Futures Halt Three-Day Rally, Drop On Energy Weakness, IBM Earnings

After yesterday’s closing ramp “prudently” just ahead of an abysmal IBM earnings report with the lowest revenues since 2002, and the latest rally in capital markets which sent European stocks to their highest level since August on the back of a barrage of global bad data which has unleashed the Pavlovian liquidity dogs screaming for moar central bank bailouts, this morning has seen a modest decline in the Stoxx 600 driven by energy names, while S&P500 futures are set to open lower on IBM’s disappointment at least until the latest massive BOJ USDJPY buying spree sends the pair to 120 and the S&P solidly in the green. The biggest political event overnight was the Canadian election, where Trudeau’s liberals swept PM Harper from power, capping the biggest political comeback in the country’s history; the Canadian dollar is largely unchanged after initially weakening then rising.

Asian equity markets traded mixed with subdued price action due to a lack of tier 1 data or speakers . Nikkei 225 (+0.3%) outperformed lifted by gains in tech names after the 4th largest weighted stock KDDI (+6%) was supported by a favourable broker move, while ASX 200 (-0.7%) underperformed amid pressure from commodity names and losses in large banks, which face an increase in capital requirements. Shanghai Comp. (+1.1%) returned back to its old “government intervention, last-minute ramp” ways, spikinmg 1.1% in the last 30 minutes of trading, despite declines in the energy sector. 10yr JGBs tracked the rebound seen in USTs, with a better than prior 20yr JGB auction also supporting the 10yr.

European equities retraced their initial gains to trade firmly in the red (Euro Stoxx: -0.8%), weighed on my energy names in tandem with the energy complex coming off its highs while exporters were weighed on by strength in EUR. on a company specific breakdown, the likes of InterContinental Hotels (+4.7%), Actelion (+3.1%) and Whitbread (+2.0%) are among the best performers after reporting earnings premarket. In line with the pullback in stocks, Bunds have come off their worst levels since the open to trade relatively flat on the day, with macro news fairly light. While orders for UK 2065 Gilt have exceeded GBP 16.5b1n, with price guidance set at 1.5 bps over 2068 Gilt.

The European session kicked off seeing volatility in FX markets, with GBP/JPY breaking above its 200 DMA, with the upside also attributed to by some desks to a touted large order in the cross. The initial upside in GBP/JPY filtered through to both GBP/USD and USD/JPY as well as commodity currencies. This saw AUD build on its gains from overnight on the back of the neutral RBA minutes from overnight and aided CAD in paring back some of the losses seen after the results of the Canadian election showed a victory for the Liberals, although CAD went on to see weakness heading into the North American crossover.

RBA Minutes from October 6th meeting stated that economic and financial conditions are to be considered in the RBA’s policy stance. Members also stated that earlier rate cuts were supportive of aggregate demand and that the RBA expects Q3 GDP to improve from Q2. (BBG/RTRS)

The energy complex heads into the NYMEX pit open relatively flat after paring its upside from overnight after yesterday’s comments after from Libya and Iran regarding prospects of increased output. This comes ahead of API crude oil inventories (Prey. 9300K), which are set to be at 2135BST/1535CDT.

In the metals complex, gold has come off overnight lows, trading in close proximity to its 200 DMA at 1175.70. Elsewhere, copper prices were weaker amid continued concerns over global demand and increased Chinese production of the metal, while iron ore remains range bound with prices failing to be bolstered following a 4.4% decline in China iron ore output last month.

On today’s US docket we have September housing starts and building permits data as the notable releases, while Dudley and Powell are due to speak at the NY Fed Conference at 9:00 am, shortly followed by Fed Chair Yellen at 11:00 am BST who is scheduled to make brief opening remarks at an induction ceremony. Corporate earnings will again be closely watched with 22 S&P 500 companies due to report including Verizon, Yahoo and United Technologies. In Europe we’ve got 6 Stoxx 600 companies set to report. Today’s large cap US earnings include Verizon, United Technologies, VMware, Bank of New York Mellon, ACE, Travelers Cos, Lockheed Martin, Yahoo, Discover Financial Services, Chubb, Chipotle and Illumina.