One man’s music is another man’s noise - a derivation of Lucretius - "quod ali cibus est aliis fuat acre venenum." Music and food maybe the required mix ahead of today's trading in the US. Market moves on headlines about trade dominated overnight. Bloomberg reported Monday that more tariffs were being prepared if the Xi meetings at the G20 failed, then Fox reported that Trump predicted a “great deal” with China on trade and Asian shares rallied accordingly, helping the S&P 500 futures overnight, but the CNY trades over 6.97 – highest in over a decade - and the headline news battle over Xi/Trump meetings and more tariffs undermines European shares along with the usual suspects. Some will point to the unpleasant reality of the European data today as a key reason for the noise not becoming music – as EU GDP slips to 4-year lows while German flash HICP jumps to 2.5% - leaving the ECB little room to deviate from course and protect markets. The love-affair with central bankers has ended and with it the low volatility. This brings out all sorts of questions about what is the safe-haven and the USD continues to come out on top for now. The correlation of USD to S&P500 has been high with JPY the traditional focus but EM this year has also been part of the story. The fact that EM currencies are bouncing on China trade deal hopes and CNY is weaker with the EUR and JPY matters today and it makes watching the USD index and a break of 97 important for the 7.00 CNY risk and what that means to EM and to risk moods for tomorrow. Of course, watching the mess of screens and waiting for a signal will have more than its fair share of noise. 

Question for the Day: Will time cure all ills? Markets look tired of selling equities but there are three charts that seem most interesting to consider ahead of the US ISM and jobs report later this week and given the month-end noise in stocks and bonds happening now. The GDP in the US 4Q is clearly lower than 3Q but the relative difference of US growth in 2018 against Europe matters. The higher CPI in Germany today also matters as it means the ECB will likely see a race to normalization of policy as necessary regardless of politics. The US markets have been playing a selling game starting with the noise of trading the open and close. 

The value attribution of trading equities has changed and the fact that earnings just haven’t mattered this season seems hard to believe. Pressures over the mid-term elections and tariffs are blamed but that will change in November (particularly if G20 Xi/Trump meetings work).

The seasonality of trading risk matters and many see the rest of the year as already a foregone conclusion with the risk-on button ready to be pushed after the US jobs report.

What Happened?

• Japan September unemployment rate drops to 2.3% from 2.4% - better than expected– with 67.15mn employed up 1.8% y/y or 1.19mn jobs.  Unemployment fell 14.7% y/y off 280,000 to 1.62mn. The applicants to jobs 1.63p 1.63e

• Eurozone October economic sentiment index drops to 109.8 from  110.9 – weaker than 110.0 expected. The business climate drops to 1.01 from 1.21 – also weaker than 1.15 expected. There was a gain in consumer confidence to -2.7 from -2.9 but industry fell to 3 from 4.7, services 13.6 from 14.7, construction 8 from 8.3 and retail -0.8 from 2.4. 
• Eurozone 3Q GDP 0.2% q/q, 1.7% y/y after 0.4% q/q, 2.2% y/y – weaker than 0.4% q/q, 1.9% y/y –expected. The 2Q revised from 2.1% y/y. 
• French 3Q GDP 0.4% q/q, 1.5% y/y after 0.2% q/q – as expected– with household consumption +0.5% q/q after -0.1% q/q, with business investment 1.4% q/q after 1.3% q/q and with inventories cutting 0.2pp from GDP but trade adding 0.1pp. 
• Italy 3Q GDP 0% q/q, 0.8% y/y after 0.2% q/q, 1.2% y/y – weaker than 0.2% q/q expected– slowest growth since 2Q2015 with industry the drag and agriculture the support. There was null contribution from domestic demand or trade. 

