US equity futures were modestly green in a quiet overnight session, as optimism about a fresh stimulus package collapsed, while investors assess the potential return of lockdowns in Europe as the region struggles to contain the virus spread. S&P 500 futures were little changed, while Nasdaq contracts rose 0.2%. Eminis were up 0.2% to 3,482 boosted by Boeing and Pfizer shares (see below) which helped push futures on the S&P 500 and Dow Jones Industrial Average into the green after they drifted most of the day. Treasuries held gains, while the dollar slipped with crude oil.

PFizer shares rose 1% in premarket trading after it said it would file for U.S. emergency approval of its COVID-19 vaccine candidate being developed along with Germany's BioNTech as soon as a safety milestone is achieved in the third week of November. BioNTech's U.S.-listed shares jumped 2.4%. There was also a revival of trade war concerns, after the European Union and the U.S. exchanged tariff threats this week regarding illegal state aid for Boeing. Separately, the planemaker’s stock was up in pre-market trading after the company’s 737 Max model was judged safe to fly by Europe’s aviation regulator.

On the stimulus front, Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi Thursday that President Donald Trump would personally lobby to get reluctant Senate Republicans behind any stimulus deal they reach. However, Senate Majority Leader Mitch McConnell rejected that, saying he could not sell a much larger package to his members, and that the Senate would vote on a narrow stimulus plan worth about $500 billion next week. In short: no deal until after the election, precisely as we have been saying since August.

"It’s a tug-of-war between risks that are well flagged, the pandemic, the U.S. election, Brexit, and at the same time hope that these same risks can be resolved in matter of weeks or months", said Emmanuel Cau, head of European equity strategy at Barclays. “In the meantime, it’s hard for investors to take positions on the short term given all the uncertainties,” he said. “Looking forward to 2021, there’s a good probability these risks will be behind us.”

In Europe, the benchmark Stoxx 600 Index rose as much as 1% but was still set for a weekly loss after European stocks lost over 2% on Thursday as new social restrictions in Europe, including a curfew in major French cities and tighter restrictions in London, spooked investors. Positive corporate newsflow outweighed concerns over rising coronavirus cases and the state of progress in Brexit trade talks. Car sales surprised to the upside, while Daimler and LVMH both beat estimates, and Thyssenkrupp surged after Liberty Steel Group said it will make a multibillion-euro bid for the German company’s European steel unit.

Earlier in the session, the MSCI Asia Pacific Index slipped 0.2% led by the industrials and IT sectors. Markets in the region were mixed, with Thailand's SET and Japan's Topix falling, while Hong Kong's Hang Seng Index and India's S&P BSE Sensex Index increased. The Topix lost 0.9%, with Toyota and Sony contributing the most to the move. The Shanghai Composite Index rose 0.1%, driven by China Life and ICBC.

Brexit was in focus, with U.K. Prime Minister Boris Johnson saying the U.K. will now get ready to leave the European Union’s single market and customs union without a new free trade deal in place, blaming the bloc for refusing to offer good enough terms. He said he would always be willing to hear from the EU if the bloc’s leaders came back to the U.K. with “a fundamental change of approach.” Last month, the British leader set a deadline of Oct. 15 for an agreement to be struck -- or clearly within sight -- saying there would be no point continuing talks beyond this week without adequate progress. Sterling fluctuated on the news.

Elsewhere in FX, the euro also regained some ground, rising about 0.2% to $1.1731 as investors shifted from perceived safe havens such as the dollar and the yen to riskier currencies.

In rates, Treasuries extended advance in early U.S. session following bigger rally in gilts after U.K. Prime minister Boris Johnson said the country should prepare for Australian-style trade terms with the EU after Brexit negotiations failed to produce an alternative. Gilts spiked to session highs, lifting Treasuries. Treasury yields are richer by 0.5bp to 1.5bp across the curve in bull-flattening move; 10-year yields lower by 1bp at 0.722% with both gilts and bunds outperforming by ~1bp.  Germany’s 10-year bond yield was set for its biggest weekly drop since August as doubts grew about the economic recovery in the euro zone.

In commodities, oil prices continued to slide, dragged down by concerns that resurgent COVID-19 cases in Europe and the United States would curtail demand. Brent crude futures for December dropped 0.5% to $42.65 a barrel. WTI  crude futures for November delivery dipped 0.4%, to $40.81 a barrel. Spot gold prices were flat at $1,909.05 but looked set for their first weekly drop in three.

