• European indices are firmer this morning, though sentiment has been impacted by US-China rhetoric
• Reports indicate China will struggle to purchase USD 50bln of US agri products annually, unless retaliatory tariffs are removed
• Mixed comments from EU’s Barnier stating that a Brexit deal is possible this week although sources note that the latest proposals are not enough
• DXY is mixed vs. G10 peers, with GBP and JPY outperforming and the debt complex is firmer thus far
• Looking ahead highlights include US NY Fed Manufacturing, NZ CPI, Fed Discount Minutes, IMF World Economic Outlook, Fed’s Bostic, George & Daly, BoE’s Vlieghe, US Coupon Settlement
• Earnings: JP Morgan, Wells Fargo, Goldman Sachs, Citigroup

ASIA-PAC

Asian equity markets traded mixed following the lacklustre lead from Wall St where the recent US-China trade optimism was tempered by discrepancies in language between the sides and with China wanting more discussions before signing the deal, while looming earnings added to the tentativeness as the large US banks are to begin announcing Q3 results today. ASX 200 (+0.2%) was choppy with the index pressured by underperformance in the commodity-related sectors and Nikkei 225 (+1.9%) outperformed as it played catch up on return from the extended weekend with Japanese officials willing to consider an additional budget for the typhoon recovery if required. Hang Seng (Unch.) and Shanghai Comp. (-0.6%) were indecisive after the trade exhilaration faded, with the HKMA’s announcement of a countercyclical capital buffer reduction and influx of CNY 40bln from the PBoC’s previously announced targeted RRR cut, doing little to spur risk appetite. The latest inflation figures from China were also somewhat inconclusive as CPI topped estimates to print its highest since 2013 although PPI declined at its fastest pace in more than 3 years. Finally, 10yr JGBs traded subdued as demand was dampened amid the strength in Japanese stocks but with downside also restricted by the BoJ’s presence in the market for JPY 1.21tln of JGBs heavily concentrated in 1yr-10yr maturities.

PBoC skipped open market operations for a net neutral daily position, although it was noted that CNY 40bln was being released from the previously announced targeted RRR cut. (Newswires)

PBoC set CNY mid-point at 7.0708 vs. Exp. 7.0676 (Prev. 7.0725)

Chinese CPI (Sep) Y/Y 3.0% vs. Exp. 2.9% (Prev. 2.8%); highest since 2013. Chinese PPI (Sep) Y/Y -1.2% vs. Exp. -1.2% (Prev. -0.8%); steepest decline since 2016.

China's MOFCOM states that Chinese firms have, based on demand, purchased some US agricultural products. China will accelerate the purchase of US agricultural products., CNBC's Yoon citing a Foreign Ministry Spokesman (Newswires/Twitter)

China will struggle to purchase USD 50bln of US related farm goods annually, unless it removes retaliatory tariffs on American products., according to sources. (Newswires)

US

Fed’s Bullard (Voter, Dissenter, Dove) reiterates that trade and other risks remain high and Fed rate decision are made “meeting by meeting”; models state probability of a recession is elevated. (Newswires)

South Korea and the US are likely to undertake defense cost-sharing discussions next week., according to Yonhap citing Diplomatic Sources. (Newswires)

GEOPOLITICS

US Treasury Secretary Mnuchin said the US sanctioned Turkey’s Ministers of Interior, Defence and Energy but added the US will issue license to continue to let Turkey buy fuel and will remove sanctions based on Turkey's actions. (Newswires)

US VP Pence said President Trump spoke with Turkish President Erdogan and asked him to halt incursion into Syria, while Erdogan gave assurance that Turkey will not attack the city of Kobani. Furthermore, Pence said he will visit the region to seek a ceasefire and that no decision has been made on whether the scheduled Trump-Erdogan meeting next month will take place. (Newswires)

UK/EU

EU Chief Brexit Negotiator Barnier told the EU27 that the latest Brexit proposals from Britain are not enough; needs an agreement by the end of today, if this is not completed then he may have to recommend further negotiations., EU Diplomatic Sources. (Newswires)

