US equity futures are sliding - but off the lows of the session- setting up Wall Street for a lower open, with underperformance driven by Alphabet, whose shares have tumbled premarket after its cloud unit revenue disappointed. As of 8:00am ET, S&P futures were down -0.3% while Nasdaq futs drifted -0.5%, after Microsoft and Google delivered a mixed picture of big tech earnings, setting the stage for peers still reporting this week. The dollar is stronger for a second session tracking Treasury yields which also rose, while oil was little changed and there was a bounce for iron ore following the Chinese stimulus measures. In Europe, stocks reversed earlier losses as a 55% drop for French payments firm Worldline offsetting a gain for Deutsche Bank. Asian markets were also broadly higher on hopes that a new 1 trillion yuan in debt issuance will provide a fiscal stimulus for China's struggling economy. Today’s macro data focus is on new home sales and mtge applications

In premarket trading, Alphabet fell as much as 7% after its cloud unit reported a smaller than expected profit; analysts flagged weakness in the cloud computing business as a concern. Microsoft, on the other hand, climbed after results in its cloud business beat expectations. Meanwhile, Texas Instruments fell 5.4% as the chipmaker forecast revenue for the fourth quarter that missed the average analyst estimate; analysts noted that weakening in the industrial end-markets broadened, while automotive strength persisted. Here are some other notable premarket movers.

• CoStar fell 9.4% after the real estate data company provided a disappointing 4Q forecast. Third-quarter revenue fell shy of estimates.
• Gap shares gain 2.5% after Wells Fargo upgraded the apparel retailer to overweight from equal-weight, noting that the turnaround story is gaining traction.
• Microsoft shares rose 0.4% after the software giant reported first-quarter results that beat expectations. Analysts singled out strength in the company’s cloud business as especially positive.
• Snap shares rose 1.1% after the social media company reported third-quarter results that beat expectations and also gave an outlook that was mixed relative to consensus. Analysts were ambivalent, with some acknowledging the improvement seen in the quarter but calling out what seemed to be a “fragile” recovery.
• Stride rose 13% after the online education company provided a fiscal 2024 year forecast range for revenue with a midpoint that tops estimates.

With earnings season in full swing, investors are looking for evidence on how companies are coping with high interest rates and whether consumer spending is changing because of inflation. Meta Platforms Inc., the parent company of Instagram and Facebook, is set to report later Wednesday, with Amazon.com Inc due Thursday.

“Tech earnings got off to a mixed start thanks to a focus on cloud computing, one of the big money spinners for the sector,” said Chris Beauchamp, chief market analyst at IG Group. “It’s now up to Meta tonight and Amazon tomorrow to provide the kind of good news that might give stocks a reason to rally into month-end.”

European stocks were modestly in the green reversing an earlier loss of as much as -0.3% as broad gains in mining and tech shares overshadowed earnings-driven drops in luxury and retail. Kering SA slid after the Gucci owner reported a drop in sales amid a global slowdown in luxury, while home products company Reckitt Benckiser Group Plc fell after sales missed expectations. Worldline SA plunged more than 50%, the most ever, after the French payment company lowered its outlook for this year. Peer Nexi SpA slumped more than 10%. Offsetting those misses, Deutsche bank AG gained as much as 7.5% after saying it plans to accelerate payouts to shareholders as higher income from its corporate bank and deposit inflows offset weaker trading results in the third quarter. Swedish steelmaker SSAB AB asnd French software company Dassault Systemes advanced after earnings beats. Here are some of the most notable European movers:

