1. We begin with the Eurozone where bond yields are falling back to the "pre-bond-selloff" levels. The 10yr Bund yield is moving deeper into negative territory.

2. At the short end of the curve, both German and French 12m bill auction yields hit record lows.

 

3. One of the reasons for the government bond rally is Deutsche Bank, whose share price is hitting new lows - a drop 0f 7.5% on Monday. The bank's CoCo price (see definition) dropped to levels we haven't seen since February.

 

Deutsche CDS spreads have blown out again (the chart below shows the CDS-implied probability of default), forcing a spread widening for other banks. Credit Suisse CDS, for example, remains elevated.

Source: @Schuldensuehner

4. Deutsche triggered a selloff across European banks. Commerzbank, for example, was down 4%. The second chart below from FT shows the relative moves. Note that prices fell further after that chart was published.

 

Source: ‏@fastFT; Read full article

5. Deutsche denied rumors that it has asked the German government for help or that the bank is considering a recapitalization. Rumors also persist that the government will attempt to arrange a "forced marriage" with another bank.

Source: The Telegraph, Read full article

6. In other Eurozone developments, Germany's business sentiment unexpectedly improved, reversing the Brexit-related worries. The second chart below shows the breakdown by sector.

 

1. In the UK, mortgage approvals declined more than expected, suggesting a softening in the housing market.

2. The British pound resumed its decline against the euro, which will give UK exporters an edge. It's also not clear if German businesses have fully grasped the situation of their products suddenly becoming much more expensive in the UK.

3. The UK investment-grade corporate bond rally resumed after a brief pause.

1. We now turn to emerging markets where the Mexican peso hit a record low on Monday.

However, during the presidential debate in the US, Donald Trump's odds of victory in November declined in the betting markets. As a result, the peso rallied sharply.

Source: PredictIt.org

The so-called "Trump trade" representing the 1-month - 2-months calendar spread (pre- and post-elections) of USD/MXN implied volatility remains near multi-year highs. 

Source: Bloomberg

Mexican government bond yields continued to climb on Monday.

2. The  Argentine peso is drifting lower on risk-off sentiment.

3. Brazil's current account deficit was better than expected.

3. India's bond rally resumed as yields continue to push to multi-year lows.

4. The Philippine peso continues to get hammered as investors remain nervous about the nation's leadership. Moreover, the nation's CDS spread (second chart below) keeps widening.

 

5. Turkish stock market took a hit in the aftermath of the Moody's downgrade.

Interestingly, economic data from Turkey remains decent - the chart below shows capacity utilization improving.

6. In China, the Shanghai Composite fell back below 3,000. The index had not been able to remain above this psychologically important level for very long.

7. The last EM chart shows foreign ownership of domestic government bonds by country.

‏Source: @MorganStanley, @acemaxx

1. Turning to Japan, dollar-yen is toying with par again.

2. Dollar-yen risk reversals show increased bias toward further yen strength (dollar weakness).

Source: Bloomberg

3. Declining inflation in Japan is translating into lower price expectations by the consumers - raising the risk of a deflationary spiral. This trend presents further challenges for the BoJ.

Source: @WSJ, @pdacosta; Read full article

1. Next, we go to the United States where Treasuries rallied on risk-off sentiment, nearly reversing the recent bond selloff.

2. New home sales eased from the post-2007 high but beat economists' consensus.

New home inventory remains tight by historical standards. Here are the new one-family homes for sale divided by the US population.

Builders are finally responding to the growing demand for somewhat more affordable new homes as sales shift into the lower price bracket.

3. The Dallas Fed manufacturing report was disappointing, showing continuing contraction. However, the report showed two "green shoots": stabilization in Capex and firmer production levels.

 

4. In the funding markets, the demand for the Fed's RRP (secured deposit) facility is rising as we approach the quarter-end. 

With more liquidity shifting into the RRP, the secured private lending (repo) market is tightening.

Soft inflation figures and weaker than expected retail sales are pressuring the Canadian dollar.

1. In the equity markets, US banks felt the impact of renewed pressure on Deutsche Bank.

Source: YCharts.com

2. US REITs have outperformed sharply in the last few days as bond yields decline.

Source: YCharts.com

3. According to FactSet, the S&P500 "ex-financials cash balances grew 1.1% year-over-year to $1.456 trillion, the second largest quarterly total in a decade".

Source: @FactSet; Read full article

1. In the energy markets, oil volatility is starting to rise, although remains way below February levels.

Source: Investing.com

2. The "drilled but uncompleted" oil wells inventory remains elevated. It won't require a great deal of capital to bring this capacity online.

Source: Goldman Sachs, @NickatFP, @joshdigga

3. The latest cost curve suggests that between $50-$55/bbl price levels, a great deal of capacity can be brought online (the curve has flattened sharply). These dynamics in crude oil production capacity create a near-term cap on prices.  

Source: Goldman Sachs, @NickatFP, @joshdigga

4. This is what happened with global production since the Doha oil meeting.

Source: @chartoftheday, Barclays, @Tmp_Research, Read full article

1. In commodity markets, speculative trading in China has its new target: silicon manganese. 

2. Speculative accounts are also jumping back into cotton.

3. Sugar continues to rally on tight supply fundamentals - see explanation below.

 

Source: Casper Star Tribune; Read full article

4. Finally, it seems that US grain declines have resumed, with soy, corn, and wheat - all trading lower.

1. Turning to Food for Thought, Europeans are focused on teaching English in schools.

Source: @EU_Eurostat, @Tmp_Research; Read full article

2. Millenials believe that staying with one company is the best way to advance one's career.

Source: @wef, @Tmp_Research; Read full article

3. The cyber attack preparedness score by country.

Source: @wef,  ‏@Tmp_Research,  Read full article

4. The next US president will face the massive challenge of "dismal fiscal circumstances".

Source: @WSJ, @NickTimiraos, ‏@Tmp_Research; Read full article

5. US presidential debates.

Source: @NickatFP