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While U.S. cash markets will be closed to mark the death of President George H. W. Bush, S&P futures were open and rebounded modestly from yesterday's furious selloff, rising 0.5% after yesterday's 3.2% drop, as "Tariff Man" Trump said he sees a China trade deal coming "either now or into the future"...

... while European and Asian stocks trimmed losses after China pledged to start delivering on trade agreements reached with America, provide a modest risk backstop.

China’s announcement, another twist in the trade war saga, was a much-needed dose of positive news, as it ended days of silence from the Asian nation following a weekend meeting between Presidents Donald Trump and Xi Jinping. Upbeat statements from Trump had not been immediately matched by Beijing, helping fuel the equity tumult which sent US stocks plunging over 3% on Tuesday.

On Wednesday morning, a happy Trump tweeted an excerpt from a Bloomberg article according to which "China officially echoed President Donald Trump’s optimism over bilateral trade talks" and noting that "Chinese officials have begun preparing to restart imports of U.S. Soybeans & Liquified Natural Gas, the first sign confirming the claims of President Donald Trump and the White House that China had agreed to start “immediately” buying U.S. products."

Global markets were left reeling after Tuesday’s steep sell-off in New York, but nerves steadied after China’s Commerce Ministry said on Wednesday morning that Beijing will start to "quickly implement" specific items where there’s consensus with the U.S. and will push forward on trade negotiations within the 90-day “timetable and road map.”

Asian stocks slid across the board on Wednesday, dragged down by Wall Street’s tumble as sharp declines in long-term U.S. Treasury yields and resurgent trade concerns stoked investor worries about global economic growth. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.3 percent.  The Shanghai Composite Index slipped 0.6% and Japan's Nikkei dropped 0.5 percent, but rebounded from session lows. Australian stocks lost 0.8%, pressured by global losses. The mood further soured after data showed Australia's third-quarter growth fell short of expectations. The Australian dollar D4 was down 0.7 percent at $0.7288.

Worries about U.S. bond markets signaling an impending recession, and a still rumbling trade war between the world’s top two economies, sent European shares to a 2 week low, yet while the Stoxx Europe 600 Index slumped as much as 1.2%, hitting the lowest since Nov. 23, and traded down 0.7% last, that was far less than the 3.2% plunge recorded by the S&P 500 a day earlier. Financials were the biggest drag on European shares as investors dumped sectors highly sensitive to economic growth. Europe’s bank index fell 1.7%, while oil and mining sectors fell 1.5 percent each.

“Cyclicals are really dependent upon accelerations in growth, they’re very real economy sensitive for higher revenues,” said John Ricciardi, CEO and lead portfolio manager at Kestrel Investment Partners. The inversion of parts of the U.S. yield curve means investors are beginning to panic about future growth and inflation, Ricciardi added.

Chipmakers AMS, STMicroelectronics and Infineon fell 1.2 percent to 4.5 percent following a sharp drop in Apple and chip stocks on Wall Street, while German carmakers outperformed the DAX as investors digested what seemed a relatively positive outcome from auto executives’ meeting at the White House. President Trump pressed carmakers to increase investments in the United States, something the executives said they planned to do but wouldn’t be able to if the administration went ahead with threatened tariffs.

Concerns about slowing U.S. growth have accelerated the flattening of the yield curve, which has preceded the last seven US recessions. “The market decline in the U.S. overnight and the flattening of the yield curve reflect that economic growth momentum is taking over as the primary concern for investors, even as the latest ISM manufacturing data is holding up well,” wrote Tai Hui, market strategist at J.P. Morgan Asset Management. On Wednesday, the Treasury cash/futures will remain closed.

The German curve steepened slightly, yields lower by ~1bp across the curve and touching the lowest since mid-2017 amid the risk-off mood, while Italian bonds jumped. UK Gilt yields rose by ~4bps as the curve bear flattens, widening 4.5bps to Germany after yesterday’s Brexit votes. BTPs push higher, supported by decent demand at the Spanish bond auctions and a turnaround in FTSE MIB off the lows.