• Deutsche Bank shares jump as much as 7.3%, the most in a year, on plans to accelerate payouts to shareholders and third-quarter revenues at the top end of the forecast range
• Heineken gains as much as 3.2% to the highest intraday level in more than a month after the brewer reiterated its full-year guidance and posted a slight beat on third-quarter organic beer volumes
• SSAB shares rise as much as 6.9%, the most intraday since Jan. 27, after the Swedish steelmaker reported adjusted Ebitda for the third quarter that beat the average analyst estimate and announced a stock buyback
• Billerud gains as much as 12%, the most since January 2020, after the paper and packaging company reported adjusted Ebitda and sales for the third quarter that beat estimates
• Assa Abloy advances as much as 3%, the most in a month, after the Swedish lockmaker reported third-quarter adjusted operating profit that beat the average estimate
• Alfa Laval climbs as much as 5% after the Swedish industrial equipment maker’s third-quarter adjusted Ebita beat the average analyst estimate.
• Worldline shares fall as much as 57% after the French payments company lowered its outlook for this year and scrapped its revenue growth target for next year
• Reckitt Benckiser drops as much as 4.3%, the steepest drop since July 26, after third-quarter like-for-like sales at the consumer-goods company missed estimates
• Kering falls as much as 4.7% to the lowest level since March 2020 after the luxury company’s quarterly sales disappointed, and management said the 2023 Ebit margin for its Gucci brand would likely contract
• Kuehne + Nagel reverses early gains to slide as much as 4.6% as lower profits and weak air freight volumes overshadow the Swiss logistics giant’s cost control and normalizing sea volumes
• Akzo Nobel falls as much as 5.1% to the lowest intraday value since November 2022 after the paint maker reported third-quarter results that analysts called in-line
• Nel falls as much as 9.9% after the Norwegian hydrogen technology firm’s third-quarter numbers met with a mostly negative reception from analysts

Earlier in the session, Asian stocks rose, led by gains in Hong Kong after China strengthened its efforts to support its flagging economy and markets. The MSCI Asia Pacifc Index climbed as much as 1.2%, the most in about two weeks, with Tencent, Alibaba and Toyota the biggest boosts. Benchmarks gained in Hong Kong, mainland China, Taiwan, Japan and most other Asian nations. Meanwhile, troubled Chinese developer Country Garden Holdings Co. was deemed to be in default on a dollar bond for the first time, amid the broader property-debt crisis that’s shaken China’s economy.

• The Shanghai Composite surged at the open and the Hang Seng Index jumped 2.8% before paring its gain, while a related gauge of tech stocks surged nearly 5%. Hong Kong markets outperformed as large-caps posted gains between 4-6%, and tech also felt some tailwinds from Microsoft's earnings and guidance. Investor sentiment was bolstered after President Xi Jinping stepped up his effort to revive the world’s second-largest economy, including new deficit-busting debt issuance and an unprecedented visit to the central bank. Xi also made an unprecedented visit to the PBoC in a "sign of focus on the economy."  The moves boosted Chinese infrastructure stocks and spurred hopes for a recovery in consumption, helping lift consumer and manufacturing shares elsewhere in the region.
• Australia's ASX 200 slipped into the red after Aussie CPI topped expectations across the board, which led to hawkish revisions to some analysts' RBA calls. Real Estate led sectoral losses, but the index was cushioned by outperformance in its Mining sector.
• Japan's Nikkei 225 was supported by recent JPY weakening as export-related sectors outperformed with some potential tailwinds after Bloomberg sources yesterday suggested that the BoJ saw little need to change its "will not hesitate to take additional monetary easing measures" forward guidance.
• Indian stocks retreated to the lowest level in four months, as higher U.S. treasury yields and concerns about escalation in the Israel-Hamas war drove the risk-off mood. The S&P BSE SENSEX Index fell 0.8% to 64,049.06 in the fourth day of losses, the longest streak since March. The NSE Nifty 50 Index slid similarly. The Sensex’s 14-day relative strength index, a key technical indicator, fell to 31, approaching the level of 30 that some investors consider to be the oversold threshold.

In FX, the Bloomberg Dollar Spot Index rose 0.2% following a 0.3% gain yesterday. The Aussie has pared an earlier advance to trade slightly lower, having rallied on hotter-than-expected inflation data. The Bloomberg Dollar Spot Index rose as much as 0.2%, The yield on 10-year Treasuries increased 4 basis points to 4.86%.

• EUR/USD overnight volatility rises by as much as 599 basis points to 12.11%, in line with the roll. This is the lowest reading on the day before an ECB decision since February 2022. It suggests traders expect no surprises
• The Australian dollar erased early gains after traders priced the prospect of another interest rate hike following a hotter-than-expected inflation print. It rose as much as 0.7% to 0.6400, while the yield on policy-sensitive three-year notes climbed to their highest since 2011. Swaps traders lifted the odds of a rate hike next month to better than 80% after September quarter core inflation eased less than expected to 5.2% year-on-year
• The yen was little changed Wednesday. Bank of Japan officials are likely to monitor bond yield movements until the last minute before making a decision on whether to adjust the yield curve control program at a policy meeting next week, Bloomberg reported.

