote ‘Yes’ in the referendum versus 51.5% for a rejection. That put the ‘Yes’ voters up 2.5pts versus the previous month according to the survey although the takeaway for us is just how to close voting is. While the number of undecided voters declined (17% versus 25% previously) the proportion is still relatively high so it’ll be worth keeping an eye on future polls in the run up.

Before we look at today’s calendar, in their report this morning, our European equity strategists argue that the most important question for markets right now is whether we are at the cusp of a paradigm shift from disinflation to reflation. There is some evidence to support this notion: higher commodity prices, the recent strengthening in global growth momentum, some upside surprises to inflation and the hope for a hand-over from monetary to fiscal stimulus. However, our strategists argue that the current state of low growth, low inflation and low bond yields is nonetheless likely to persist for a while longer, given that the oil price seems to have overshot fundamentals. They also see downside risks for US and Chinese growth, which is set to weigh on inflation. Lastly, they highlight that fiscal stimulus has a track record of only being employed in reaction to macro stress. As a consequence, our strategists remain cautious on European equities as well as the cyclical and financial sectors that would benefit in a reflationary environment.

Looking at the day ahead, this morning we’re kicking off in the UK again where we’ll get the August and September employment data which includes the ILO unemployment rate (expected to hold steady at 4.9%), average weekly earnings and claimant count prints. The focus across the pond this afternoon is on the housing market with the release of the September housing starts and building permits data. Both are expected to have rebounded last month. The Fed will release its latest Beige Book this evening. Away from the data the Fed’s Williams is scheduled to speak this afternoon (1.45pm BST) followed by Kaplan (6.30pm BST) this evening. BoE Chief Economist, Andy Haldane, speaks this evening in London while Chancellor Hammond is due to speak before the Treasury Committee in the afternoon. Earnings wise Morgan Stanley (prior to the open), eBay and American Express (both after the close) are among the 25 S&P 500 companies reporting today. Of course the other big focus is the third and final US Presidential debate at 2am BST tomorrow morning (or 9pm ET tonight).