As US traders went to bed last night, they kept one eye on what had become a traditional debate proxy, one also seen with the past two debates, namely the FX market and particularly moves for the Mexican Peso. The Peso was initially slightly weaker in the first half of the debate, but surprisingly strengthened shortly after the kneejerk drop, then faded again and at last check was precisely where it was heading into last night's debate. The modest move suggests that there’s not been a great change in view following the debate. Futures likewise failed to repeat their exuberant response from previous debates, and the E-mini was just fractionally higher.

Some commentators disagreed: "The likelihood of Donald Trump becoming President has nose-dived recently to as low as a one in eight probability ... (and) last night’s debate has not provided that game-changing moment," said Lee Hardman, a currency strategist with Bank of Tokyo-Mitsubishi in London. "The reduction in the political risk premium has helped the U.S. dollar to strengthen broadly this month." According to Reuters a win for Democrat Hillary Clinton next month is also seen as opening the way for a rise in interest rates which a number of U.S. Federal Reserve policymakers have all but promised for December.

So with the debate now out of the way, the focus for the rest of the day ahead will swiftly turn over to the ECB meeting outcome at 7.45am followed by Draghi’s press conference shortly after. As a reminder, most of Wall Street is not expecting any fireworks at the meeting. The central bank is seen leaving policy unchanged, but investors will be looking for any hints of changes to its 1.7 trillion-euro ($1.9 trillion) bond-buying program, particularly the rules governing what debt can be bought. That being said the vague speculation about the ECB wanting to rein in QE means that there will be some focus on the tone of the statement and of course any hints of tapering. On the other hand, the ECB will soon have to unveil the extension of the program set to expire in march 2017, and as DB points out this morning, the ECB needs to solve the eligibility conundrum so that’s another topic to look out for today.

“Draghi will have an expectation-management problem,” former ECB Director General for market operations Francesco Papadia said in a Bloomberg TV interview with Francine Lacqua. “If he doesn’t say anything today that may be seen as a disappointment for the market. He will be asked and will have to say something. My sense is that the ECB may be looking beyond bonds. I have in mind in particular, equities, possibly in the form of exchange-traded funds, and bank loans.”

So with the ECB on deck, here is where we stand as of this moment: European equities declined modestly before Mario Draghi gave his policy update, while investors weigh mixed earnings results. Asian stocks rise, U.S. equity-index futures are little changed. The euro touched its weakest level since July and stocks in the region fell after their first back-to-back gains in two weeks as investors speculated that the European Central Bank may lay the groundwork for future easing of monetary policy.

Overnight implied volatility on the euro against the dollar jumped to a three-month high before the ECB’s policy decision and President Mario Draghi’s explanatory briefing. The dollar rose after Federal Reserve Bank of New York President William Dudley reiterated he sees an interest-rate hike this year. Mexico’s peso reached a six-week high after the final U.S. presidential debate, although it quickly shed the gains in a curious post-kneejerk move which may have been short covering. Saudi Arabia’s bonds rose after a record $17.5 billion sale on Wednesday. European stocks fell amid mixed earnings. Oil slid back to $51 a barrel.

The Stoxx 600 slipped 0.1 percent after rising for two straight days, as investors awaited the ECB and weighed mixed earnings reports. Some notable highlights from Europe's reporting companies, courtesy of Bloomberg:

Nestle SA, the biggest component of the Stoxx 600, dropped 0.8 percent as the world’s largest food company lowered its annual sales forecast.

Publicis Groupe SA lost 5.3 percent after the French advertising firm posted third-quarter revenue that missed analysts’ estimates.

GEA Group AG sank 19 percent as the German machine maker and food processing company forecast a sales decline in 2016.

Deutsche Lufthansa AG led gains among travel-and-leisure stocks, climbing 7.6 percent after raising its profit projection.

Pernod Ricard SA climbed 2 percent and as the world’s second-largest distiller reported sales growth that beat estimates.

The MSCI Asia Pacific Index gained 0.2 percent, with a gauge of energy shares surging 0.9 percent. Japan’s Topix index rose 1 percent to record its best close since May, while Taiwan’s Taiex index climbed to a three-month high.

S&P 500 Index futures rose 0.1 percent, after U.S. equities lost 0.2 percent on Wednesday. Investors will look Thursday to data on initial jobless claims and sales of existing homes for further clues on the health of the world’s biggest economy. Earnings will also be in focus as the reporting season gathers steam. American Airlines Group Inc., Verizon Communications Inc., Microsoft Corp., and PayPal Holdings Inc. are among companies reporting Thursday.

