• European bourses are modestly firmer as the cautiously positive US fiscal narrative remains; US futures are firmer by ~1.0%
• President Trump signed the stopgap funding bill after it progressed through the Senate to avert a Gov’t shutdown
• US House delayed a vote on the USD 2.2tln coronavirus relief bill to Thursday to provide more time for talks with the White House
• US Treasury Secretary Mnuchin's COVID proposal to House Speaker Pelosi on Wednesday was valued at USD 1.62tln
• Fed is to extend restrictions on large bank capital distributions through Q4 amid continued economic uncertainty
• GBP has been impaired on the latest Brexit updates as the EU sends a letter of legal notice re. the Internal Markets Bill
• Looking ahead, highlights include US Mfg PMI (Final), US PCE Price Index, Weekly Jobs & ISM Mfg PMI. Special European Council Meeting, Fed's Williams & Bowman, ECB's Lane

CORONAVIRUS UPDATE

US FDA reportedly widened inquiry into AstraZeneca (AZN LN) vaccine candidate and wants raw data from clinical trials of similar vaccines produced by the same scientists, according to sources. (Newswires)

ASIA

Asia-Pac markets were quiet, owing to the closures in key bourses across the region with China, Hong Kong, Taiwan and South Korea all observing holidays, while trade in Japan was also mired by system issues for the Tokyo Stock Exchange which forced JPX to announce a halt of trade for the entire day. The lack of participants resulted in an uneventful overnight session; however, the mood was still positive as US equity futures extended on gains which had been attributed to month-end flows, strong data and increased stimulus hopes. This was after attempts by US Treasury Secretary Mnuchin and House Speaker Pelosi to reach an agreement on COVID relief and although progress was said to have been made, an actual deal remained elusive and House Democrats were forced to postpone the vote on their USD 2.2tln bill to Thursday to allow more time for talks with the White House. ASX 200 (+1.0%) traded with firm gains and surged above the 5,900 level with the index underpinned as miners led the broad strength in all its sectors, while Nikkei 225 remained suspended alongside Tokyo trade but Osaka futures were higher by 0.2% with a mild lift provided by the tailwinds from US and amid reports Japan is to consider further stimulus to address the pandemic. There was also mixed Tankan data which despite mostly missing expectations including on the headline Large Manufacturers Index, it still showed an improvement of the index for the first time in 11 quarters and Large All Industry Capex also topped estimates. Finally, 10yr JGBs futures were steady just above the 152.00 psychological level with price action contained as firmer results in the 10yr JGB auction was nullified by the system issues in Tokyo.

JPX halted all trade through the entire day for the Tokyo Stock Exchange due to system issued as they could not take orders and were unsure when the system would be restored, while a Tokyo Stock Exchange spokesman later stated that the outage happened due to a hardware breakdown. Subsequently, spokesperson says they are aiming for a Friday resumption. (Newswires)

Japan is reportedly considering additional stimulus to address the coronavirus impact which could be partially funded with a 3rd extra budget. (Nikkei)

Japanese Tankan Large Manufacturing Index (Q3) -27 vs. Exp. -23 (Prev. -34) Japanese Tankan Large Manufacturing Outlook (Q3) -17 vs. Exp. -17 (Prev. -27) Japanese Tankan Large Non-Manufacturing Index (Q3) -12 vs. Exp. -9 (Prev. -17) Japanese Tankan Large Non-Manufacturing Outlook (Q3) -11 vs. Exp. -9.0 (Prev. -14.0) Japanese Tankan Large All Industry Capex Est (Q3) 1.4% vs. Exp. 1.3% (Prev. 3.2%)

US

Fed's Bullard (non-voter) said he is more bullish on the economy and states that the current quarter will be a blowout for growth, while he later added that we cannot wait until 2021 to decide on further stimulus. (Newswires)

Fed is to extend restrictions on large bank capital distributions through Q4 amid continued economic uncertainty, which prolongs ban on share buybacks and dividend caps for banks with over USD 100bln in assets. (Newswires)

US Senate passed the stopgap bill by 84-10 votes to fund government through to December 11th and avert a shutdown, which has also been signed by President Trump. (Newswires)

US House delayed a planned vote on the USD 2.2tln coronavirus relief bill to Thursday to provide more time for talks with the White House. (Newswires)

US Treasury Secretary Mnuchin's COVID proposal to House Speaker Pelosi on Wednesday was valued at USD 1.62tln which included more state and local funds, as well as USD 400/week in unemployment benefits. There were also comments from White House Chief of Staff Meadows who confirmed the administration’s proposed package was valued at over USD 1.5tln and suggested that it would be difficult if price tag reached USD 2tln. (Newswires)

Treasury Secretary Mnuchin later stated he will not accept USD 2.2tln coronavirus bill proposed by Democrats and that may speak again with Pelosi but doesn't think progress will be made until possibly Thursday, while he noted that they reached agreement on direct payments. (Newswires)