EU's Chief Brexit Negotiator Barnier says a Brexit deal is still possible this week, high time to turn intentions on Brexit into legal text. Subsequently, reports noted the UK will table fresh proposals to break the Brexit deadlock this morning., RTE’s Connely citing sources. Its’ worth highlighting that since these comments on fresh proposals some rhetoric has highlighted that the UK submitted new proposals last night. (Newswires/Twitter)

Irish Foreign Minister Coveney says negotiating teams made progress, albeit slow, a deal is difficult but possible, it is also possible to move beyond summit and continue talks next week, at the moment no plans for emergency summit. (Newswires)

Irish Foreign Minister Coveney hinted an agreement may not be reachable at the EU summit this week. (RTE) Separately, Brexit deal hopes are reported to have increased as sources in both sides of the channel stated there was cautious optimism that a narrow path to a deal could now be appearing. (Telegraph)

BoE Governor Carney says they can cut rates close to, but slightly above, 0% if this is required. (Newswires)

EQUITIES

A choppy session for European equities thus far [Eurostoxx 50 +0.7%] following on from a mixed Asia-Pac session. European equity futures saw upside heading into the cash open amid refuelled Brexit hopes after EU’s Chief Brexit Negotiator Barnier struck an upbeat tone regarding a potential Brexit deal by the end of the week; although this has been caveated somewhat by EU Diplomatic sources. That said, futures pared back around half of its gains at the open and continued declining with downside exacerbated by source reports that China will struggle to purchase USD 50bln worth of agri goods. Major bourses in the region are ultimately higher, although UK’s FTSE 100 trades flat as exporters bear the brunt of a firmer Sterling, induced by positive comments from various EU lawmakers. Sectors are all in broadly positive territory although the IT sector is somewhat underperforming as Wirecard shares (-18.5%) plumbed the depths after a fresh FT investigation raised prospect of a concerted effort to fake substantial sales and profit at the company. Wirecard has since dismissed the report as “market speculation”. On the flip side, the financial sector fares better as current Brexit optimism spurred gains in domestic banks with Lloyds Banking Group (+3.4%), RBS (+3.4%) Barclays (+2.1%) all at the top of the FTSE 100. Further, the Italian banking sector is propped up by source reports that Italy is mulling reducing the amount of loan losses that banks can deduct from their taxable income next year. Hence the Italian Banking index opened higher by circa. 1% but has since come off of highs. In terms of individual movers, Indivior (+8.0%) shares spiked higher at the open after the Co. boosted its earnings guidance for a second time this year amid a strong performance of its drug used to treat opioid addiction. Meanwhile, Kloeckner & Co. (-14.3%) shares slumped following a downgrade to its profit outlook due to weaker market conditions.

UnitedHealth Group Inc (UNH) Q3 19 (USD): EPS 3.88 (exp. 3.45), Revenue 60.4bln (exp. 60.58bln). FY EPS view 14.90-15.00 (exp. 14.70, prev. 14.70-14.90). (Newswires)

BlackRock Inc (BLK) Q3 19 (USD): EPS 7.15 (exp. 6.71), Revenue 3.69bln (exp. 3.58bln). AUM 6.96tln (prev. 6.44tln). (Newswires)

FX

GBP - Cable seemed destined for or at least drawn towards a hefty option expiry at the 1.2600 strike before another bout of Brexit deal positivity boosted the Pound across the board, and this time from the EU’s chief negotiator Barnier who remains hopeful that a deal can still be struck in time for Thursday-Friday’s Summit, but warns that latest UK proposals remain inadequate. He added that the deadline to reach an agreement is COB today, but separate reports suggest that another meeting could be convened before the current October 31 deadline if needed, while the UK Government believes that the cut-off for this week is actually Wednesday evening. However, the situation remains highly fluid and uncertain, with Sterling hostage to headlines, breaking news and unfolding developments, as Cable fades just ahead of 1.2700 and Eur/Gbp rebounds from just under 0.8700 towards highs of 0.8750.