Macro-economic data to watch include retail sales, industrial production and University of Michigan Confidence, while Bank of New York Mellon, Citizens Financial, JB Hunt, Kansas City Southern, Schlumberger NV, State Street, VF Corp are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.1% to 3,479.50
• STOXX Europe 600 up 0.7% to 365.50
• MXAP down 0.3% to 174.47
• MXAPJ unchanged at 579.29
• Nikkei down 0.4% to 23,410.63
• Topix down 0.9% to 1,617.69
• Hang Seng Index up 0.9% to 24,386.79
• Shanghai Composite up 0.1% to 3,336.36
• Sensex up 0.8% to 40,038.80
• Australia S&P/ASX 200 down 0.5% to 6,176.79
• Kospi down 0.8% to 2,341.53
• Brent futures down 0.6% to $42.92/bbl
• Gold spot little changed at $1,909.72
• U.S. Dollar Index down 0.2% to 93.69
• German 10Y yield fell 1.2 bps to -0.622%
• Euro up 0.05% to $1.1714
• Italian 10Y yield rose 4.0 bps to 0.495%
• Spanish 10Y yield unchanged at 0.148%

Top Overnight News from Bloomberg

• Italy’s government is assessing its environmental funding needs, taking an initial step toward selling its first green bond, according to people familiar with the decision
• Chinese police have launched an investigation linked to cryptocurrency exchange giant OKEx, forcing one of the world’s largest Bitcoin trading platforms to block users globally from withdrawing money
• Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi Thursday that President Donald Trump will personally lobby to get reluctant Senate Republicans behind any stimulus deal they reach
• Covid-19 is hitting the most populous states in the U.S. Midwest, with cases surging in Illinois, Ohio and Michigan. Europe continued to report some of the highest numbers of cases since spring. Remdesivir has no definite effect on a hospitalized patient’s chances of survival, a clinical trial by the World Health Organization found
• In dueling town halls, President Donald Trump embraced controversial conspiracy theories and sparred with the moderator, while Democrat Joe Biden offered policy-focused answers aimed at avoiding anything that could imperil his lead in the polls
• Oil headed lower in Asian trading as the prospect of a resurgent virus forcing more stay-at-home measures in Europe and the U.S. outweighed a bigger-than-expected drop in American stockpiles
• The U.S. will “strike much harder” if the European Union goes ahead with tariffs on $4 billion worth of American products, President Trump said
• New Zealand Prime Minister Jacinda Ardern looks set for a resounding election victory on Saturday as voters applaud her masterful handling of the coronavirus pandemic

A look at global markets courtesy of NewsSquawk

Asia-Pac equities traded mostly lower following a string of lacklustre cash opens, and after another downbeat handover from Wall Street, where the major indices posted a third consecutive down-day as pre-election stimulus hopes fizzle out and with parts of Europe reimposing targeted COVID-19 restrictions amid the resurgence of the virus. European and US equity futures drifted higher throughout most of the night before erasing the bulk of their gains heading into the European open and with no specific news flow driving price action. ASX200 (-0.5%) was flat for a large part of the session as strength in financials were countered by a weak performance across travel and leisure names, whilst concerns mounted over Australia’s deteriorating relationship with China. Nikkei 225 (-0.4%) was caged in a tight band for most of the session and losses accelerated after a downside breach of the 23,500 level, but Fast Retailing shares rose some 4.5% at one point despite revenue and profits declining in the 12-months ending August, as same-store-sales rebounded over 20% in Q4 which drove expectations for a FY21 recovery. KOSPI (-0.8%) remained in negative territory with participants pinning the losses on virus woes. Shanghai Comp. (+0.1%) opened with modest gains as the PBoC underwent another liquidity injection via 7-day reverse repos at a maintained rate, but the index later erased gains with reports also resurfacing that China is set to pass a new law that would restrict sensitive exports vital to national security. Hang Seng (+0.5%) outperformed in a reversal from yesterday’s sub-par performance, and as SMIC shares opened higher by 6% after a guidance upgrade. Finally, 10yr JGB futures firmed overnight before waning off best levels as it tracked USTs.

