Eurozone economic growth slows to 0.3% in Q3

The Day So Far

The S&P had its biggest sell-off in seven weeks yesterday as the plethora of afternoon Fed speakers were suitably hawkish so as to all but confirm that a first Fed rate hike since 2006 is on the cards in December. However, as equities sold off t notes rallied a touch on the correlated risk-off but also because doubts exist about whether this is ‘one and then done’ or the start of an interest rate normalisation. We are in the camp that this hiking ‘cycle’ will likely be very slow and unlikely to challenge even the previous lowest post-WWII hiking cycle of 2.40% given the fragility of the global economic outlook and persistently low inflation.

As expected, more crude carnage yesterday following the Department of Energy inventory data, closing below $42 before rebounding mildly this morning. The International Energy Agency revealed in its monthly report today that global oil inventories breached new record levels, rising to near 3 billion barrels. The world is drowning in oil and we are staying bearish for now until there is evidence that at the very least the inventory pile-up is slowing.

Just to add to the bearish sentiment, UK Construction Output disappointed m/m (-0.20% vs. exp. 1.50%) and Eurozone economic growth slowed to 0.3% in the 3rd quarter, less than the 0.4% economists had been expecting.

The Afternoon View

Busy day for data US Retail Sales, which have disappointed this year in spite of generally healthy consumer sentiment, as well as the University of Michigan sentiment survey at 15:00 BST. We are short equities, euro and crude, continuing with our bias for the past week or so, but long t notes if risk-off develops and investors start to look beyond the December meeting and speculate on the likely trajectory of rates once the FOMC get the ball rolling in 4 and a half weeks’ time.

Another important point to watch closely this afternoon is whether crude stays below the major $42 today after the pit open. We saw yesterday how the break of that level immediately pulled equities with it, and if that level now works as resistance, we can reasonable expect further equity downside and will watch whether the August low can be breached in the coming weeks.

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