• Asian equity markets traded lacklustre as the region took its cue from the losses on Wall St where sentiment was dampened by further Brexit uncertainty
• UK Government won the vote on the second reading of the WAB by 329 to 299 votes but lost the vote for the programme motion by 308-322
• EU’s Tusk said he will recommend the EU27 accept UK request for an extension to avoid a no-deal Brexit
• US Commerce Secretary Ross is looking to negotiations with EU to ease trade dispute and is said to have floated new discussions as an alternative to imposing auto tariffs next month
• Looking ahead, highlights include Canadian Wholesale Trade, Eurozone Flash Consumer Confidence, US EIA Weekly Crude Stocks, German Bund and US 5yr note auctions
• Earnings: Boeing, Microsoft, Eli Lily, PayPal, eBay, Caterpillar, Ford, Tesla, Thermo Fisher Scientific, Xilinx, General Dynamics, Celgene, Western Digital, Waste Management, Norfolk Scientific, Anthem, Kone, Swedbank, Norsk Hydro, Akzo Nobel

ASIA-PAC

Asian equity markets traded lacklustre as the region took its cue from the losses on Wall St where sentiment was dampened by further Brexit uncertainty. ASX 200 (-0.2%) was negative with the index dragged by weakness in defensives as well as the largest weighted financials sector, while the NZX 50 (-2.1%) slumped heavily amid weakness in energy stocks and with local investors spooked after reports Rio Tinto was mulling a strategic review of its smelter operations as it sees continued losses for its New Zealand assets. Nikkei 225 (+0.2%) struggled to maintain the holiday cheer on return from yesterday’s closure amid flows into the JPY with underperformance in SoftBank amid its bailout of WeWork including USD 5bln of new financing, although Eisai shares were indicated to surge over 18% and hit limit up with a glut of buy orders after aducanumab partner Biogen revived hope in its Alzheimer’s treatment and is to seek FDA approval next year. Hang Seng (-0.9%) and Shanghai Comp. (-0.3%) conformed to the overall downbeat tone with the former mired by political uncertainty as Beijing was said to draw up plans to replace Hong Kong Chief Executive Lam, although mainland losses were cushioned by another substantial PBoC liquidity effort. Finally, 10yr JGBs opened back above the 154.00 level as it tracked gains in T-notes and amid the predominantly risk-averse tone, but with upside limited as Japanese stocks just about stayed afloat and with the BoJ only in the market for Treasury Discount Bills.

PBoC injected CNY 200bln via 7-day reverse repos for a daily net injection of CNY 200bln. (Newswires)

PBoC set CNY mid-point at 7.0752 vs. Exp. 7.0741 (Prev. 7.0668)

US Commerce Secretary Ross said sees a 50-50 or better chance of reaching a trade deal with China but added things can happen at the last minute, also suggested next month's expiration of licence for US companies to sell to Huawei is not a hard deadline. (FT)

Beijing is reported to draw up a plan to replace Hong Kong leader Carrie Lam by March. (FT)

UK/EU

UK Government won the vote on the second reading of the WAB by 329 to 299 votes but lost the vote for the programme motion by 308-322. Following the defeat on the programme motion, UK PM Johnson said the EU now must decide what to do next and the first consequence is that government must accelerate no deal preparations, while he added that one way or another we will leave the EU with this deal, that he will tell the EU we should leave EU on Oct. 31st and announced to pause the legislation. (Newswires)

EU’s Tusk said he will recommend the EU27 accept UK request for an extension to avoid a no-deal Brexit and other reports stated multiple Brussels diplomats said the EU is expected to follow Benn Act and give (a likely flexible) extension until January 31st, while the EU is said to be frustrated with PM Johnson rather than UK Parliament for halting the legislative process and as there is an understanding that Parliament wants to scrutinize the legislation. (Newswires) France is to examine at the end of the week whether a purely technical delay of a few days is necessary and is said to rule out any further extension past this technical delay, according to a diplomatic source. (Newswires) Reports suggest that EU leaders could have to attend an emergency Brexit summit if French President Macron opposes a 3-month delay to Brexit. (Telegraph)