Top Asian News

• Singapore-Hong Kong Air Fares Jump 40% on Travel Bubble Plan
• Billionaire Lucio Tan’s Bank Expects Bad-Loan Provisions to Drop
• China Drug Stock Jumps After Doctor Endorses Treatment for Covid
• Thai Leaders Have No Easy Options to End Anti-Monarchy Protests

European equities (Eurostoxx 50 +1.0%) trade on a firmer footing in what appears to be more a trimming of yesterday’s heavy losses rather than an outright pick-up in sentiment across the region as incremental macro newsflow remains light. The CAC 40 (+1.3%) has outperformed from the get-go following LVMH’s (+6.4%) Q3 update which saw the Co. exceed revenue expectations citing strong performance in the US and China; Kering (+3.8%), Burberry (+3.0%) and Christian Dior (+7.3%) trade higher in sympathy with the consumer discretionary sector the clear outperformer. Elsewhere, it’s been a session of solid gains thus far for the auto sector with Daimler (+3.4%) leading the charge after its prelim Q3 EBIT exceeded market expectations and the Co. stating that it has seen a faster than expected market recovery and a particularly strong September performance. Furthermore, Renault (+3.8%) have also been supported amid reports the Co. is intending to launch a range of electric vehicles targeting ‘middle class’ consumers, whilst its CEO said the Co. does not have a liquidity problem. Additionally, for the sector, some positivity was garnered from the latest EU27 car registrations which rose 3.1% in September (prev. -18.1%). In terms of stocks specifics, Thyssenkrupp (+15.0%) are a clear standout performer today after Liberty House announced a bid for the Co’s steel operations. Subsequently, the IG Metall Union in the German NRW state rejected Liberty Steel's bid, suggesting that such a takeover could lead to job losses, however, it is yet to be seen if their objections will be enough to derail the acquisition. To the downside, BT (-1.8%) have hampered the performance of the telecom sector today amid ongoing scepticism suggesting that PM Johnson’s pledge to connect the country to fast broadband by 2025 is considered to be unrealistic.

Top European News

• LVMH Bounces Back on Demand for Louis Vuitton and Dior Bags
• Thyssenkrupp Jumps as Gupta’s Liberty Said to Bid for Steel Unit
• Europe Car Sales Rise 1.1% in Surprise First Gain of the Year
• Daimler, Volvo Post Surprise Profits on Shaky Auto Reprieve

In FX, positive vibes from both sides of the UK-EU divide ahead of the final day of the Summit have given Sterling a lift as chances of clinching a trade deal are kept alive, with Cable back on the 1.2900 handle and Eur/Gbp backing off from the high 0.9000s after Foreign Minister Raab claimed that negotiators are close to agreement and the Irish PM said Barnier has been granted the flexibility to continue discussions. However, PM Johnson still has the final say and there is little sign of compromise on the well documented key issues that stand in the way of an accord so the bar remains high and Pound prone to further disappointment, while Moody’s ratings review after hours also poses a threat to sentiment.

• USD – Brexit aside, the broad risk tone has settled down to dampen some demand for the Dollar and major pairs have reverted to more restrained ranges as a result, as the DXY retreats from highs just shy of Thursday’s 93.910 peak within a 93.883-665 range. The pullback may also be partly psychological and consolidative ahead of primary US data in the form of retail sales and ip before 2 Fed speakers (Williams and Bullard) and preliminary Michigan sentiment, while a firm rebound in the YUAN is also likely to be weighing on the Greenback more generally given the Cny and Cnh both reclaiming 6.7000+ status.
• JPY/NZD – The Yen and Kiwi are benefiting from the waning Buck, with the former back above 105.50 and flanked by decent option expiry interest (3 bn between 105.00-05 and 1.2 bn from 105.35 to 105.40), and the latter pivoting 0.6600 in the run up to NZ elections and getting regional support from favourable Aud/Nzd crosswinds.
• EUR/CAD/CHF/AUD – All narrowly mixed vs their US counterpart as the Euro keeps tabs on 1.1700, just, Loonie paring losses from sub-1.3260 towards 1.3200 in advance of Canadian manufacturing sales and less of a drag via crude prices. Elsewhere, the Franc is straddling 0.9150 again and Aussie underperforming below 0.7100 and the 100 DMA (0.7096) in wake of more worrying reports on the Chinese trade front as cotton exports are said to be added to the embargo list and could be subject to tariffs as big as 40%.
• SCANDI/EM – Further divergence between the Sek and underperforming Nok even though oil is attempting to stabilise and Riksbank’s Ingves may cover exchange rate moves during a speech at the IMF, but the Zar appears content with Gold’s recovery to trade above Usd 1900/oz, albeit by only a few bucks. Conversely, the Brl could be vulnerable following the latest political antics and the resignation of Brazilian President Bolsonaro’s Deputy Senate leader who was caught by police concealing COVID aid funds in his underwear.