The dollar initially advanced versus all major peers before reversing and turning slightly lower on the day. The Aussie dollar led losses among majors after 3Q GDP data missed forecasts, adding to fears of a global slowdown. The pound climbed as investors digested legal advice over Prime Minister Theresa May’s Brexit deal, which confirmed that the so-called customs backstop could remain “indefinitely.”

In the latest Brexit news, legal advice has been published states "backstop could mean the UK is subject to protracted and repeating rounds of negotiations"; according to BuzzFeed. Adding that “these talks could still be taking place years later, and the UK would be breaking the law if it left the backstop without the EU’s agreement”. Sky News reported that the UK does not need to pass legislation to revoke Article 50. Telegraph's Rothwell Tweets "EU sources adamant that there can be no Withdrawal Agreement without a fully legally operational backstop...even if MPs reject the deal and/or May resigns". UK Trade Secretary Fox states that in the wake of last night's vote in Parliament, there is a chance that there might not be a Brexit.

In commodities, WTI (-0.2%) and Brent (-0.3%) bounced off lows as the latest OPEC+ meeting goes underway, with the Omani Oil Minister hinting at a 3-6 month production cut ahead of tomorrow’s key OPEC meeting. Furthermore, The WSJ reports that OPEC delegates are concerned that Saudi and Russia are making output agreements without input from OPEC; it was also stated that the Russia-Saudi relationship was a key factor in Qatar’s withdrawal. Markets will be looking ahead to the postponed EIA weekly data coming out tomorrow following the unexpected API build, alongside the OPEC meeting with emphasis on any decision to cut oil production that may arise. Reports today by RIA stating that OPEC wants Russia to reduce oil output by a minimum of 300k BPD. However, TASS has reported that Russia is only seeking a symbolic production cut which follows previous reports that they would only agree to a 140k BPD cut. Elsewhere, Libya’s NOC stated that all port terminals are shut due to bad weather, with storage capacity at Zawiya (usual production of 120k BPD) affected and the 300k BPD Sharara oil field production to be cut by 50% tomorrow morning.

Gold has weakened from the 5-week high reached in the previous session, as the dollar is marginally firmer. The majority of base metals have fallen due to being weighed on by US-China trade tensions following US President Trump commenting that there will have a real deal or no deal at all with China.

Treasury markets are closed for a day of mourning in the U.S. in honor of ex-President George H.W. Bush. Below is a schedule of US market closure on Dec. 5

  • CME Globex trading hours for Interest rate products will close at their regular time on Tuesday Dec 4th and will not reopen until their regularly scheduled time on Wednesday Dec 5th 2300GMT/1700CST.
  • Both the open outcry and CME Globex trading session for FX products will have normal trading hours on Wednesday Dec 5th
  • CME Globex trading hours for CME Group U.S.-based equity products on Wednesday Dec 5th will include an abbreviated
  • session, closing after overnight trading at 1430GMT/0830CST and reopening at their regularly scheduled time on Wednesday Dec 5th at 2300GMT/1700CST
  • New York Stock Exchange, NYSE American, NYSE National, NYSE Arca and NASDAQ have announced that they will be closed for trade on Wednesday Dec 5th
  • ICE Futures U.S is open for trading, Wednesday Dec 5th will be a regular ICE Clear US business day