In rates, treasuries cheaper across the curve with futures near session lows around 4.86% into early US session and lagging core European rates. US yields cheaper by nearly 5bp across long-end of the curve in a bear-steepening move with 5s30s spread wider by ~2.5bp vs Tuesday close; 10-year yields near cheapest levels of the day into early US session near 4.86% while 30-year yields re-test 5% level to the upside. Losses are so far led by long-end, re-steepening the curve with 5s30s paring a portion of Tuesday’s aggressive flattening move. US session includes 5-year note auction, while Bank of Canada rate decision is at 10am New York time. For Bank of Canada decision, swaps market is pricing in around 3bp of tightening, or 12% odds of a 25bp rate increase. Treasury auction cycle resumes with $52b 5-year note sale at 1pm, ahead of $38b 7-year Thursday; Tuesday’s 2-year was solid, stopping in line with WI yield at bid deadline

“Rates will likely trade within recent ranges, but we do think that the latest US data provides some support to the higher-for-longer theme,” said Evelyne Gomez-Liechti, a strategist at Mizuho International. “We wouldn’t be surprised to see 10-year Treasury yields testing the 5% handle again.”

In commodities, oil prices are slightly higher, with WTI rising 0.1% to trade near $84. Spot gold is flat. Bitcoin rises 1.6%.

In bitcoin, it was another session of gains for the cryptocurrency which is managing to hold onto the lions share of Tuesday's pronounced upside which saw Bitcoin briefly eclipse USD 35k. As it stands, BTC is holding just above the USD 34k mark but has been below the figure at times during both the APAC and European sessions. DTCC said BlackRock iShares Bitcoin Trust ETF added to the eligibility file in August 2023; appearing on the list is not indicative of the outcome for any outstanding regulatory or other approval, according to Reuters

Turning to the day ahead. In terms of data releases, we will have US September new home sales, the German October Ifo survey, the French Q3 total jobseekers and Eurozone September M3. We also have the Bank of Canada rate decision. Finally, there will be earnings releases from Meta, Thermo Fisher Scientific, T-Mobile, IBM, KLA, and Hilton.

Market Snapshot

• S&P 500 futures down 0.3% to 4,256.50
• STOXX Europe 600 down 0.3% to 433.95
• MXAP up 0.3% to 152.41
• MXAPJ little changed at 476.79
• Nikkei up 0.7% to 31,269.92
• Topix up 0.6% to 2,254.40
• Hang Seng Index up 0.6% to 17,085.33
• Shanghai Composite up 0.4% to 2,974.11
• Sensex down 0.7% to 64,127.98
• Australia S&P/ASX 200 little changed at 6,854.34
• Kospi down 0.9% to 2,363.17
• German 10Y yield little changed at 2.83%
• Euro little changed at $1.0593
• Brent Futures little changed at $88.07/bbl
• Gold spot up 0.1% to $1,973.03
• U.S. Dollar Index little changed at 106.29