House Speaker Pelosi is proving one more day to a deal with Treasury Secretary Mnuchin on the COVID-19 bill; otherwise, House is likely to vote on its own bill today, Fox's Pergram. (Twitter)

US President Trump signed executive order to expand rare earths mining in US amid threat from China. (Newswires)

UK/EU

UK and EU have failed to narrow differences on State Aid in trade talks, sources state, final EU consent is contingent on the Internal Market Bill's withdrawal. Subsequently, European Commission President von der Leyen confirms a letter of notice has been sent to the UK government after it failed to withdraw its Internal Market Bill (Newswires)

From the UK perspective: Cabinet Minister Gove says the Joint Committee meeting has made progress, regarding Brexit; are clear red-lines that we will not cross, but with goodwill can achieve a deal. (Newswires)

UK Peers within the House of Lords are reportedly set to vote again to block cheap US food imports such as chlorinated chicken & hormone-fed beef if PM Johnson refuses to provide concessions to Conservative Party rebels; vote could arise as soon as next-week. (Huffington Post)

UK reportedly banned Chinese post-graduates from security-linked studies. (The Times)

EU Markit Manufacturing Final PMI (Sep) 53.7 vs. Exp. 53.7 (Prev. 53.7)

-        German Markit/BME Manufacturing PMI (Sep) 56.4 vs. Exp. 56.6 (Prev. 56.6)

EU Unemployment Rate (Aug) 8.1% vs. Exp. 8.1% (Prev. 7.9%, Rev. 8.0%)

UK Markit/CIPS Manufacturing PMI Final (Sep) 54.1 vs. Exp. 54.3 (Prev. 54.3)

GEOPOLITICAL

Russian President Putin and French President Macron held a joint-call in which they urged an immediate ceasefire in Nagorno-Karabakh and discussed future steps Minsk Group could take to help de-escalate the conflict, according to the Kremlin. (Newswires)

EQUITIES

European cash indices trade with modest gains (Eurostoxx 50 +0.3%), albeit off best levels as Q4 gets underway. Direction is potentially in part due to gains in US equity index futures, which remain elevated near yesterday’s best levels as policymakers in Capitol Hill continue to attempt to broker some form of agreement on COVID-19 stimulus. Focus ahead, will likely be on whether the administration and Democrats can bridge the gap between their respective USD 1.62trl and USD 2.2trl offers respectively and then ultimately whether any agreed deal can make its way through Congress; failure to do so at this juncture will likely mean that the US will not receive a fiscal boost until after the November election. From a European perspective, the DAX (+0.2%) has been a modest laggard throughout the session amid losses in index-heavyweight Bayer (-10.5%) after the Co. announced it is intending to cut around EUR 1.5bln in annual costs whilst citing weakness in the agricultural sector, which desks suggest further undermines the efficacy of the Co.s’ purchase of Monsanto. From a sector standpoint, retail names have been underpinned by upside in H&M (+6.6%) after its Q3 update posted a beat on expectations and revealed plans to lower its store count by 250 in 2021. IT names are also firmer this morning after prelim Q3 earnings from STMicroelectronics (+5.8%) saw the Co. raise its net revenue outlook for the quarter to USD 2.67bln from USD 2.45bln whilst nothing that Q3 was fuelled by “significantly better than expected market conditions throughout the quarter”; peers such as Infineon (+5.7%) and Dialog Semiconductor (+4.1%) have been seen higher in sympathy. Elsewhere, travel & leisure names are the clear laggard in the region with losses in airline names such as IAG (-3.9%), easyJet (-2.3%) and Ryanair (-2%). Finally, Rolls-Royce (-9.5%) have faced heavy selling pressure throughout the session after the Co. announced a GBP 2bln rights issue alongside the intention to begin a bond offering raising at a minimum of GBP 1bln.

PepsiCo Inc (PEP) Q2 20 (USD): Core EPS 1.66 (exp. 1.49), Revenue 18.09bln (exp. 17.21bln)

Google (GOOG) is to pay USD 1bln to publishers globally over the next 3-years. (Newswires)

FX

GBP, EUR - Sterling stands as the marked underperformer with initial downside sparked by source reports that the UK and EU have failed to narrow differences on State Aid in trade talks, whilst notably, a senior diplomat said the final agreement will be contingent on the UK withdrawing the Internal Market Bill – a move the UK PM previously rejected, citing UK safeguards. Thereafter, the European Commission President announced that Brussels will begin infringement proceedings against the UK for the breach of the Withdrawal Agreement, again in relation to the IMB. As such, Cable slid from an overnight high of 1.2950 to print a base at 1.2820 before stabilising, whilst EUR/GBP was propelled from 0.9070 to a high just shy of 0.9150. EUR/USD meanwhile has been under some pressure, potentially on Dollar-follow-through from the Sterling weakness as final manufacturing PMIs and an in-line EZ unemployment rate were brushed aside, with the pair briefly dipping below 1.1725 (vs. high 1.1758), whilst today’s NY cut sees a raft of large EUR/USD opex including some EUR 1.175bln rolling off between 1.1700-50 and EUR 2bln between 1.1680-85.