Market Snapshot

  • S&P 500 futures up 0.4% to 2,713.75
  • STOXX Europe 600 down 0.7% to 355.78
  • MXAP down 1% to 153.65
  • MXAPJ down 1.3% to 495.24
  • Nikkei down 0.5% to 21,919.33
  • Topix down 0.5% to 1,640.49
  • Hang Seng Index down 1.6% to 26,819.68
  • Shanghai Composite down 0.6% to 2,649.81
  • Sensex down 0.8% to 35,836.22
  • Australia S&P/ASX 200 down 0.8% to 5,668.35
  • Kospi down 0.6% to 2,101.31
  • German 10Y yield fell 0.8 bps to 0.255%
  • Euro down 0.02% to $1.1341
  • Italian 10Y yield rose 1.0 bps to 2.789%
  • Spanish 10Y yield fell 1.0 bps to 1.475%
  • Brent Futures down 1% to $61.45/bbl
  • Gold spot down 0.2% to $1,236.00
  • U.S. Dollar Index up 0.03% to 97.00

Top Overnight News

  • China said Wednesday the trade meeting with the U.S. was “very successful” and is “confident” of implementing the results agreed upon at the talks, but didn’t provide any further details on the outcome
  • Federal Reserve Bank of New York President John Williams gave an optimistic review of the U.S. economy, reiterated his support for further gradual interest-rate increases and expressed no concern that market participants have dialed back expectations for policy tightening in 2019
  • Australia’s economy slowed last quarter as commercial construction fell and household spending slowed, casting doubt on the central bank’s outlook and all but ruling out an interest-rate increase next year
  • Bank of Japan Deputy Governor Masazumi Wakatabe gave a more cautious view on the outlook for prices as economists increasingly see inflation weakening over the next year
  • With less than 48 hours to go before a critical OPEC gathering, Saudi Arabia and Russia are set to meet in Vienna for a make-or-break preparatory meeting on Wednesday that’s going to set the direction for the oil market
  • Italy’s Di Maio says ’climate is changing’ in budget talks with EU
  • U.K. Trade Sec Fox says possibility of no Brexit if parliament rejects deal
  • Trump believes will make China deal ’either now or into the future’
  • China calls U.S. trade meeting ’very successful’; will quickly implement
  • OPEC+ nations didn’t yet discuss proposals to cut production: Kuwait Min

Asian stock markets were pressured following the sell off on Wall Street where doubts regarding a US-China trade deal saw all US majors drop over 3% in which the S&P 500 fell below its 200DMA and DJIA lost near 800 points on the day. This weighed heavily on the China-sensitive sectors in the US such as Industrials, Materials and Tech, while Financials took the biggest hit amid a slump in yields and ongoing yield-inversion. ASX 200 (-0.8%) was led lower by tech and financials with disappointing Q3 GDP adding to the downbeat tone, while Nikkei 225 (-0.5%) also finished negative albeit off worse levels as USD/JPY attempted to nurse losses. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-0.6%) conformed to the downbeat tone but with the declines in the region less drastic than the bloodbath observed stateside following stronger than expected Chinese Caixin Services PMI which jumped to a 5-month. Furthermore, there was a seemingly concerted effort by some officials to dispel the trade-related doubts in which White House Trade Adviser and ‘China hawk’ Navarro suggested to give talks a chance and that it is premature to lose faith in US-China discussions, while Mofcom also declared the US-China trade meeting was successful although Trump remained unrelenting and reiterated his threat of tariffs if they fail to reach a deal. Finally, 10yr JGBs initially rose to levels last seen over 2 years ago amid safe-haven demand and as they tracked the upside in T-notes. However, prices then pulled back to return flat after the BoJ’s bond buying operation in which it upped purchases in the 10yr-25yr maturities by JPY 20bln, as the bank is on course to reduce monthly purchases of superlong JGBs by JPY 150bln if it continues at the current pace given the previously announced reduction of operations for December.

