• Cautious start to trade this week as Trump hints at further Chinese tariffs.
• An unproductive Brexit weekend with negotiations paused until Wednesday’s summit, with some reports of no deal implementation plans beginning.
• Looking ahead, highlights include US retail sales and NY Fed manufacturing, Canadian Business Outlook, NZ CPI, Italian Budget Submission Deadline

ASIA

Asian equity markets resumed last week’s stock rout as the region failed to take impetus from Friday’s rebound on Wall St where tech outperformed and all majors finished a tumultuous session in the green, albeit with losses of around 4% on the week. ASX 200 (-1.0%) slumped from the open as financials and tech led the broad losses which dragged the index briefly below the 5800 level, while Nikkei 225 (-1.9%) suffered from continued flows into the JPY. Elsewhere, Shanghai Comp. (-1.5%) and Hang Seng (-1.4%) conformed to the negative tone with sentiment not helped by President Trump’s reiteration that the US may have to impose another round of tariffs on China, with indecision seen in the mainland after the PBoC skipped open market operations and refrained from rolling over maturing MLF loans as its previously announced 100bps RRR cut took effect. Finally, 10yr JGBs were pressured at the open and tracked the recent weakness in T-notes, but then recovered as the widespread risk averse tone spurred safe-haven demand.

PBoC skipped open market operations and refrained from rolling over maturing medium-term lending facility loans. (Newswires)
PBoC set CNY mid-point at 6.9154 (Prev. 6.9120)

EU/UK/US

UK and EU negotiators called for a pause in discussions until Wednesday's summit outcome. Source reports suggested that all negotiations between UK and EU are on hold with the UK government reportedly telling ministers to begin 'no deal' implementation plans after last-ditch discussions broke up. (Times/Newswires) The breakdown in talks came after UK PM May refused to endorse a draft Brexit deal negotiated by UK and EU officials on Sunday night amid concerns the Cabinet would refuse to support the plan. UK PM May labelled the draft Brexit agreement a 'non-starter' in its current form and advisers are reportedly trying to craft new language for the Brexit withdrawal agreement amid signs the Cabinet will otherwise refuse to agree to PM May’s backstop proposals. Furthermore, it was also reported that EU leaders may not call for a special summit next month amid lack of progress. (Telegraph/FT)

EU leaders are set to hold an extraordinary “no deal” Brexit summit with a date pencilled in for the weekend of 17-18 November, to deal with the potential disaster of the UK crashing out of the bloc should PM May fail to deliver decisive progress on the Irish border issue this week. (The Guardian)

Former UK Foreign Minister Johnson said UK is entering moment of crisis in Brexit discussions and that matters cannot continue how they currently are, while he added the UK must resist being pushed around by EU. (Telegraph)

Former Brexit Secretary Davis has called for a cabinet uprising against UK PM May as MPs and ministers said they are ready to oust her if she does not change course on her Brexit plan. Writing to the Sunday Times, he called UK PM May’s plan “flawed” and “unacceptable”, while he accused the PM’s aides of “incipient panic” in the face of Brussel’s demands and trying to cut out the cabinet from key decisions. (The Times/BBC/Sky News)

Multiple Labour MPs told The Independent that they are prepared to support the Brexit agreement UK PM May hopes to bring back from Brussels, while the newspaper was also told that at least 15 Labour MPs could rebel against Labour leader Corbyn and back the government, which could be enough to tip the balance in the Commons in favour of a deal. (The Independent)

Scotland’s first minister is to press the case for continued membership of the single market and customs union by unveiling a “common-sense” alternative Brexit plan on Monday. (The Guardian)

UK PM May has been told that DUP Leader Foster is “ready” to trigger a no-deal Brexit as she believes this is the most likely outcome following a “hostile and difficult” meeting with EU’s Chief Negotiator Barnier, a set of leaked government emails revealed. (The Guardian)

BBC journalist Tweets; " Sources say EU wants a Northern Ireland only backstop solution, should proposed UK wide backstop not be implemented" (BBC)

DUP's Wilson says the EU's deal is worse than a no deal, and a no deal is inevitable thanks to the intransigence of the EU's negotiating position. (Newswires)

Irish Foreign Minister Coveney; it is still possible to reach a Brexit deal but it is going to take more time than hoped. (Newswires)

EU Diplomats say that a deal was not reached on the weekend because the UK wants a UK-wide customs deal, and they are ready to restart talks when things calm down in London. (Newswires)

The EY Item Club predicts GDP growth of 1.3% this year and 1.5% in 2019, down from 1.4% and 1.6% respectively in its previous outlook three months ago. (BBC)

US President Trump reiterated the US might have to impose another round of tariffs on China. In other news, President Trump was reportedly unsure whether Defense Secretary Mattis will step down and suggested that Mattis was a sort of a Democrat. (Newswires)

US Treasury Secretary Mnuchin said that no decision has been made yet regarding a meeting between US President Trump and Chinese President Xi Jinping at the G20 in Argentina, while Mnuchin also suggested the US would like to include currency stipulations in future trade agreements with everyone. (Newswires)

