I wrote yesterday I thought markets had focused on the positive on Friday and that appears to have been even more the case overnight. To be fair, yesterday's 1.2% QoQ rise in Japanese GDP in Q3 was a positive surprise (although this still leaves output down 4.5% YoY). But I wasn't overly impressed with the stronger than expected 1.4% MoM gain in US retail sales in October, coming as it did after a revised 2.3% MoM decline in September (previously reported as a 1.5% mom decline). Ex-auto sales were up a soggy looking 0.2% mom. Total sales remain down 1.7% yoy (down 2.6% yoy ex autos and down 0.8% ex autos and gas).The 11 point decline in the NY Fed's manufacturing index also left me a little cold, especially as the headline decline was confirmed in the details of the report (new orders fell 14 points). Whilst to some extent this reflects the high levels reached last month, it suggests some downside risk to the ISM early next month.

But the S&P500 still closed up a healthy 1.5%. All of that gain (one led by the industrials and basic materials sectors) occurred before Fed Chairman Bernanke delivered his much awaited speech to the NY Economics Club. Bernanke sounded remarkably cautious on the economy. His speech essentially focused on two types of ‘headwind': restrained lending trends (due both to falling demand for credit and to ‘especially conservative' banks) and weak job market trends and income growth. It is interesting that Bernanke lingered on wage growth and income. The sharp decline in headline inflation over the past year has kept real wage growth elevated, despite a sharp slowdown in nominal hourly earnings (from 3.9% to 2.4% over the past year). Gains in real wages have to a certain extent offset the deterioration in employment and the workweek. A complete reversal of these trends (employment and workweek stabilising, but real wages falling as headline inflation bounces back) would keep real working income growth limited. With lending flows still suppressed, Ben sounded genuinely concerned about the lack of consumer firepower. More about Big Ben's speech below.

Data wise today we've had more underwhelming US numbers in the form of sluggish industrial production (0.1% versus expected 0.4%), capacity utilization (70.7% against the forecasted 70.8%) and some fairly deflationary looking PPI (wholesale inflation) numbers.

Today's Market Moving Stories

• ECB President Trichet gave his first reaction to last Friday's euro area Q3 GDP data (an increase of 0.4% QoQ) saying that the figures "confirm our baseline scenario, of a progressive and gradual revival". He added that while the data were more favourable than in the ECB's projections some months earlier, "it is necessary to remain prudent" for "there are still many uncertainties at the global level and at the euro level, particularly concerning growth next year". When asked what kinds of new crisis he feared, Mr Trichet replied that it was "very probable" that new significant shocks would be experienced, requiring "permanent adaptation" at the global economic level.
• Lehman Brothers' bankrupt estate and a trustee for its brokerage have both sued Barclays, seeking the return of a $5 billion "windfall." Lehman seeks a trial to recover the money, along with damages, according to the lawsuit, filed yesterday in the US Bankruptcy Court in Manhattan. Undisclosed features of the sale included $5 billion to $7 billion in excess collateral under a repurchase agreement, $2.7 billion added while a sale hearing in court was in progress, and $2.3 billion in margin deposits added after the sale was approved, lawyers for Lehman said.
• JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C), the biggest US credit-card lenders, said more customers fell behind on payments in October and signalled that write-offs may climb in coming months. While all of the "Big 6" card issuers, including American Express (AXP), Capital ONE (COF) and Discover Financial Services, said today in regulatory filings that defaults fell last month, the surge in loans at least 30 days overdue may extend record industry losses. Banks tend to see late payments rise toward the end of the year and typically write off loans after 180 days.
• Meredith Whitney, the analyst who cut her rating on Goldman Sachs (GS) last month, said bank stocks are overvalued after rallying faster than the US economy and share prices will fall to tangible book value. "I haven't been this bearish in a year," Whitney said. "I think you can sit on cash for a little bit, because you have to wait for a leg down in valuations. The S&P 500 is expensive across the board," having 64% since touching a 13-year low on March 9. The KBW Bank Index has more than doubled in that time. "The banks that are asset-sensitive to consumer credit are not places you want to be," Whitney said.