Top Asian News

  • India’s Sensex Extends Decline as RBI Holds Rates, Policy Stance
  • IPhone Lens-Maker Largan Warns of December Sales Slide
  • India Holds Interest Rates After Inflation Undershoots Forecast
  • Japan Eases Changes for Tariffs on Delayed Solar Projects

European bourses (Eurostoxx -0.9%) have followed suit from their US and Asia-Pac counterparts to trade lower across the board as the trade-inspired optimism seen at the start of the week continues to dissipate. China’s Mofcom declared the USChina trade meeting as successful, although were said to be puzzled and irritated by the Trump administration's triumphant rhetoric. This came after Trump yesterday branded himself as a ‘Tariff Man’ and also tweeted that the US will either have a real deal with China or no deal at all and that the US will levy major tariffs against imports of Chinese products if a deal is not made with China. In terms of sector specifics, all ten majors trade in the red with IT, materials and industrials lagging their peers. Downside in financial names has also been hampered by the current yield environment as markets continue to speculate over the Fed’s 2019 rate hike plans in lieu of recent comments from Fed Chair Powell and with the German 10yr yield briefly slipping below 0.25%. UK homebuilders have seen some reprieve this morning (Berkeley Group +8.1%, Taylor Wimpey +6.3%, Barratt Developments +6.5%) after Barclays highlighted the sector as a potential major beneficiary of a Brexit deal being passed in Parliament. Individual movers include Shire (+2.6%) who stand near the top of the Stoxx 600 after amid shareholder approval for their merger with Takeda Pharmaceutical. Elsewhere, broker downgrades have placed weight on names such as Hargreaves Lansdown (-3.3%), Saint Gobain (-3.2%) and Osram Licht (-1.7%).

Top European News

  • Weak Euro-Area Growth Is Here to Stay as Italy Recession Looms
  • U.K. Services Unexpectedly Weaken to Worst Since July 2016
  • Yandex Starts Selling $270 Smartphone to Rival Google in Russia
  • Telia Sells Uzbek Unit That Cost It Almost $1 Billion in Fines

In FX, AUD,NZD – AUD the major G10 underperformer in light weaker-than-expected Q3 Aussie GDP (slowest pace of growth in two years, and well below consensus) which dragged AUD/USD to sub-0.7300 levels vs. highs of 0.7356 and not far from 0.7400 in recent sessions. Meanwhile, AUD/NZD slumped through 1.0600 to circa 1.0525, to the benefit of the Kiwi that managed to maintain 0.6900+ vs. the buck.

  • GBP – Choppy trade for the Pound amid ongoing Brexit pandemonium after UK PM May suffered a hat-trick of defeats, giving more power to Parliament if her deal is voted down in next week’s meaningful vote. Cable currently trying to recover having slumped to a new YTD low yesterday at 1.2659 (ahead of the psychological 1.2650), with a rebound through 1.2700 and 1.2750, albeit amidst a generally softer USD and despite a worryingly weak services PMI (headline just above 50). Similarly, Sterling has regained composure against the EUR, with the cross back down below 0.8900 even though the single currency has pared losses elsewhere amid ECB sourced talk about discussions over further policy normalisation next year. Indeed, EUR/USD is back above 1.1350 from close to 1.1300 at one stage.
  • CAD – USD/CAD is within striking distance of 1.3300 (vs. yesterday’s lows of 1.3160) as retreating oil prices weigh on the Canadian currency with traders also eyeing the BoC interest rate decision later today. No change in the policy is expected though focus will be on the tone of the statement given the recently battered energy complex. For a more detailed preview, refer to our research suite or headline feed.
  • EM – Lira trades around the middle of a 5.4518-.3345 range vs. the Greenback after the CBRT set their inflation target at 5% (vs. November CPI at 21.62%) and pledged to do more to bring consumer prices back down, cushioning the TRY from wider bearish and risk averse sentiment.
  • DXY – Given all the above, the broad Dollar and index have handed back some of Tuesday’s pronounced gains made amidst the Wall St. selloff, and ahead of today mark of respect day for passed President George H.W Bush. DXY pivoting 97.000 within a range 97.206-96.827.