Top Overnight News

• Japan's government is considering spending around $33 billion for payouts to low-income households and an income tax cut in a package of measures to cushion the blow to households from rising living costs. RTRS
• Hong Kong will offer HK$20,000 (US$2,556) handouts to parents of newborns and ease stamp duties on some home sales as the city struggles to revive an economy hit by a population exodus and slowing Chinese growth. FT
• Chinese developer Country Garden Holdings Co. was deemed to be in default on a dollar bond for the first time, underscoring its fall into distress amid a broader property debt crisis that’s shaken the world’s second-biggest economy. BBG
• China's new sovereign bonds will help bolster the economic recovery, China's vice finance minister Zhu Zhongming said on Wednesday, as the government's stepped-up fiscal stimulus sharply raises its budget deficit. RTRS
• Data from the Australian Bureau of Statistics on Wednesday showed the CPI rose 1.2% in the third quarter, above market forecasts of 1.1% and up from a 0.8% increase the previous quarter. RTRS
• U.S. intelligence officials said Tuesday they have determined with “high confidence” that Israel was not responsible for the huge explosion at al-Ahli Hospital in Gaza City that killed scores of people last week, offering the most detailed explanation to date of an apparent accident that sparked protests throughout the Middle East after some initial reports attributed responsibility to Israel. Washington Post
• The US is using Israel’s delay in launching a ground offensive in Gaza to rush defensive systems into the region amid growing fears that Iran and its proxies will escalate attacks on US forces and allied interests once the invasion begins, according to officials. FT
• Deutsche Bank plans to boost payouts after higher revenue from deposits and the corporate bank offset weaker trading. The lender aims to return a substantial part of additional capital to investors as it sees further revenue growth next year, said CEO Christian Sewing. More job cuts are also in the cards. BBG
• House Republicans nominated Trump ally Mike Johnson of Louisiana as their latest choice for speaker. Earlier, Tom Emmer ended his bid after Donald Trump came out against his candidacy. A broader floor vote, in which Johnson needs a simple majority, is planned for noon. BBG

A more detailed summary of overnight news courtesy of Ransquawk

APAC stocks traded mixed following a firmer lead from Wall Street as eyes turned to earnings from heavyweights Microsoft and Alphabet. Shares of the former rose 3.9% and the latter tumbled 5.9% with cloud growth in focus. ASX 200 slipped into the red after Aussie CPI topped expectations across the board, which led to hawkish revisions to some analysts' RBA calls. Real Estate led sectoral losses, but the index was cushioned by outperformance in its Mining sector. Nikkei 225 was supported by recent JPY weakening as export-related sectors outperformed with some potential tailwinds after Bloomberg sources yesterday suggested that the BoJ saw little need to change its "will not hesitate to take additional monetary easing measures" forward guidance. Hang Seng and Shanghai Comp surged at the open with sentiment in the region boosted by reports that Chinese President Xi made an unprecedented visit to the PBoC in a "sign of focus on the economy." Hong Kong markets outperformed as large-caps posted gains between 4-6%, and tech also felt some tailwinds from Microsoft's earnings and guidance.

Top Asian News

• Hong Kong is to cut the home purchase tax by half to 7.5%, according to local press Sing Tao.
• Hong Kong Leader Lee said Hong Kong is to adjust property cooling measures to revive the city's real estate market; scrap stamp duty for selling second homes after two years; to reduce buyer's stamp duty to 7.5% from 15%. Hong Kong Leader Lee said Hong Kong is to reduce the stamp duty of stock transactions to 0.1% from 0.13%
• Chinese Vice Finance Minister said the usage of new sovereign bonds can drive up domestic demand actively and further consolidate economic recovery. Government debt level still within reasonable range despite a modest rise in budget deficit ratio this year. China will watch the macro economy and bond market closely to ensure smooth bond issuance and avoid leaving the funds idle.
• PBoC set USD/CNY mid-point at 7.1785 vs exp. 7.3213 (prev. 7.1786)
• PBoC injected CNY 500bln via 7-day reverse repos with the rate at 1.80% for a CNY 395bln net daily injection.
• ANZ Bank economists have changed their call on RBA rates and now see a 25bps hike to 4.35% in November, according to Reuters.
• Australian Treasurer Chalmers said while inflation in Australia is moderating overall, it is proving to be more persistent, according to Reuters.
• Country Garden (2007 HK) default on a USD bond has been declared for the first time, via Bloomberg.
• China's cabinet has restricted 12 high risk regions from taking on new debt to finance certain infrastructure projects, according to Reuters sources. Earlier in the week, China said it is to ensure outstanding local govt debt does not exceed approved quotas, via State Media.

