The overall theme today appears to be one of consolidation, encouraged by European data, which included a slightly higher than expected UK CPI and a considerably better German ZEW survey. Japan’s Prime Minister Abe has not disappointed the market; delaying the sales tax hike and calling for elections next month.   

Still, the major currencies are trading inside yesterday’s ranges. Core bonds are a touch firmer as is gold and oil. Equities are moving higher. The Nikkei recouped two-thirds of yesterday’s decline, and Europe’s Dow Jones Stoxx 600 is up 0.7%. The Hang Seng and the Shanghai Composite fell.  The two-day drop of the Hang Seng is the largest in nearly 2 1/2 years. International investors used their full quota (CNY13 bln) yesterday on the launch of the HK-Shanghai link, but today only CNY4.8 bln was used. The disappointment weighed on brokers and security houses.    

Separately, we note that Hong Kong officials have cleared some of the Occupy Central barriers with little fanfare.  There was not a significant confrontation in this delicate situation. The Mong Kok occupation, which has been more aggressive in recent weeks, may pose a more formidable challenge.  

Following last week’s BOE Quarterly Inflation Report that highlighted the downside risks to inflation in the coming month, the UK today reported slight higher than expected consumer prices.  The year-over-year pace rose to 1.3% while most had expected an unchanged reading at 1.2%.  Education and clothing prices were firm.  Fuels and transportation prices fell. The core rate was unchanged at 1.5%. Input producer prices fell 1.5% on the month to bring the year-over-year rate to -8.4% from -7.4% in September. Output prices fell 0.3% on the month for a -0.5$ year-over-year rate.  

We would not read too much into this data. The implied yield of the December 2015 short-sterling futures contract slipped and now is now 16 bp from last Tuesday, the day before the QIR. The OIS curve implies that the market has pushed out the first hike toward November 2015.  

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