U.S. 10Y Treasuries were little changed and yielded 1.75%. The securities have slumped in October as a bond-market gauge of inflation expectations rose to the highest in five months. The probability of a U.S. rate increase by December has climbed to 64 percent, fed fund futures indicate, from 59 percent at the end of September. “I do expect to see an increase later this year,” the Fed’s Dudley said in response to an audience question after giving a speech in New York, adding that his forecast depends on the economy staying on its current trajectory. German government bonds halted a three-day gain. The 10-year bund yield rose two basis points to 0.045 percent, after touching 0.017 percent Wednesday, the lowest since Oct. 10.

Saudi Arabia’s $5.5 billion of 10-year bonds paying 3.25 percent interest were bid at 99.60 cents on the dollar, compared with an issue price of 98.679, according to data compiled by Bloomberg.

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Bulletin Headline Summary from RanSquawk

Equities trade in a relatively tentative manner with all eyes in Europe firmly placed on the ECB rate decision and press conference

A quiet morning ahead of the ECB meeting conclusion a little after midday, with some early EUR tests on the lows, notably against the USD as the lead spot rate touched on 1.0951

Looking ahead, highlights include UK Retail Sales, ECB Rate Decision, Fed's Dudley, ECB's Draghi and BoE's Shafik

Market Snapshot

S&P 500 futures up 0.1% to 2141

Stoxx 600 down less than 0.1% to 343

FTSE 100 down less than 0.1% to 7016

DAX up 0.3% to 10672

German 10Yr yield up 2bps to 0.05%

Italian 10Yr yield up less than 1bp to 1.39%

Spanish 10Yr yield up 2bps to 1.13%

S&P GSCI Index down 0.7% to 377

MSCI Asia Pacific up 0.3% to 140

Nikkei 225 up 1.4% to 17236

Hang Seng up 0.3% to 23374

Shanghai Composite down less than 0.1% to 3084

S&P/ASX 200 up 0.1% to 5442

US 10-yr yield up 1bp to 1.76%

Dollar Index up 0.06% to 97.98

WTI Crude futures down 1% to $51.06

Brent Futures down 1% to $52.12

Gold spot up less than 0.1% to $1,270

Silver spot down 0.1% to $17.66

Global Headline News

Wells Fargo Probed for Identity Theft Over Fake Accounts: California attorney general serves search warrant on lender

Trump at Debate Won’t Say He’ll Accept Vote If He Loses: Republicans offer mixed reactions to nominee’s statement

JPMorgan Dropping China Venture as Dimon Seeks Greater Control: Seeks new partnership, greater control, person familiar says

Wal-Mart’s China Revival Strategy Calls in JD and Its Drones: Retailer to offer imported goods from its global stores: CEO

Starbucks Opening up to 1,000 Reserve Cafes in Bid to Go Upscale: Coffee chain had previously set a target of 500 locations

EBay Issues Holiday Reality Check With Lackluster Forecast: CEO says shift in marketing will take a year to pay off

Dell CEO Sees More Acquisitions, Investment in Third ‘Act’

Uber Becomes a High Schooler in IPO Prom Timeline, CEO Says

Looking at regional markets, we start with Asia where stocks traded mostly higher following the positive Wall Street where gains in oil and encouraging earnings supported risk sentiment. ASX 200 (+0.1%) was led higher by commodity names after WTI rose to its highest level since July 2015 following a DoE drawdown of 5.2mln barrels, while Nikkei 225 (+1.1%) outperformed alongside a rebound in USD/JPY. Chinese markets were mixed with the Hang Seng (+0.7%) conforming to the positive tone following another firm liquidity injection by the PBoC, while the Shanghai Comp. (-0.1%) traded choppy as reduced hopes of stimulus measures capped gains. 10-yr JGBs traded flat with demand dampened amid firm gains in Japanese stocks, while today's enhanced liquidity auction for 10yr, 20yr and 30yr JGBs saw an improvement in demand with the b/c increasing from last month.