European bourses reside in the red after a particularly busy morning of corporate updates, Euro Stoxx 50 -0.4%, and with broader macro drivers somewhat lacking thus far. Sectors are being dictated by earnings with Food, Beverage & Tobacco outperforming post-Heineken, Banking torn between Deutsche Bank and Lloyds while Kering weighs on Consumer names. Elsewhere, ASM International is among the best performers in the Stoxx 600 post-results. On the data front, better-than-expected German Ifo numbers sparked fleeting upside but have been unable to offset the pressure and general tone after the region's Flash PMIs. Stateside, futures are also in the red with the ES -0.4% & NQ -0.6% given the above and following after-market earnings from Microsoft (+3.6% pre-market) and Google (-6.8% pre-market), with the latter weighing on equity performance. Action which was exacerbated just after the European cash open following a bout of upward momentum in global yields.

Top European News

• German Ifo Business Climate New (Oct) 86.9 vs. Exp. 85.9 (Prev. 85.7, Rev. 85.8); See slight growth within Germany in Q4. Services are stabilising the economy. ECB could have room to cut interest rates in H2-2024. Little reason for any more ECB hikes.
• Current Conditions New (Oct) 89.2 vs. Exp. 88.5 (Prev. 88.7); Expectations New (Oct) 84.7 vs. Exp. 83.3 (Prev. 82.9, Rev. 83.1)

FX

• Buck rotates 360+ degrees as DXY breaches Monday peak and eclipses best from last Friday between 106.130-500 parameters.
• Aussie pops post-hot inflation metrics, but AUD/USD hits resistance bang on 0.6400 before fading.
• Euro briefly boosted by above forecast Ifo survey findings, but EUR/USD tops out just above 1.0600.
• Franc retreats through 0.8950 as Swiss investor confidence deteriorates markedly.
• Sterling stares at 1.2100 vs resurgent Dollar and Yen faces another test of 150.00, Loonie straddles 1.3750 ahead of BoC.

Fixed Income

• Bonds lose early bullish momentum irrespective of strong-to-solid demand for UK, German and Italian issuance.
• Bunds retreat from 129.02 to 128.32, Gilts pare gains within a 93.08-92.63 range and T-note reverses to 106-05 from 106-18 ahead of US housing data, 5-year auction and Fed Chair Powell.

Commodities

• A limited session for the complex; the mentioned Ifo release sparked only fleeting action with the crude benchmarks in relative proximity to Tuesday's troughs and almost entirely disregarding the Energy Inventory data overnight.
• Currently, WTI and Brent Dec'23 contracts are towards the mid-point of respective USD 83.16-84.01/bbl and USD 87.55-88.50/bbl parameters.
• Spot gold is flat on the session as we await fresh macro drivers in a schedule dominated by earnings while base metals attempt to inch into the green but given the lack of drivers and modest USD bid have struggled to make any real headway.
• US Energy Inventory Data (bbls): Crude -2.7mln (exp. +0.2mln), Gasoline -4.2mln (exp. -0.9mln), Distillate -2.3mln (exp. -1.2mln), Cushing +0.5mln.
• China state planner said China is to cap crude oil processing capacity at 1bln metric tons by 2025. Refineries of 10mln metric ton capacity to account for 55% of capacity. Promote upgrading and optimisation of refineries, and accelerate the elimination of small and outdated plants, according to Reuters.
• Fitch says Chinese aluminium supply is likely to tighten next year or so, which could potentially drive up average selling prices and producer profit margins.

Geopolitics - Israel-Hamas

• Israeli occupation forces stormed the Burqin town, south of Jenin in the West Bank, according to Al Jazeera. Two explosions are heard on the outskirts of Jenin refugee camp in the West Bank, according to Al Jazeera. Israeli army storms the eastern area of Nablus city in the West Bank, according to Sky News Arabia citing Palestinian media
• The Arab draft resolution calls for an immediate ceasefire in Gaza and the cancellation of the order issued by Israel to civilians to evacuate the northern Gaza Strip and move towards the south, according to Sky News Arabia.
• Kuwait's representative to the Security Council said a Palestinian state must be established on the 1967 borders, according to Sky News Arabia.
• Lebanon's representative to the Security Council said a Palestinian state must be established on the 1967 borders with East Jerusalem as its capital, according to Sky News Arabia.
• S&P affirmed Israel at "AA-"; downgraded outlook to negative on geopolitical risks.

