No Overridng Theme Visible In Monday's Capital Markets

The US dollar is mixed near midday in London. The euro has steadily climbed to poke through $1.34 and is the strongest of the major currencies. Sterling is heavier, mostly it appears as a function of the cross against the euro. The yen has seen a mostly softer bias. Even the dollar-bloc itself is narrowly mixed, with the Australian dollar a bit softer and the New Zealand and Canadian dollars slightly firmer.

Asian currencies were mostly lower, with the Indian rupee the hardest hit (-1.3%) amid a continued sell-off in local shares (fifth consecutive session). Foreign investors have bought around $5 bln of Indian shares since early September, helping Indian shares recover 22% since the August lows and helping the Sensex be the best performer among the BRICs this year. The more accessible emerging market currencies, like the South African rand,Turkish lira and Mexican peso are narrowly mixed.

Equity markets are generally slightly firmer. The MSCI Asia Pacific Index managed to gain about 0.2%, through the MSCI Emerging Markets Index is slightly lower. European shares are about 0.25%, led by technology and health care, though telecom, basic materials and consumer services are drags.

Asian yields are higher, as if playing a little catch-up to the sharp increase in US yields following the jobs report before the weekend. European bonds, which were dragged lower by US Treasuries previously are paring a little of those losses.

There are three price developments to note. First, French bonds continue to shrug off the S&P's downgrade to AA. The benchmark 10-year bond yield is off 1.5 bp today, in line with Germany's. Second, Portugal seems to be reacting more positively to Moody's outlook upgrade to stable from negative and the 10-year yield is off nearly 11 bp today, though the credit default swap has barely changed.

Third, UK gilts are under-performing with the benchmark yield up a little more than 2 bp. The implied yield on short-sterling futures is 1-2 ticks higher on next year's contracts and 3-5 bp on the 2015 contracts. This is an important week for the UK, with employment, consumer prices, retail sales, and arguable most importantly, the BOE's Quarterly Inflation Report, which is expected to see the upward revisions in growth forecasts and downward revisions to unemployment forecasts, which would seem to encourage ideas of a rate hike prior to the 2016 time frame BOE Governor Carney has previously indicated.

New developments have been relatively scarce today. In terms of data, three items stand out. First, Japan reported a somewhat larger than expected current account surplus (JPY587.3 bln) in September on an unadjusted basis. The seasonally adjusted balance slipped back into deficit. We note the seasonally adjusted deficit in September 20111 was also in deficit, but that is not what we think is the true signal. We continue to expect Japan's investment income surplus to offset the trade deficit. The investment income surplus was bolstered by larger dividend payments and interest on bond investments.

Second, Norway's CPI data will reinforce expectations that policy is on hold. The Norges Bank meets next in early December. Rates will likely remain on hold (with the deposit rate at 1.5%) until at least the middle of next year. Headline CPI eased to 2.4% form 2.8% in September, largely due to base effects. The underlying rate rose to 1.9% from 1.7%.

Third, Italy reported a 0.2% rise in September industrial production, while a news wire survey showed a consensus forecast of 0.3%. The difference arguably was offset by the August revision to -0.2% from -0.3% initially. The year-over-year decline though eases to 3.0% from 4.6% in August. Some of the details of the report, including a 1.6% rise in consumer good production and a 1.4% rise in energy output seem promising, but when the preliminary Q3 GDP is reported on Thursday, the risk is for the Italian economy to have contracted for its ninth consecutive quarter, even if just barely.

With the US Treasury market closed in NY today and a partial holiday nationally, look for consolidation to be the main feature of the North American session.