In commodities, WTI and Brent front month futures are modestly subdued this morning diverging somewhat from the modestly firmer performance seen in European bourses, with US futures relatively flat; focus for the complex has returned to the supply-side given updates in Libya. Crude production for the country is now said to have hit 500k BPD displaying a significant rise from the October 5th figure of 290k BPD; the increase comes alongside the El Sharara field getting back to around 110k BPD capacity but still someway from the 300k BPD capacity the field is targeting in the near-term. The production increase will likely draw the focus of OPEC’s JMMC gathering on October 19th, among other factors including compliance and plans for the OPEC+ demand schedule, particularly as while the Libyan supply has substantially increased it is still someway off Q4-2019’s figure of circa 1.2mln BPD. Elsewhere, the schedule for crude explicitly is light aside from the usual Baker Hughes rig count. Moving to metals, spot gold is essentially flat on the day residing within comparatively tight ranges of USD 10/oz; given the lack of fundamental newsflow the driver for the metal is once again the USD which is similarly exhibiting lacklustre and range-bound action. Regarding copper, ING highlight that discussions at the Candelaria mine in Chile are still unresolved, regarded as one of the largest copper reserves in the world, and the most recent updates indicate that strike action could still occur next week.

US Event Calendar

• 8:30am: Retail Sales Advance MoM, est. 0.8%, prior 0.6%; Ex Auto MoM, est. 0.4%, prior 0.7%
• 8:30am: Retail Sales Control Group, est. 0.3%, prior -0.1%
• 9:15am: Industrial Production MoM, est. 0.5%, prior 0.4%; Capacity Utilization, est. 71.8%, prior 71.4%
• 9:15am: Manufacturing (SIC) Production, est. 0.6%, prior 1.0%
• 10am: Business Inventories, est. 0.4%, prior 0.1%
• 10am: U. of Mich. Sentiment, est. 80.5, prior 80.4; Current Conditions, est. 88.5, prior 87.8; Expectations, est. 77, prior 75.6
• 4pm: Net Long-term TIC Flows

DB's Jim Reid concludes the overnight wrap

It’s the last day of this half term today and the school are allowing the children to come as their favourite book character. As much as my wife has tried to persuade our 5 year old Maisie to go as her own book heroines Lizzy Bennet from Pride and Prejudice or Jane Eyre, Maisie will only go as one thing. Elsa from Frozen. I said to her that Frozen is not a book and she ran to the shelf and showed me a Frozen 2 sticker and colouring in book. So who am I to argue. Hopefully this will pass the school’s no superheroes policy. By the way I wanted her to go as Arya Stark.

Talking of the Starks, winter was coming for a large part of yesterday (virus numbers, weak data, lack of stimulus) before a bit of dragon breath warmed things up late in the session. European equities earlier saw major declines as governments across the continent moved to ramp up restrictions, with the STOXX 600 (-2.08%), the DAX (-2.49%) and the CAC 40 (-2.11%) all moving lower. The US however regained its footing and only closed -0.15% having recovered from being down as much as -1.37% in the early moments of trading yesterday and around -0.75% as Europe went home. Tech (-0.44%) and biotech (-1.69%) stocks were among the largest laggards on the day with the NASDAQ falling -0.47%, although it also rebounded from large early losses (-1.78%). Meanwhile the VIX index of volatility gained +0.57pts to its highest level in a week, having risen every day this week.

The main driver behind the declines was the pandemic, with yesterday seeing a number of further concerning developments for investors to digest. In terms of the numbers, Europe continued to move in the wrong direction, with Italy reporting another record of 8,803 cases, raising fears that the country is moving in a similar direction to France and the UK, while the Netherlands also reported a record 7,857 cases which given its population is just under 30% of Italy’s, is a big number. See the per 10k number in the table below. France saw over 30k new cases, a record that eclipses the previous high of nearly 27k this past Saturday. Germany also saw a record number of infections, with the 7,185 new cases surpassing the previous peak in late March (pre mass testing). This comes as reports indicate that Chancellor Merkel is concerned that the new restrictions agreed to by the regional leaders do not go far enough. In the UK, a further 18,996 cases were confirmed as the government raised the London alert level to high, meaning that residents can no longer mix with other households indoors from tomorrow. Over in Poland, further restrictions were also imposed, while at the summit of EU leaders in Brussels (more on which below), Commission President Ursula von der Leyen went into self-isolation (again) after she was informed that a member of her front office had tested positive that morning.