In commodities, WTI (-0.2%) and Brent (-0.3%) bounced off lows as the JMMC meeting goes underway, with the Omani Oil Minister hinting at a 3-6 month production cut ahead of tomorrow’s key OPEC meeting. Furthermore, The WSJ reports that OPEC delegates are concerned that Saudi and Russia are making output agreements without input from OPEC; it was also stated that the Russia-Saudi relationship was a key factor in Qatar’s withdrawal. Markets will be looking ahead to the postponed EIA weekly data coming out tomorrow following the unexpected API build, alongside the OPEC meeting with emphasis on any decision to cut oil production that may arise. Reports today by RIA stating that OPEC wants Russia to reduce oil output by a minimum of 300k BPD. However, TASS has reported that Russia is only seeking a symbolic production cut which follows previous reports that they would only agree to a 140k BPD cut. Elsewhere, Libya’s NOC stated that all port terminals are shut due to bad weather, with storage capacity at Zawiya (usual production of 120k BPD) affected and the 300k BPD Sharara oil field production to be cut by 50% tomorrow morning. Gold has weakened from the 5-week high reached in the previous session, as the dollar is marginally firmer. The majority of base metals have fallen due to being weighed on by US-China trade tensions following US President Trump commenting that there will have a real deal or no deal at all with China. Separately, China’s construction steel rebar is up

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 5.5%
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB's Jim Reid concludes the overnight wrap

I’m really not sure where to start today. A -3% day for US equities, the worst day for US cyclicals vs defensives since June 2016, a chaotic day for Brexit and the UK constitution but one that might be seen as a positive turning point when the dust settles, US 2s10s dipping below 10bps at one point, expectations overnight from our US economists that this cycle will last for several more years, or 10yr bund yields closing at 0.26% and within a whisker of YTD lows.

If you forgive the indulgence let’s start with a long intro about the topic de jour - namely the US yield curve. By the end of H1 2019, this current US economic expansion will become the longest on record covering 34 expansions and 33 recessions since the early 1850s. Economic cycles don’t die of old age but need a catalyst. However, given the age of this cycle it’s inevitable markets are sensitive to some of the traditional catalysts starting to signal a downturn ahead. Our favourite lead indicator for the US remains the yield curve and the sharp move over the last couple of days has certainly scared the market.

2s10s is the most followed measure (now +11bps, compared to +22bps last Friday and +78bps in February), and it has inverted ahead of every one of the last nine US recessions. However, it has taken around a year and a half, on average, between the inversion and the recession. The shortest length of time has been 9 months. So while this flattening move is worrying, it would still be consistent with average history to avoid a recession until the end of H1 2020 even if we inverted today. So this countdown clock hasn’t been started yet but it’s getting closer. With 5 year yields below 3 and 2 year yields since Monday night, we have now pressed the button on a less-commonly-followed timer clock. 3s5s and 2s5 have also inverted before each of the last 9 recessions but have taken between 18 months and 2 years to lead to the median recession.

Many prefer 3m vs 10 years as a predictor. The good news is that this curve is still at +48.6bp (even with a-14bps drop yesterday). However, we only have monthly data for 3m bills before the early 1970s, so it’s hard to repeat the same exercise comprehensively. In the 7 recessions over this later period, the 3m10y curve has again always inverted first but has a shorter lead time to recession of typically between 12-18 months.

So to sum up, the good news is that 3m10yr is a fair way from inverting but has a shorter time lag to recession than 2s10s, which is getting closer and closer to inverting. The bad news is that 2s5s and 3s5s has inverted and the countdown clock of around 2 years could justifiably be started. The fact that markets are getting so worried by the flattening is credible, but if average history repeats itself, will they really have the energy to remain permanently bearish for the next 18 months to 2 years? The alternative theory is that Goodhart’s law might apply. That is, once a market focuses on a measure specifically it ceases to be a useful lead indicator.