Top Asian News

China Capital Flow Crackdown Sees $148 Billion Underground Bust: Operations were part of crackdown on illegal outflows

Australian State Sells Ausgrid to Local Funds for A$6 Billion: AustralianSuper, IFM Investors take 50.4% of Ausgrid lease

Foreigners Piling Into Hong Kong Homes Help Drive Price Rebound: Overseas purchases of 250 homes in September, a 14- month high

JPMorgan Mulls Selling China Venture Stake as Banks Seek Control: Seeks new partnership, greater control, person familiar says

Duterte Says ‘Goodbye’ America Before Meeting With Xi in Beijing: President says nation’s foreign policy “veers now” to China

In Europe, it was a tentative start to trading this morning ahead of the ECB rate decision with equities trading modestly in the green. The theme of the week continues with corporate earnings dictating the state of play, notable gains have been observed in airliners after Deutsche Lufthansa boosted their profit guidance. While energy names have also kept equities afloat with WTI and Brent futures touching the highest since July'15 post the DoE report yesterday, however, crude futures did pull off these levels overnight with oil prices a touch softer this morning. Similarly to equities, fixed income markets have been subdued amid the aforementioned ECB monetary decision where expectations are for the central bank to stand pat. As such, the German benchmark is relatively flat thus far with the yield curve flatter, while Gilts continue to underperform relative to their German counterparts with the 10-yr yield back above 1% amid the concerns regarding Brexit.

Top European News

U.K. Retail Sales Stagnate as Prices, Weather Hit Clothing: Underlying trend is ‘one of strength,’ statisticians say

Nestle Cuts Full-Year Sales Outlook as Pricing Power Weakens: Forecast is for 3.5% growth, slowest rate in more than decade

Roche Revenue Gains as Sales of Breast Cancer Drugs Soar: Breast cancer drug Perjeta sales jumped 26 percent in quarter

In FX, the Bloomberg Dollar Spot Index advanced 0.2 percent, rebounding from a one-week low. The euro fell as much as 0.2 percent versus the greenback and stood at $1.097 at 10:41 a.m. in London. The single currency has slipped 2.3 percent in October, after trading in its tightest quarterly range against the dollar on record in the three months through September. Mexico’s peso climbed as much as 0.4 percent to 18.4558, the most since Sept. 8, before trading 0.2 percent weaker at 18.5647. The currency has risen more than 4 percent this month as opinion polls pointed to a growing likelihood that Trump will lose the coming election. The peso has been sensitive to the Republican candidate’s fortunes because he’s proposed renegotiating or ending trade deals with Mexico and blocking remittances to force the country to pay for a wall along the U.S. border. The Aussie weakened 0.8 percent after data showed employment fell by 9,800 in Australia last month, compared with an increase of 15,000 forecast by economists in a Bloomberg survey. The MSCI Emerging Markets Currency Index was little changed after rising 0.7 percent in the previous two sessions. South Africa’s rand led decliners, dropping 0.6 percent in its first day of losses this week. The Philippine peso gained 0.4 percent, the best performer among its peers. President Rodrigo Duterte and Chinese President Xi Jinping “agreed to return to track of dialogue” on South China Sea issues in what is “a new stage of maritime cooperation,” Vice Minister for Foreign Affairs Liu Zhenmin said at briefing in Beijing.

In commodities, oil fell after closing at the highest level in 15 months on government data that showed U.S. crude stockpiles unexpectedly declined last week, trimming an overhang of inventories. West Texas Intermediate dropped 1.1 percent to $51.03 a barrel and Brent lost 1 percent to $52.15. Gold was little changed at $1,269.30, holding near the highest level in two weeks. Industrial metals fell, led by a 0.6 percent declined in nickel. U.S. natural gas rose 0.9 percent to $3,198 per million British thermal units, rebounding from the biggest decline in seven weeks on Wednesday amid unseasonably warm weather.

Looking at the day ahead, we’ll get the latest initial jobless claims data (expected to hold around 250k) along with the Philly Fed manufacturing survey (expected to weaken to +5.0), existing home sales (+0.4% mom expected) and finally the Conference Board’s leading index (+0.2% mom expected). Away from the data, the Fedspeak today consists of Dudley at 1.30pm BST. Elsewhere, UK PM Theresa May is due to join the EU leaders’ two-day meeting beginning in Brussels today. On the earnings front there are 28 S&P 500 companies with the highlights including Walgreens Boots and Verizon prior to the open, followed by Microsoft and Schlumberger after the close.