In better news overnight, Reuters has reported that Britain’s National Health Service is in talks with groups including the British Medical Association about mobilising for a potential rollout of a Covid-19 vaccine by December. The report added that there is c. a 50/50 chance that the vaccine can begin to be administered that month.

Over in the US, cases continue to rise throughout the Midwest with Illinois, Ohio and Michigan all approaching new case levels comparable with the height of their first waves – albeit at much higher testing levels. With Ohio, Michigan and Wisconsin all potential swing states the effects on next month’s election will be closely followed. The main Covid news came from the Biden campaign, where VP nominee Kamala Harris cancelled her travel plans until Monday after communications director along with a member of her flight crew tested positive. We’re told that Harris herself tested negative on Wednesday, but that travel was stopped “out of an abundance of caution”. Neither of the positive individuals were in contact with Biden however, and both he and President Trump went ahead with their separately planned town hall events last night in lieu of the debate that was otherwise supposed to have taken place.

Staying on US politics, President Trump said yesterday that he would be open to increasing the $1.8 trillion stimulus bill that he had pushed in the past. It was also reported that House Speaker Pelosi and Secretary Mnuchin continue to discuss potential deals though nothing remains likely to pass in the short term. This is especially true after Senate Majority leader McConnell said that his planned $500 billion bill is “appropriate” and rejected calls for higher levels of funding. Markets took this in its stride, but if Democrats do win the White House but are unable to take back the Senate it may call into question just how much stimulus could be passed in the next 6 months and beyond. Meanwhile, Treasury Secretary Mnuchin has told Pelosi overnight that President Trump will personally lobby to get reluctant Senate Republicans behind any stimulus deal they reach.

Asian markets are largely trading lower this morning outside of the Hang Seng (+0.78%) which is up. The Nikkei (-0.26%), Shanghai Comp (-0.28%), Kospi ( -0.85%) and Asx (-0.41%) are all down. Meanwhile, European futures are pointing to a positive open after the late US rally with those on the Stoxx 50 (+0.60%), FTSE 100 (+0.72%) and Dax (+0.59%) all up. Across the other side of Atlantic, S&P 500 futures are trading broadly flat while those on Nasdaq are down -0.16%. Elsewhere, crude oil prices are down c. -1%.

Brexit was back in the headlines yesterday, as EU leaders agreed at their summit to continue negotiations with the UK over the coming weeks, calling on the UK to “make the necessary moves to make an agreement possible.” The UK’s chief negotiator Frost said he was “surprised by suggestion that to get an agreement all future moves must come from U.K. It’s an unusual approach to conducting a negotiation.” The UK have said they’ll set out their next steps following the Council, so we await to see what’s said and whether they decide to continue negotiating or more likely on what terms. Prime Minister Johnson is planning a statement later today.

Over in sovereign bond markets, southern Europe saw a noticeable selloff yesterday, in line with the broader risk-off move elsewhere. Italian debt saw its remarkable rally come to an end, as 10yr yields came off their record low the previous day to close +4.0bps, while Greek (+5.5bps) and Spanish (+1.4bps) yields also rose. With risk assets rallying back towards flat in the US, core countries diverged with 10yr bund yields down -2.9bps at -0.61%, their lowest level since March, as US Treasuries saw a +0.7bps move to 0.732%. Other safe havens made gains yesterday, with the US dollar index up (+0.51%) for the third day this week, while gold prices were up +0.38% to finish over $1900/oz.

In the US, the latest weekly initial jobless claims for the week through October 10 showed an unexpected uptick to 898k (vs. 825k expected), which was its highest level in 7 weeks. The reading will only add to concerns that the labour market recovery is running out of steam, not least with the lack of further stimulus and fresh rises in the number of Covid cases. Otherwise, the Empire State manufacturing survey fell to 10.5 (vs. 14 expected), while the Philadelphia Fed’s business outlook survey rose to 32.3 (vs. 14.8 expected) - the highest since February.

To the day ahead now, and the data releases out from the US include September’s retail sales, industrial production and capacity utilisation, as well as the preliminary University of Michigan sentiment indicator for October. In the Euro Area, there’ll also be the trade balance for August and the final CPI reading for September. Otherwise, central bank speakers include the Fed’s Williams and Bullard, and earnings releases include Honeywell International and BNY Mellon. Finally, the European Council will conclude.