US Commerce Secretary Ross is looking to negotiations with EU to ease trade dispute and is said to have floated new discussions as an alternative to imposing auto tariffs next month. (FT)

FX

DXY consolidated above 97.50 and held on to the prior day’s gains that were spurred by weakness among its European counterparts in which EUR/USD was subdued at the lower end of the 1.1100 handle and GBP/USD slipped to around 1.2850 on further Brexit uncertainty. Elsewhere, the lacklustre risk tone facilitated mild flows into the safe-haven JPY and antipodeans suffered due to their high-beta properties coupled with a weaker CNY reference rate setting, while TRY was marginally supported after Turkey suggested there was no need to restart the Syria offensive following the expiration of the 120-hour deadline. 

COMMODITIES

Commodities were mixed overnight in which WTI crude futures retraced some of the advances seen in the prior day where prices had been underpinned by reports OPEC and allies are to consider deeper oil cuts when they meet in early December, with the overnight pullback as the result of the dampened risk appetite and a larger than expected build in the latest API crude inventories. Elsewhere, gold was steady after safe-haven demand for the precious metal was offset as the greenback held firm, while copper was subdued by the broad downbeat sentiment.

API Energy Inventories: Crude +4.51mln (exp. +2.2mln, Prev. +10.45mln)

CME lowered NYMEX crude oil futures margins for December by 3.3% to USD 4350 per contract. (Newswires)

GEOPOLITICS

US President Trump tweeted that good news seems to be happening with respect to Turkey, Syria and the Middle East, while he added that further reports are to follow later. In related news, Turkey said there is no need to restart Syria offensive after deadline expires and that the US told them the withdrawal of Kurdish militants from the safe zone is complete. However, it was earlier reported that Turkish President Erdogan said the US has not fully completed promises in the Syria deal and that Turkey is ready to take necessary steps. (Newswires/AFP/NTV)

US

At settlement, yields were lower, and the curve had bull-flattened slightly. The Treasury complex was quiet, with little by way of major moves. Indeed, some desks were noting that the volume in the T-Note future over the last three days was the lowest it has been since middle of November 2014, and even lower than some holiday periods. The Treasury auction of 2-year notes was solid, stopping through by 1bps on solid cover, which was above recent averages; Indirect participation, which can often be a gauge for foreign demand, was 54.8%, higher than the 6-auction average of 48.4%. Directs took 14%, less than the 6-auction average of 21.4%, leaving dealers with 31.2%, above than the average of 30.2%. Tomorrow, the Treasury will auction a 5-year note; the previous 5-year auction was soft, tailing by 0.9bps, and cover coming in below recent averages. But analysts at SocGen suggest that the 5-year sector has slight set-up ahead of Wednesday's auction from a relative value perspective, noting that the current 5-year trades cheap in asset swap compared to older 5s, and also trades cheap on the curve compared to 2s and 10s. SocGen believes that the auction will still need some concession, since the current WI yield is low when compared to previous stop-out rates, which could indicate relative richness on an outright basis versus the previous auction cycles. SocGen also says that relatively low dealer holdings in the 3-6-year bucket should marginally support demand. The bank says it is neutral on the auction. US T-note (Z9) settled 6 ticks higher at 129-26.

US President Trump Special Assistant for International Trade, Investment and Development Kelly Ann Shaw is to leave the White House on Friday. (Newswires)

US Ambassador to Ukraine William Taylor testified that he was told President Trump wanted aid withheld until Ukraine said it would investigate Biden. (Newswires)

US House Ways & Means Committee Chair Neal commented on USMCA talks and said he doesn't think there will be a lot of outstanding issues, while he added we hit a bump but worked it out and are down to a handful of issues. (Newswires)