We appreciate that there are more sophisticated recession models and also many rebuttals as to why this time is different, but why do we think the yield curve (YC) matters? We think it helps predict animal spirits in a capitalist economy like the US. When the YC is steep economic agents and investors should be very happy to invest out the curve and in long duration economic projects as their potential returns are much higher than their funding costs. To flip this round, as the curve inverts, the same people should be more incentivised to park money at the front end at relative high (and safe) rates relative to the lower potential returns on offer further out the curve (and with risk). As such, animal spirits slowly drain away - albeit with a lag. In this cycle, academics/strategists/ economist often dismiss the YC as they feel the flattening reflects ultra-low term premium rather than signs of a slowdown ahead. So is this time different?

Our US economists think it is and still expect this expansion to last for several years and have detailed this in their 2019 outlook out overnight. They have edged their 2019 US growth number down to 2.4% but have lifted 2020 by 0.5% to 1.8% and have 2021 at 1.6%. Core PCE inflation is now expected to rise to 2.2% in 2019 and 2020, and moderate slightly in 2021. They have reduced Fed hikes for 2019 from four to three with the Fed taking a break, or pause, from their gradual quarterly pace of tightening most likely in Q3. That should be followed by one last rate increase in 2020, leaving DB terminal rate for this cycle unchanged at 3.4%. See the report for more details.

If these forecasts are correct then financial markets currently have it all wrong as there is little doubt that the curve flattening is massively scaring investors at the moment. Led by the yield curve sensitive banks (-4.74% for the worst day since February), the S&P 500 closed down -3.24% last night with the DOW (-3.10%) and NASDAQ (-3.80%) down a similar amount. Cyclical sectors overall underperformed defensives by -2.14%, which was their worst relative performance since June 2016. Prior to the sell-off accelerating, the STOXX 600 ended -0.76% while US and EUR HY spreads finished +11.1bps and +8.7bps wider respectively.

The equity carnage was severe, and there were some trade-related headlines, but the biggest story at the moment is indeed the Treasury curve. The 2s10s curve flattened fairly aggressively once again yesterday to 11.4bps (-3.3bps) – a new cycle low – after at one point dipping into single figures. The 2s5s (currently at -1.1bps) and 3s5s (-2.1bps) curves also remain inverted. The curve wasn’t helped by NY Fed President Williams’s comments, in which he gave a rosy assessment of the US economy and answered a question about the yield curve by saying “that with the economy on a very strong path with a lot of momentum, especially with some of the fiscal ... tailwinds and other factors, that further gradual increases over the next year or so still makes sense.” This supported front-end yields in a big risk off day, with the two-year Treasury yield down only -2.2bps versus the 10-year bond’s -5.6bps rally.

Getting overshadowed in the Treasury move is the fact that Bunds are amazingly down to 0.263% now following a -4.3bps rally yesterday. The May low was 0.260% so we’re now within a whisker of that and you then have to go back to June 2017 to find the next low marks. Incredible really that we’re into the last month of ECB QE, German inflation is above 2%, European growth remains above trend and Bunds are where they are.

Back to trade, the latest bump in the road came after White House adviser Kudlow told Fox News that a deal with China to lower tariffs on US-made cars “hasn’t been signed and sealed and delivered yet”. President Trump also described himself as “a tariff man” and said that tariffs are “the best way to max out our economic power.” On the other hand, he did say that “the negotiations with China have already started” and that “unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi”. The same tweet also went on to say that Lighthizer would be working closely with Mnuchin, Kudlow, Ross and Navarro “on seeing whether or not a REAL deal with China is actually possible”. So mixed messages on the likelihood of an eventual deal.

Overnight in Asia the markets are trading lower following the lead from Wall Street with the Nikkei (-0.85%), Hang Seng (-1.54%), Shanghai Comp (-0.21%) and Kospi (-0.67%) all lower alongside most markets. However, bourses are off their lows as China has finally broken its silence over the weekend thaw in the trade war. They said that the trade meeting with the U.S. was “very successful” and are “confident” of implementing the results agreed upon at the talks while adding that they will quickly start to implement specific items where there’s consensus with the U.S., and will push forward on trade negotiations with the U.S. within the 90-day "timetable and road map." Futures on S&P 500 are up +0.49% this morning.