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US Event Calendar

8:30am: Initial Jobless Claims, Oct. 15, est. 250k (prior 246k); Continuing Claims, Oct. 8, est. 2.053m (prior 2.046m)

8:30am: Philadelphia Fed Business Outlook, Oct., est. 5 (prior 12.8)

9:45am: Bloomberg Economic Expectations, Oct., no est. (prior 41.5); Bloomberg Consumer Comfort, Oct. 16, no est. (prior 42.1)

10:00am: Existing Home Sales, Sept., est. 5.35m (prior 5.33m); Existing Home Sales m/m, Sept., est. 0.4% (prior -0.9%)

10:00am: Leading Index, Sept., est. 0.2% (prior -0.2%)

* * *

DB's Jim reid concludes the overnight wrap

Only one place to start this morning and that’s with the third and what is the final in a series of memorable US presidential debates. As with the first two there were the usual exchanges of barbs and personal jibes however on the whole the exchange was seen as a bit more constructive, certainly relative to the first two debates, with candidates generally sticking to the topics. Issues debated included abortion rights, the makeup of the Supreme Court, trade, the economy and immigration with both candidates seen as doubling down on their previous views. A lot of the headlines are being dominated by Trump refusing to say whether or not he’ll accept the result of the November 8th election should he lose. As we go to print the CNN/ORC poll is out and has Clinton coming out on top at 52% versus 39% for Trump.

We’ve seen with the past two debates that the most obvious reaction in markets has come in FX and particularly moves for the Mexican Peso which has become a bit of an election proxy. The Peso was initially slightly weaker in the first half of the debate, but has since strengthened and is +0.30% stronger in response. Still, the move is fairly modest and suggests that there’s not been a great change in view following the debate. Elsewhere sentiment in Asia is broadly positive. The Nikkei (+1.03%), Hang Seng (+0.59%), Kospi (+0.05%) and ASX (+0.25%) have all edged higher, with just the Shanghai Comp (-0.14%) languishing with a modest decline.

So with the debate now out of the way, the focus for the rest of the day ahead will swiftly turn over to the ECB meeting outcome at 12.45pm BST followed by Draghi’s press conference shortly after. As a reminder, we’re not expecting any fireworks at the meeting. That being said the vague speculation about the ECB wanting to rein in QE means that there will be some focus on the tone of the statement and of course any hints of tapering. DB’s Mark Wall still expects a 9-12 month extension in December but if the ECB is thinking differently we could get some hints today. Mark thinks that announcing a tapering in December would be premature given that the ECB is still clearly cautious about the economy. In terms of an extension, the ECB needs to solve the eligibility conundrum so that’s another topic to look out for today.

While the ECB may provide a temporary distraction, there’s no sign of Brexit related newsflow abating for now. There were a raft of headlines yesterday but the most important story for us is the High Court decision on the case concerning the government’s right to trigger Article 50 without parliament consent. The legal arguments have concluded and we’re now in waiting mode for the decision from the Lord Chief Justice and Master of the Rolls with some suggestion that the timeframe could be within a week. An appeals process to the Supreme Court is likely in either outcome which means we may have to wait until December for a final outcome however. Sky News ran an interesting article yesterday suggesting that the hearing has not gone particularly smoothly for Theresa May and her Government. The article suggests that the crux of the claimants’ case was that the inevitable consequence of triggering Article 50 ‘is that statutory rights enjoyed by some UK and EU citizens will be taken away’ and that this can only be done by Parliament and ‘not by the executive using the crown prerogative’. The article also goes on to say that the concerning news for the Government is that the High Court judges ‘appeared far more sceptical about its case than many had expected’ and that the Lord Chief Justice said ‘twice that their argument “baffled” him’. The roadmap of a potential outcome against the government is still far from certain however clearly the focus will turn to the timing and nature of the of the process with leverage swinging to favouring the pro-Europeans in parliament.

Making things a bit more interesting is the report released by the House of Lords EU Select Committee overnight. They have urged that Parliament ‘should be actively involved in scrutinizing the forthcoming negotiations on Brexit as they happen rather than after decisions have been taken, as proposed by the Government’. This contrasts with previous comments from PM Theresa May saying that she will not give a running commentary on talks. All interesting developments and worth following closely. As we type, Sterling is modestly firmer this morning (+0.10%).