DXY - The broader Dollar and index remain within a tight range but off worst levels with the aid of the aforementioned Sterling weakness, with overnight losses a function of the then upbeat sentiment across markets, with talks on State-side stimulus still in limbo but the two sides seemingly in tense negotiations for an agreement. DXY resides around the middle of its current 93.614-876 intraday band, with downside levels including the 50 DMA at the 93.50 psychological level. The Buck now eyes US PCE Price Index and ISM Manufacturing PMI, alongside another wave of Fed speakers, relief bill talks and the fallout from the Special European Council Summit.

AUD, NZD, CAD - The non-US Dollars stand as the G10 gainers and hold onto APAC upside which was fuelled by overnight sentiment coupled with a firm CNH performance in the absence of the PBoC, and amidst a lack of pertinent data. AUD/USD trades just below 0.7200 having had tested the level to the upside overnight. A breach to the upside would open the door to the 50 and 21 DMAs at 0.7206 and 0.7211 respectively. The Kiwi similarly remains buoyed with a 0.6600+ status but just shy of the 0.6650 psychological level vs. the USD which lines up with the 21DMA. The Loonie’s gains meanwhile are to a lesser extent as the decline in oil prices weigh on the currency, but nonetheless USD/CAD meanders around 1.3300 having printed a current range of 1.3280-3327.

JPY - Shallow losses for the JPY but seemingly on Dollar-dynamics after the technical glitch in Tokyo stock markets. USD/JPY sees itself a touch above 105.50 as it eyes Tuesday’s high at 105.73 and the 50 DMA at 105.75. Note: today’s notable option expiries see USD 1.6bln at 105, USD 1.1bln between 105.30-35 and USD 1.4bln between 105.70-80.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1600 (2.8BLN), 1.1650 (700M), 1.1680-85 (2BLN), 1.1700 (650M) 1.1750 (525M), 1.1775-80 (1BLN), 1.1800 (1.5BLN), 1.1805-15 (1BLN)

-        AUD/USD: 0.7150 (741M), 0.7170 (539M), 0.7300 (3BLN)

-        USD/JPY: 105.00 (1.6BLN), 105.30-35 (1.1BLN), 105.50 (450M), 105.70-80 (1.4BLN), 105.90-106.00 (950M), 106.10-15 (830M), 106.35-40 (700M), 106.60-70 (750M)

US President Trump’s administration plans to open investigation of Vietnam's currency practices. (Newswires)

FIXED INCOME

The debt space has had a somewhat subdued start to the session and Q4 given overnight disruptions/holidays and the relatively quiet APAC trade. Therefore, the complex is still largely being driven by the US stimulus updates which saw the President sign a bill to avert a Gov’t shutdown after its successful passage through the Senate; additionally, progress being made on COVID-19 relief but a final agreement does remain elusive. In terms of performance, USTs are subdued and at the lower end of the current 139.17 – 139.11+ range where they have resided for the European session; technically, any further downside could draw a test of the 139.10+ post-FOMC low. A concerted move below this would seemingly open up 139.00 itself from a technical point of view at least. Given the proximity to lows the yield curve is experiencing some bear-steepening. Turning to Europe, Bunds have been somewhat uneventful this morning and remain softer in-spite of experiencing a modest grind higher throughout the session after downside was capped by recent lows ~174.16; final PMIs and EZ unemployment passed without reaction. Slightly more eventfully, Gilts were nudged higher on reports that the European Commission was to commence legal proceedings against the UK after they failed to rescind the controversial elements of the Internal Markets Bill; albeit, the magnitude of the move was modest. Additionally, a relatively in-line first bout of issuance from the UK didn’t spark any notable movement; with another tranche yet to come but with focus perhaps more on the broader global fiscal narrative and Brexit as this week’s round of negotiations nears an end. Looking ahead, a number of central bank speakers are on the docket alongside the anticipated Special European Council before US ISM Manufacturing and more Fed commentary.

COMMODITIES

WTI and Brent futures continue to decline in tandem with sentiment in Europe as Brexit remains in the doldrums with the EU readying legal actions against the UK on breaches of “good faith”, whilst crude-specific news-flow for the complex remains light; as participants look towards the day’s European Council gathering & key US data. WTI Nov trades on either side of USD 40/bbl (vs. high 40.47/bbl) whilst Brent Dec oscillates around the USD 42/bbl mark (vs. high 42.55/bbl). Elsewhere, spot gold remains capped by the USD 1900/oz mark as the yellow metal failed another jab at the psychosocial levels, whilst spot silver retraces some of yesterday’s losses and sees itself north of 23.50/oz. Finally, LME copper prices have retreated from earlier highs as the red metal tracks losses in stock markets, Dollar dynamics and overall sentiment.