In terms of overnight data releases, China’s November Caixin composite PMI came in at 51.9 (vs. 50.5 last month) as services PMI saw a huge upside surprise at 53.8 (vs. 50.7 expected). Japan’s November composite PMI printed at 52.4 (vs. 52.5 in last month) with the services PMI at 52.3 (vs. 52.4 in last month).

Oil traded flat yesterday but is down c. -2% this morning. We go into tomorrow’s OPEC/OPEC+ meeting up over 6% from the lows of last week. Prices had gained as much as +3.06% earlier in the session yesterday, before Saudi Arabia’s energy minister poured damp water on market optimism by saying that it is too early to confirm if OPEC and partners will cut production.

Sterling enjoyed a wild ride yesterday. The morning news on Article 50 being able to be revoked unilaterally (see below) saw a rally of +0.91% to $1.2840 before we slumped to $1.2659 on the government losing a contempt of Parliament vote over releasing full legal advice. Although a blow to the government, the more important defeat was the one that allowed amendments to be added to any “plan B” assuming the initial vote is defeated next week. Previously Parliament had a “yes/no” vote on “plan B” but now they can shape it. So a very soft Brexit is more likely. The pound recovered a touch to end the session -0.07% weaker at 1.2716.

If you weren’t already confused enough about the various permutations that Brexit could take then yesterday’s development about an advisor to the ECJ confirming that judges should allow for the unilateral revocation of the Article 50 exit clause probably did little to help. There was plenty of debate about what this really means and whilst there are still differing opinions out there, the general gist of it is that this could either allow the UK to successfully revoke Article 50 if it so desires, or even revoke it before triggering it again which in essence just restarts the two year clock on negotiations with the EU. The question now is whether or not the ruling will be backed up by ECJ judges which isn’t necessarily always the case but usually is. Assuming so, then it must imply a much much lower chance of a no-deal Brexit. Indeed DB’s Oli Harvey noted that it will mean that parliamentary amendments to the meaningful vote motion which rule out 'no deal' now can be practically applied. Previously, the problem was that 'no deal' would likely happen by default in the absence of Parliament failing to find an agreement on all other alternatives. Now that is no longer the case. So, if the judges rule with the advocate general, it is highly significant and a big surprise that has the ability to dramatically change the Brexit landscape.

Elsewhere, Italian BTPs were the exception to the global bond rally yesterday, with 10-year yields up +1.0bps as local media outlets continue to suggest that a solution to the budget standoff remains out of reach. The European Commission is reportedly asking for 12 billion euros of additional cuts to get the deficit below 2% of GDP.

In France, President Macron decided to cancel a planned increase in fuel taxes to address the apparent concerns of the “yellow vest” activists who have protested the measure. Our economists think this will push the 2019 budget deficit toward, and possibly above, 3% of GDP, compared to its target of 2.8%. Still, the medium-term reform agenda should remain unchanged, as Macron is likely to continue to attempt pension reforms next year. Yields on French OATs fell -2.7bps amid the broader fixed income rally.

In terms of the day ahead, in light of the passing of former President George H.W. Bush, both bond and equity markets are to remain closed in the US while the majority of the data releases that were scheduled have been pushed back to later in the week. Still scheduled is the latest MBA mortgage applications reading while the Fed’s Beige Book is also still scheduled for release (Fed has confirmed the release) and the Fed’s Quarles speak late in the evening. Fed Chair Powell’s speech has been rescheduled for Thursday. Meanwhile in Europe we will get the remaining November PMIs (services and composite) and October retail sales data for the Euro Area. ECB President Draghi is also scheduled to speak this morning at a banking event before fellow ECB official Lautenschlaeger chairs a panel in Frankfurt. The Bank of Canada rate decision is also today.