In terms of markets yesterday, with China offering up few surprises after its Q3 GDP print pointed towards some stability in the economy, the real focus yesterday was on the moves in Oil which saw WTI rally +2.60% to close at $51.60/bbl and the highest since July 2015. That now means that Oil is up nearly 7% in October so far which matches similar gains for September and August. Yesterday’s leg up appears to be driven by the latest US crude inventory data. The EIA reported that US crude stockpiles fell by 5.2m barrels last week which compares to expectations of a 2m barrel increase according to the WSJ. That drawdown in crude stockpiles more than offset an increase in gas stockpiles.

The move in Oil initially helped equity markets in Europe jump into the close with the Stoxx 600 in particular closing +0.34%. Across the pond the S&P 500 ended up with a fairly modest +0.22% gain by the closing bell with the energy sector unsurprisingly leading the way and it finally snapped the nine-session run of alternating gains and losses. Meanwhile the second-best performing sector for the S&P was financials after Morgan Stanley joined the other major US banks in reporting both earnings and revenue numbers for Q3 which exceeded analyst estimates with the theme of strong FICC trading revenues again a major factor. It’s been a strong start to earnings season so far in the US largely as a result of the banks although as we’ve highlighted before, optically results are getting a boost from big analyst downgrades prior to reporting. With the banks now behind us next week we’ll get a number of high profile energy names reporting so that’ll be worth keeping a close eye on.

Staying with earnings, last night after the closing bell eBay reported third-quarter results which more or less matched consensus expectations, however some disappointing guidance for next quarter saw shares plunge as much as 9% in aftermarket trading. In response US equity futures are little changed this morning.

Moving on. In yesterday’s EMR we highlighted the latest Italy constitutional referendum poll numbers which showed the “No” camp as holding a small lead. DB’s Marco Stringa, in a report yesterday, highlighted that he is becoming more pessimistic about the outcome of the referendum on December 4th. He notes that; (i) So far nearly all opinion polls in October have given a lead to the "No" camp, which would mean the rejection of the Senate reform. That said, the proportion of undecided voters is still elevated, hence there is room for the "Yes" camp to regain support. (ii) The economy is unlikely to help PM Renzi to regain support. (iii) Renzi's party is divided on the Senate reform, while the opposition is united against it. Marco’s view now is that the combination of these factors justifies a change from his 50-50 call to assigning a 55% probability to the rejection in the referendum of Renzi’s Senate reform. His central case in such a scenario is that Renzi will resign and that a new government supported by a similar parliamentary majority with a limited scope – writing a new electoral law – and limited duration will be formed. The main risk is a new period of fragile governments supported by heterogeneous coalitions.

Before we move onto today’s calendar, while yesterday’s data was fairly mixed in the US it failed to really trouble the scorers. Housing starts declined sharply in September (-9.0% mom vs. +2.9% expected) although this was somewhat seen as being balanced out by a bigger than expected jump in building permits during the same month (+6.3% mom vs. +1.1% expected). The Atlanta Fed did revise up their Q3 GDP forecast to 2.0% from 1.9% yesterday although that was as a result of Friday’s Monthly Treasury Statement. Treasuries were a little weaker yesterday with the 10y yield up 1bp to 1.744% although that was largely blamed on that record $17.5bn bond sale from Saudi Arabia – the largest ever from an EM country. Over in Europe the only notable data came from the UK where there were no great surprises in the latest employment figures. The ILO unemployment rate held steady at 4.9% while average weekly earnings dipped one-tenth in the three months to August to 2.3% yoy.

Looking at the day ahead, this morning and shortly after this hits your emails the latest Germany PPI data will be released. Following that we’ll get more September data out of the UK, this time in the form of the latest retail sales numbers (which are expected to have risen modestly). The aforementioned ECB meeting follows that with President Draghi due to give his usual post-statement press conference. Over in the US this afternoon we’ll get the latest initial jobless claims data (expected to hold around 250k) along with the Philly Fed manufacturing survey (expected to weaken to +5.0), existing home sales (+0.4% mom expected) and finally the Conference Board’s leading index (+0.2% mom expected). Away from the data, the Fedspeak today consists of Dudley at 1.30pm BST. Elsewhere, UK PM Theresa May is due to join the EU leaders’ two-day meeting beginning in Brussels today. On the earnings front there are 28 S&P 500 companies with the highlights including Walgreens Boots and Verizon prior to the open, followed by Microsoft and Schlumberger after the close.