Geopolitics - Other

• US is reportedly using Israel’s delay in launching a ground offensive in Gaza to send defensive systems into the region amid growing fears that Iran and its proxies will escalate attacks once the ground offensive begins, according to officials cited by the FT.
• Two dozen American military personnel were wounded last week in drone attacks at US bases in Iraq and Syria, according to NBC News.
• Chinese President Xi said China is willing to manage differences with the US and work together to respond to global challenges, via state media, according to Reuters.

US Event Calendar

• 07:00: Oct. MBA Mortgage Applications -1.0%, prior -6.9%
• 10:00: Sept. New Home Sales MoM, est. 0.7%, prior -8.7%
• 10:00: Sept. New Home Sales, est. 680,000, prior 675,000

DB's Jim Reid concludes the overnight wrap

When 10% of the market cap of the S&P 500 reports after the closing bell, across just two companies, then that’s the only place to start this morning. Microsoft saw its shares rise +3.95% in after-market trading as revenues of $56.52 billion (+13% y/y) beat estimates of $54.54 billion and EPS came in at $2.99 (vs. $2.65 expected). The beat comes on the back of recovering cloud-computing growth with corporate customers spending more than expected. The other megacap, Alphabet, missed on their cloud revenue estimates at $8.4bn (vs. $8.6bn) with the share price falling -5.93% after hours as operating income and margins both surprised slightly to the downside. In overnight trading, S&P 500 (-0.23%) and NASDAQ 100 (-0.43%) futures are dipping after yesterday saw the S&P 500 (+0.73%) climb after 5 days of losses. As we'll see later China related risk is climbing after yesterday's surprise fiscal package.

Prior to the late results, bonds again whipped around yesterday but in a smaller range than in previous days. The biggest move came from 2yr US yields which rose +6.5bps with 10yr and 30yrs falling -2.7 and -6.1bps respectively and thus continuing the flattening trade this week after the dramatic steepening at the end of last week post Powell's speech late on Thursday. 2s10s finished yesterday at -29.3bps, largely reversing the post Powell steepening. We did get as flat as -11.5bps late-morning European time on Monday. So some wild swings.

Much of the discussions yesterday surrounded the transatlantic differences in the global flash PMIs with the US leading the way even if the composite came in only a point above the 50-point line that demarcates between expansion and contraction at 51.0 (50 expected and 50.2 last month). US services surprised to the upside at 50.9 (vs 49.9 expected), up from 50.1. In terms of manufacturing, the release rose to 50.0 (vs 49.5 expected) from 49.8. The release did see promising titbits on inflation, noting that the survey’s selling price gauge was now close to its pre-pandemic long-run average, perhaps more consistent with headline inflation dropping near to the Fed’s 2% target. It was noted that tensions in the Middle East did pose a risk to both growth and inflation, but in sum, the US PMI numbers remain resilient .

Markets subsequently dialled back their expectations of rate cuts in 2024. December 2024 pricing rose +10.5bp, bringing the expected rate to 4.66%, echoing the ‘higher for longer’ mantra of recent Fedspeak.

In Europe, both the ECB’s Q3 Bank Lending Survey (BLS) and the October flash PMIs delivered a concerning signal on the euro area growth outlook. The BLS results demonstrated only a marginal improvement in the last quarter’s credit conditions and again fell below the optimistic expectations of European banks from the last quarter. In fact the gap this quarter to what was expected was the largest on record.

Turning to the PMI’s, the Euro Area composite result fell beneath expectations at 46.5 (vs 47.4 expected), down from 47.2 in September. The decline was driven by both services and manufacturing, which printed below expectations at 47.8 (vs 48.6 expected) and 43.0 (vs 43.7 expected) respectively. Taken together, this reduces the probability of an additional rate hike by the ECB and raises the risk of a mild recession in the second half of 2023, alongside a greater likelihood of the ECB cuts beginning before that of the Fed. If bank lending expectations prove correct the PMIs are probably at the right level now. If they again prove too optimistic it leaves the prospect of further PMI declines and negative growth. See Peter Sidorov’s report on both releases here.

We also heard from the ECB’s President Lagarde, who was reported positing to presidents of the European Commission that the central bank’s fight against inflation was tracking well. Lagarde also stated that the euro-zone will stagnate over the next quarters, even as risks to prices become more balanced. However, coverage of the meeting highlighted that the ECB may need to act further if the delay to a fiscal overhaul necessitates it. Against this backdrop, 10yr German bund yields fell -4.6bps to 2.83%, while OATs (-3.0bps) and BTPs (-1.3bps) saw smaller rallies .

