Investors have mildly responded to the tragic developments in Paris. Equities tumbled in Asia, with the MSCI Asia-Pacific Index shed more than 1%, and the euro was briefly pushed below $1.07.The dollar fell to almost JPY122.20. US Treasury yield slipped around 3 bp. However, the markets have since stabilized.  

The euro remains soft, but it has held above $1.07 in the European morning. The dollar has rebounded back to the pre-weekend high near JPY123.US Treasuries are little changed, and European stocks are higher, with the Dow Jones Stoxx 600 up around 0.25% near midday. 

The S&P 500 closed poorly before the weekend, and this would have likely taken on toll on Asian shares in any event. The divergence meme had left the euro vulnerable after the short-squeeze lifted it briefly above $1.08, almost retracing 38.2% of its loss since the FOMC meeting on October 28.The US-German two-year interest rate differential firm, less than a single basis point from the multi-year high set late last week. Several ECB officials will be speaking today, and last week’s Q3 GDP estimate was somewhat disappointing, and the uptick in the preliminary CPI to 0.1% year-over-year (with the core being lifted to 1.1% from 1.0%) is hardly sufficient to move anyone’s needle.  

Draghi has indicated that all options are on the table for the December 3 meeting. This includes not only extending QE from its soft initial end date, September 2016, but also potentially a wider range of assets, and increased purchases, as well as a deposit rate cut.A cut in the deposit rate serves two purposes.It would likely increase the range assets that can be bought.It acts as a stimulus in its own right. Note that a recent ECB survey found most banks admitted to not using QE funds for making new loans.   

Japan reported Q3 GDP contracted 0.2%. While this was a bit more than the consensus expected, Q2 GDP was revised up to -0.2% from -0.3%.Many are claiming this is a recession.We point out that there is not agreed upon definition of a recession, and many have made a fetish out of the two consecutive quarter rule of thumb.In the 19th century, the end of the business cycle was called, crisis or panic, and then the Great Depression.Going forward politicians and economists wanted to differentiate the end of a normal end of a business cycle from the Great Depression; hence recession.