• German October unemployment -11,000 after -23,000 with rate unchanged at 5.1% - as expected. The total unemployed 2.292mn after 2.304mn with job vacancies -5,000 after +4,000 while payroll jobs rose 39,000 after 44,000. The ILO September employment rose 39,000 m/m to 44,814,000 with unemployment 1,450,000 and ILO rate 3.4% unchanged. 
• German October flash CPI after State reports expected up 0.1% m/m, 2.5% y/y – more than 2.3% expected, implies HICP 2.4% y/y after 2.2% y/y. 
  • BW up 0.1% m/m, 2.8% y/y after 2.5% y/y – higher than expected
  • NRW up 0.1% m/m, 2.4% y/y after 2.3% y/y – higher than expected
  • Hesse 0.1% m/m, 2.2% y/y after 1.9% y/y 
  • Brandenburg 0.1% m/m, 2.3% y/y after 2.1% y/y
  • Bavaria 0.2% m/m, 2.8% y/y after 2.5% y/y – higher than expected
  • Saxony 0.2% m/m, 2.5% y/y after 2.3% y/y – higher than expected 

• Swiss October KoF LEI falls to 100.1 from 102.3 – weaker than 100.6 expected.  September revised from 102.2. KoF sees growth grinding to the long-term average in months ahead. It is noteworthy that this decline is quite broadly visible in various indicator bundles. The decline in the indicators for the manufacturing sector is particularly striking. But the minus is also visible in the indicators for the construction sector, banking and insurance as well as in the indicators for consumption and export prospects. By contrast, the indicator values for other services as well as accommodation and food service activities have changed only slightly.
• Spanish October flash HICP 0.7% m/m, 2.3% y/y after 2.2% y/y – as expected. The national CPI 0.9% m/m, 2.3% y/y after 2.3% y/y.  
• French September consumer spending -1.7% m/m after +1.1% m/m – weaker than -0.6% expected.  August revised higher from 0.8% m/m. The ex auto spending on manufactured goods -1.7% m/m after +1.4 m/m, on durable goods -4.7% m/m after +5.2% m/m, on Autos -7.9% m/m after +8.7% m/m, household goods -0.3% after +0.5% m/m.

Market Recap:

Equities: US S&P500 futures are up 0.2% after losing 0.66% yesterday with Tech focus after UK budget notable along with fear of more tariffs on China. The Stoxx Europe 600 fell 0.2% with earnings not enough to hold early gains. The MSCI Asia Pacific rose 0.5% - first gain in over a week, best in 2-weeks. 

• Japan Nikkei up 1.45% to 21,457.29
• Korea Kospi up 0.93% to 2,014.69
• Hong Kong Hang Seng off 0.91% to 24,585.53
• China Shanghai Composite up 1.02% to 2,568.05
• Australia ASX up 1.27% to 5,887.90
• India NSE50 off 0.51% to 10,198.40
• UK FTSE so far flat at 7,026
• German DAX so far off 0.4% to 11,290
• French CAC40 so far off 0.4% to 4,969
• Italian FTSE so far off 0.6% to 18,921

Fixed Income: Higher German CPI, weaker EU GDP counter but the risk-on mood in Asia and overdone buying lead to a rough day for EU bonds – German Bund 10-year yields up 0.5bps to 0.38%, French OATs up 1.5bps to 0.755% while UK Gilts up 1.5bps to 1.41% with Autumn budget still being digested. The periphery suffers – Italy up 7.5bps to 3.405%, Spain up 2.5bps to 1.56%, Portugal up 1bps to 1.875% and Greece up 3.5bps to 4.19%. 