Prior to the after the bell results, the S&P 500 rose +0.73% on Tuesday, ending its five-day losing stream, with gains driven by telecoms (+5.84%), utilities (+2.57%), autos (+1.61%), and semiconductors (+1.48%%). Regarding semiconductors, after the close Texas Instruments (-4.5% in after-market trading) announced a lower-than-expected revenue target for the next quarter. This is important as the company is often watched as an industry bellwether given its broad range of customers. The FANG+ index of megacap stocks increased +1.24% ahead of the tech results .

In European equities, the STOXX 600 relatively underperformed, up a more modest +0.44%, with banks (-0.97%) the big laggard after the ECB lending survey results. The rally was led in part by defensives like utilities (+1.72%) and consumer products (+1.69%).

In the geopolitical sphere, we had comments from a couple of political leaders on the Middle East tensions. French President Macron visited Israel on Tuesday, stating that France would “share with Israel [the] challenge of having to deal with hostages” and called for an international coalition to fight Hamas. At the same time, Macron warned other Iranian-back militant groups to not wage war on new fronts. Israeli Prime Minister Netanyahu also released several comments, emphasising that once the conflict ceases, no one will live “under Hamas tyranny”, but warned that the war might take time. With few material developments in the conflict on the ground, concerns over oil supply continued to relax. Brent crude dropped -1.96% to $88.07/bbl, and WTI crude -2.05% to $83.74/bbl, in the third consecutive day of losses. Gold finished up +0.20% at $1,974.96/ounce.

Yesterday, Chinese President Xi announced additional fiscal support through the issuance of $137 billion in additional sovereign debt. The fiscal deficit was raised to 3.8%, well above the 3% target set in March that was generally considered a limit. It is unusual for the Chinese government to adjust its budget mid-year, clearly demonstrating support of the economy as it rises out of its trough, and to achieve a 5% growth in 2023. See our economists' review of the stimulus package here. It was also reported that President Xi had made his first known visit to the central bank since he became president over a decade ago. The details of the meeting were not publicised but the visit is in line with the government’s efforts to strengthen the economy and stabilise markets.

Chinese stocks are driving the rally in Asia with the Hang Seng Tech index (+3.07%) emerging as the best performer across the region powered by technology stocks while the Hang Seng (+1.82%), the CSI (+0.86%) and the Shanghai Composite (+0.54%) are also moving higher following the Chinese government’s stimulus plan to support the economy. Elsewhere, the Nikkei (+1.30%) is extending its gains while the KOSPI (-0.45%) is trading in the red in early trade.

We have data from Australia showing that inflation quickened in the September quarter, rising +1.2% q/q (v/s +1.1% expected), up from +0.8% in the June quarter thus increasing the probability of a rate hike in November. The annual pace of inflation slowed to +5.4%, down from +6.0%, but came above forecasts of a +5.3% gain. The Australian dollar moved upwards following the CPI data advancing + 0.71% to touch a high of 0.64 against the dollar before settling at 0.638 as we go to press. Meanwhile, yields on the 10yr Australian government bonds (+4.7bps) moved higher to trade at 4.74%.

In other news from yesterday, we had the release of the Richmond Fed manufacturing index survey, which posted in line with expectations at 3, down from 5 in September, but still at a 12-month high. Business conditions as measured by the Richmond Fed fell from -5 to -15. Over the Atlantic in Europe, we had the German November GfK consumer confidence result. This slipped beneath expectations to -28.1 (vs -27.0 expected), from -26.7, as German economic weakness persists. In the UK, the composite PMI index rose a tenth to 48.6 (vs 48.5 expected) due to strength in manufacturing.

Now turning to the day ahead. In terms of data releases, we will have US September new home sales, the German October Ifo survey, the French Q3 total jobseekers and Eurozone September M3. We also have the Bank of Canada rate decision. Finally, there will be earnings releases from Meta, Thermo Fisher Scientific, T-Mobile, IBM, KLA, and Hilton.