ECB President Draghi said underlying inflation is hovering around 1% but is confident it will proceed towards target, while he added that the main risk is a sharp repricing of assets or sudden increase in interest rates. Elsewhere, Draghi said he does not see room for additional expenditures in Italy and stated that ECB will not intervene to help Italy. (Newswires)

Germany’s CSU lost its absolute majority in the Bavarian state election and suffered its weakest result since 1950, according to an exit poll. (Twitter)

Sweden Moderate Party leader Kristersson is said to end current attempt to form a government after failing to receive enough support for a coalition. (Newswires)

EQUITIES

Main European Indices are mixed amid current market uncertainty; the Dax is up (+0.3%) despite being weighed on by Lufthansa which is down by over 3% following agreements on new employment conditions, featuring moderate salary increases.

Sectors are mixed with IT lagging at -1% as a follow on from poor IT performance in Asia due to continued U.S-China tension; this is despite Friday’s Wall Street rebound for IT which saw it as the leading sector finishing up by 3%.

Convatec are down by over 25% following a cut in their revenue guidance. Chr Hansen are up by over 2% following a positive earnings update and reports that their chairman will not seek re-election, with Dominique Reiniche to be nominated as the next chairman.

FX

JPY - The clear G10 outperformer and beneficiary of a downturn in Asia-Pacific stocks as jitters over global trade, protectionism and sanctions undermined sentiment. Usd/Jpy has retreated from 112.25 highs and through 112.00 to a 111.70 low, breaching the 55 DMA at 111.83, while Eur/Jpy is back below 129.50 alongside broadly softer Jpy crosses. From a technical perspective, 111.50 will be eyed next on the downside as a psychological marker and 50% Fib, roughly aligning with daily support around 111.47 plus decent option expiry interest between 111.55-40 (1 bn).

GBP - At the opposite end of the spectrum, the Pound has been undermined by a breakdown in talks between the UK and EU just days ahead of the latest scheduled Brexit summit that may now take the form of a no deal meeting given the ongoing Irish border impasse. Cable has managed to regain some composure and recoup losses under 1.3100, but Eur/Gbp is holding above 0.8800 where a hefty expiry lies (1 bn).

NZD/AUD - The next best majors and both extending gains above big figures at 0.6500 and 0.7100 respectively despite the aforementioned sell-off in equities overnight and Cnh weakness after a relatively stable Usd/Cny midpoint fix from the PBoC. Some support for the antipodean Dollars from firm commodity prices (oil and metals), while the Kiwi awaits NZ CPI data for Q3 later amidst expectations for a pick-up in headline inflation in q/q and y/y terms.

CHF/EUR/CAD - All narrowly mixed vs the Greenback that has eased off recent recovery highs (DXY back down towards 95.150 vs almost 95.400 at one stage), with the Franc not unduly ruffled by soft Swiss producer and import prices or latest comments from SNB chair Jordan stressing no need to adjust monetary policy and maintaining the option of direct intervention given the fragility of currency markets. Usd/Chf pivoting 0.9900 and Eur/Chf encircling 1.1450, as the single currency trades in a relatively narrow band either side of 1.1550 vs the Dollar. Note, the headline pair also has option expiries nearby with 1 bn running off from 1.1550-60, plus 1.2 bn on any break to 1.1500 or 1.1600-15.

EM - The Try remains bid just off 5.8160 peaks vs the Usd on follow-through buying/relief in wake of the release of US Pasto Brunson, while the Rub and Zar are also up vs the Buck (circa 65.6500 and 14.4500) on firm Brent and Gold.

COMMODITIES

Crude and Brent are up 0.6% and 0.9% respectively amidst supply concerns following possible U.S sanctions against Saudi Arabia over missing journalist Khashoggi, which Saudi say they will respond in kind to if implemented. Prices are currently just over USD 71.5/bbl and USD 81/bbl respectively. Additionally, IEA’s Birol stated that high oil prices are hurting consumers and that extra barrels will need to come to the market soon to avoid further tightening.

Gold is once again up with mass uncertainty in the market from unproductive Brexit talks, US-China trade war and Italian’s budget deadline day causing investors to move into the safe haven. Global trade tensions have also caused selling pressure in London metals causing prices to slip. Shanghai rebar steel futures climbed to their highest levels in over 3 weeks, boosted by expectations that China’s sustained anti-pollution campaign could further disrupt production.

FIXED INCOME

Not much change in core debt as the 10 year UK benchmark continues to marginally outpace its Eurozone equivalent having just eked out a fresh Liffe session high at 120.76 (+30 ticks), but Italian bonds have back-tracked from new intraday peaks of 120.49 to sub-120.00 again ahead of the budget presentation and a further Government meeting to finalise details and iron out any residual discrepancies. Meanwhile, Bunds have also lost some momentum after hitting some technical resistance at the early Eurex apex (158.84-87 flagged on some charts) and recently retreated to another low at 158.57 (+4 ticks), as US Treasuries remain depressed and the curve steeper in the run up to retail sales data.