• Italy sold E5.5bn of bonds and linker on target with good demand– E1bn of 7Y Sep 2025 CCteu at 2.32% with 1.67 cover – previously 1.77% with 1.67 cover; E2bn of 5Y 2.45% Oct 2023 BTP at 2.58% with 1.48 cover – previously 2.03% with 1.42 cover – and E2.5bn of 10Y 2.8% Dec 2028 BTP at 3.36% with 1.49 cover – previously 2.9% with 1.44 cover. 
• US Bonds are lower with curve steeper, waiting for more data, month-end flows – 2Y up 1.8bps to 2.835%, 5Y up 2.7bps to 2.946%, 10Y up 2.6bps to 3.111%, 30Y up 2.8bps to 3.358%. 
• Japan JGBs curve steepen into BOJ and month-end– 2Y off 0.2bps to -0.132%, 5Y up 0.3bps to -0.093%, 10Y up 1.4bps to 0.11%, 30Y up 0.7bps to 0.851%. BOJ Rinban unchanged with covers the story – buying Y880 total with Y300bn of 1-3Y at 2.99 from 2.58 cover, with Y350bn of 3-5Y cover 2.62 from 1.78, with Y180bn of 10-25Y cover 4.36 from 3.24 and with Y50bn of 25+Y with cover 4.59 from 3.17. 
• Australian bonds start bid, turn offered tracking China/US– 3Y up 0.2bps to 1.972%, 10Y up 1.2bps to 2.577%. 
• China PBOC skips open market operations, net drains CNY120bn on the day. 7-day rose 5bps to 2.65%. Curve steepens - 2Y off 3.6bps to 3.003%, 5Y off 0.5bps to 3.305% and 10Y up 1bps to 3.51%. 

Foreign Exchange: The US dollar index up 0.3% to 96.84 with 96.88 highs and 96.62 lows – gunning for 97 breakout.  In Emerging Markets, USD mixed – EMEA is $ offered: ZAR up 0.35% to 14.67, TRY up 0.75% to 5.5180, RUB up 0.3% to 65.64; ASIA mixed: TWD flat at 30.98, KRW up 0.2% to 1139 – tracking equities – INR of 0.35% to 73.70. 

• EUR: 1.1385 off 0.1%. Range 1.1381-1.1411 with German CPI up but EU GDP down – fear of policy mistake from ECB and Italy issues rising 1.1350 pivot for 1.1280 test. 
• JPY: 112.80 up 0.4%. Range 112.31-112.87 with EUR/JPY 128.20 up 0.3% - Nikkei up = JPY down but EU/US shares key now 113.20 top?
• GBP: 1.2755 off 0.3%. Range 1.2750-1.2813 with EUR/GBP .8905 up 0.2% watching EUR more than GBP – budget fallout and politics with 1.2550 risk on 1.2850 cap.
• AUD: .7090 up 0.45%. Range .7054-.7100 holding up with China focus, but copper lower. NZD up 0.35% to .6545 still watching .6580. 
• CAD: 1.3120 off 0.1%. Range 1.3101-1.3135 with oil, rates and crosses driving. 
• CHF: 1.0025 flat. Range 1.0009-1.0034 with EUR/CHF 1.1385 off 0.1% - watching Italy and equities again with 1.00 tent and 1.0080 resistance. 
• CNY: 6.9574 fixed 0.28% weaker from 6.9377, now 6.9630 flat with 6.9741-6.9562 range – watching for 7.00 test. 

Commodities: Oil lower, Gold lower, Copper off 0.85% to $2.7830. 

• Oil: $66.60 off 0.7%. Range $66.49-$67.26 – WTI watching 55-day at $69.48 as key resistance against 200-day support at $65.33. Brent $76.60 off 0.95% with focus on $75 uptrend support against 55-day at $78.66. Oil hit on Oman/Nigeria comments, waiting for API, tracking equities again. 
• Gold: Gold off 0.75% to $1220.40. Range $1220-$1230 watching $1220 Oct 22 lows then 55-day at $1204 against $1236 again. Silver off 0.4% to $14.40 with $14.414 Oct 29 lows breaking the trend support with $14.24 support with $14.50 back as pivotal resistance. Platinum up 0.1% to $832.75 but Palladium off 0.2% to $1088.40. 

Conclusions: Are leveraged loans the next key issue? The warning last week from the Fed, the WSJ piece this morning, the Invesco ETF chart (BKLN) below – all suggest trouble is brewing. The ETF pain maybe worth watching against the broader loan indexes.  Markets are watching rate pain from the FOMC and lower oil as the next triggers, but there could be another splash of inflation fears to add in – with EU and Japan reducing their QE plays leading to a term-premium rebound problem for the US. 

Economic Calendar:

• 0900 am US Aug S&P/Case-Shiller home prices (y/y) 5.9%p 6%e
• 0430 pm US API weekly crude inventories 9.88mb p 1.7mb e