NZD/AUD - Not much respite for the Antipodean Dollars following further reflection and assessment by China and the US about the state of trade relations and significance of Phase 1 even though Beijing and Washington appear to be more convergent on certain elements of the accord in principle. Indeed, the Kiwi is still capped ahead of 0.6300 awaiting NZ Q3 CPI after the latest GDT auction, while the Aussie remains some way below 0.6800 in wake of RBA minutes underlining guidance for keeping rates low or easing further if required, and with a decent 625 mn expiry at the big figure.

JPY/CAD/EUR/CHF - Comparatively contained trade vs the Greenback again, as the Yen meanders between 108.23-45 and just shy of decent expiry interest residing at 108.00-20 (1.5 bn), while the Loonie is striving to limit losses beyond 1.3240 amidst a deeper retreat in oil prices and Euro remains top heavy into 1.1050, and perhaps also rooted by expiries given 1 bn rolling off just above 1.1000 (1 bn from 1.1015-20). Elsewhere, more soft Swiss inflation inputs via producer/import prices are keeping the Franc depressed just off parity and around 1.1000 against the single currency, as the DXY continues to flit either side of 98.500.

EM - More volatility for the Lira, but a recovery of sorts following US sanctions against Turkey that were perhaps not as severe as many were anticipating. Nevertheless, Usd/Try remains elevated within a 5.8605-9320 range and underpinned on the back of a rise in unemployment plus a big swing in the budget balance from small surplus to onerous deficit.

RBA Minutes from October 1st meeting stated the board judged case for easing at October meeting outweighed arguments against a move and that it is prepared to ease policy further if needed. RBA also reiterated that it is reasonable to expect that an extended period of low rates would be required, while board members noted global trend of lower rates and discussed the possibility rate cuts could have less impact than in past but judged lower rates will still have an effect through AUD. (Newswires)

Norges Bank's Nicolaisen reiterates the September view that rates will likely remain at the current level for the period ahead. (Newswires)

FIXED

A rather gradual and modest bid, but core bonds are tracking US Treasuries higher on latest Chinese headlines suggesting that buying more US agri goods remains contingent on tariff concessions. Bunds, Gilts and 10 year USTs are just off best levels of 172.78, 132.82 and 130-165 respectively vs 172.36, 132.33 and 130-05 at one stage, and probably also unwinding pre-issuance hedges in wake of largely satisfactory if not solid German and UK auctions. Ahead, more scheduled Central Bank speak to perhaps provide distraction and interludes from all the breaking headlines.

COMMODITIES

A downbeat day for WTI and Brent futures thus far as downward pressure resumed as markets tilted towards risk aversion in early EU trade and as optimism surrounding the US-China mini deal fizzles out. Analysts at ING highlight that the ICE Brent Dec/Jan time-spread has also narrowed to a backwardation of around 0.17/bbl vs. 0.77/bbl at the end of September which suggests the “tightness in the prompt market is easing”. In terms of newsflow, OPEC Secretary General Barkindo noted that the physical oil market is relatively tight now and current demand is the market driver. WTI futures took out 53/bbl to the downside and tests 52.50/bbl ahead of the psychological 52.00/bbl mark whilst its Brent counterpart eyes 58/bbl to the downside. As a reminder the weekly API crude inventories have been postponed by a day due to US observing Columbus Day yesterday; as has the EIA release. Elsewhere, gold has climbed off lows amid a turnaround in sentiment and remains in close proximity to 1500/oz vs. an intraday low of around 1488/oz. Copper meanwhile has pulled back during the session, albeit prices remain above 2.62/lb.

OPEC Secretary General Barkindo says OPEC and allies oil output compliance level is at 136%. (Newswires) Source reports recently noted that September’s compliance was in excess of 200%