Overview: Led by a dramatic recovery in US stocks, global equities are moving higher today. Before last week, decline, the US stock market lacked breadth, but not only did the S&P 500 and Nasdaq post their biggest advance in several months, but the small-cap stocks in the Russell 2000 had their best day in a couple of years. Asian equities followed suit, with the main equity market in Japan, Australia, Korea, and Singapore rising more than one percent. The MSCI Asia Pacific Index rose in back-to-back sessions for the first time in nearly three weeks. Although the Shanghai Composite gains were not particularly large (~0.6%), the recovery from new four-year lows may have signaled a reversal. European shares are posting more modest gains, and the Dow Jone Stoxx 600 is higher for the third consecutive session (~0.25%), led by information technology and materials. US shares are flat and may need to consolidate after yesterday’s sharp advance. The recovery in global shares is not sapping the bond market and ten-year benchmark yields are mostly one-to-two basis points lower. The US dollar is narrowly mixed against the major currencies, where the Antipodean currencies and Scandis are firmer. Brexit concerns and a soft inflation report are weighing on sterling. Oil prices are firm after the API estimated an unexpected 2.1 mln barrel draw of US oil inventories. It was the first reduction in four weeks. The EIA was expected to report a 2.5 mln barrel build today. 

Sterling: There are three developments to note. First, although little progress has been reported on the divorce proceedings, the UK and EU still seem close, and after the summit concludes, negotiations will continue. The top negotiator for the EC reportedly offered the UK a full-year extension in exchange for accepting a two-tier backstop to avoid a hard border between Northern Ireland and the Republic. Second, the UK’s September consumer inflation was weaker than expected. The preferred CPIH, which includes owner-occupied housing costs, slowed to 2.2% from 2.4% and matches the lowest of the year. CPI itself eased to 2.4% from 2.7%, and core rate moderated to 1.9% from 2.1%. Separately, the UK reported its house price index slowed to 3.2%, the weakest in five years. London house prices were the weakest, slipping 0.2%.UK short-term rates are marginally lower. Sterling is finding support near $1.3120, ahead of the week’s low of $1.3080. There is an option for nearly GBP500 mln at $1.3180 that will be cut today, and there is a 430 mln euro option struck at GBP0.8800 that also expires.