• European equities kick start the week mixed with the FTSE MIB weighed on by banks amid stress test results
• The Times reported UK PM May secured private concessions from Brussels that will keep Britain in a customs union and avoid a hard border, this was later dismissed as speculation by Downing Street
• Dollar has lost some of Friday’s post-NFP recovery momentum ahead of the US mid-term elections and FOMC, but the index is holding relatively firm around 96.500
• Looking ahead, highlights include US ISM non-mfg PMI, EZ finance ministers to discuss Italy, ECB’s de Guindos, Praet, BoC’s Poloz, US Secretary of State Pompeo, EU’s Chief Negotiator Barnier and US 3yr Note Auction

ASIA

Asian equity markets began the week with a negative tone after last Friday’s losses on Wall St where the Nasdaq underperformed after tech giant Apple dropped nearly 7%, while sentiment was also dampened by soft Chinese Caixin PMI data and after US-China trade hopes were tempered by pessimism from NEC’s Kudlow. ASX 200 (-0.5%) and Nikkei 225 (-1.6%) were both pressured from the open although stocks in Australia briefly recovered in tandem with the price swings in its largest weighted financial sector as participants mulled over Westpac’s flat FY profits, while focus in Japan remained on corporate updates including index heavyweight Fast Retailing which slumped following a 10% decline in same-store sales. Elsewhere, Hang Seng (-2.1%) and Shanghai Comp. (-0.4%) were negative after US administration officials downplayed prospects of an imminent resolution to the US-China trade dispute and with Chinese Caixin Services and Composite PMI at the weakest since September 2017 and June 2016 respectively, while the PBoC Medium-term Lending Facility announcement and President Xi’s pledge to further open up China’s economy only helped plug losses momentarily. Finally, 10yr JGBs were marginally higher as the risk averse tone spurred demand for safety. This helped prices recover from Friday’s declines which coincided with a sell-off in T-notes and a surge in US yields by the most in the month following the NFP-beat.

PBoC skipped open market operations but conducted CNY 403.5bln 1yr Medium-term Lending Facility vs. Prev. CNY 265bln with rates unchanged at 3.30%. (Newswires)
PBoC set CNY mid-point at 6.8976 (Prev. 6.9371)

Chinese Caixin Services PMI (Oct) 50.8 vs. Exp. 52.9 (Prev. 53.1); lowest since September 2017
Chinese Caixin Composite PMI (Oct) 50.5 (Prev. 52.1); lowest since June 2016

Chinese President Xi said China pledges to open market to the world, while he added that countries must pursue open policy and oppose protectionism. Furthermore, President Xi stated that China will stimulate potential for increased imports and are to further reduce import tariffs. (Newswires)

BoJ minutes from September meeting stated that most members shared the view that the year-on-year rate of change in the CPI was likely to increase gradually toward 2% and that it is appropriate to continue easing persistently. Furthermore, the minutes noted that financial conditions are highly accommodative and that most members agreed momentum to target was intact. (Newswires)

BoJ Governor Kuroda said BoJ is aware continued loose policy impacts financial system stability and financial intermediation, while he added the BoJ must carefully watch demerits of easing and that large deflation policy is no longer the most appropriate. Kuroda also commented that when BoJ seeks to exit easy policy, the yield curve will steepen although that alone will not lift financial institutions out of structural problems, while he later reiterated there is no change in stance of reaching 2% target and that BoJ needs to continue easing persistently to the CPI target. (Newswires)

UK/EU

UK PM May secured private concessions from Brussels that will keep Britain in a customs union and avoid a hard border, while reports also noted Britain is on course for a future economic partnership deal with the EU. (Sunday Times) However, some sources noted that Downing Street had dismissed this as speculation. (Twitter) May will host a cabinet meeting on Tuesday and will reportedly tell ministers that failure to support her plans with make dissenters responsible for a no-deal Brexit. (Newswires)

UK Brexit Secretary Raab pressed UK PM May to take a hard line regarding Irish border and urged her to back plan to pull UK out of backstop plan at only 3-months’ notice. (Telegraph/FT)

Senior EU officials stated that UK PM May's chances of reaching an Irish border deal are '50-50' and that competing red lines between UK and EU continue to be incompatible in important areas. (Guardian)

Irish Foreign Minister Coveney tweeted "The Irish position remains consistent and v clear that a “time-limited backstop” or a backstop that could be ended by UK unilaterally would never be agreed to by IRE"; adding that “these ideas are not backstops at all, they don’t deliver on previous UK commitments”. (Twitter)

EU Commission spokesman says technical works continues in order to reach a Brexit deal; but we are not there yet. (Newswires)

UK PM May spokesman says Brexit talks are making good progress but there is still work to do; adding they do not want a backstop to be in place and are looking for a mechanism to deal with it. (Newswires)

BBC's Chief Political Editor Kuenssberg tweeted that talks still stuck on backstop mechanism, if there is to be a November summit there must be decisive process and Tusk won't press the button unless both sides are sure the makings of a deal are there (Twitter)

ITV's Political Editor Peston tweeted "The UK government has decided that unless there is a Brexit deal within a week, the default option of a no-deal Brexit becomes the probable outcome, which is why officials are working through the night", adding “The important dates are tomorrow, when the prime minister briefs her cabinet on the likely shape of a deal, and (probably) next Monday - which is the probable cut-off day for organising an emergency Brexit council of EU leaders.” The article also states that eyes re on UK Brexit Secretary Raab as “a few members of the Cabinet may prefer to resign than endorse what they would see as backstop”. (Twitter/Facebook)

RTE's Political Editor Connelly, after having spoken to various officials, tweeted "Dublin and the EU Task Force are still insisting on a Northern Ireland-specific backstop as a final safety net if the UK-wide customs arrangement doesn't work"

UK Markit/CIPS Services PMI (Oct) 52.2 vs. Exp. 53.3 (Prev. 53.9)
UK Composite PMI (Oct) M/M 52.1 vs. exp. 53.4 (Prev. 54.1)

Italian government are to call for a confidence vote in the upper house senate regarding the security bill, according to sources. (Newswires)

European Commission’s Vice President Dombrovskis reiterated that the Italian budget plan needs substantial adjustments. (Newswires)

US

Press reports speculate that any agreement reached between President Trump and Chinese President Xi is likely to be a temporary truce instead of a significant step forward. (Newswires)

European Commission’s Vice President Dombrovskis says that EU trade talks continue with the US but there is no deadline. (Newswires)

EQUITIES

Major European indices are mixed, with Spain’s IBEX 35 (+0.5%) leading the gains, and Italy’s FTSE MIB (-0.4%) lagging as the index is weighed on by local banking names such as Banco BPM (-2.5%) and Intesa Sanpaolo (-2.0%) as finance minister discuss Italy and amid the release of stress test results, which showed the former as the worst performing Italian lender following a slump in the nation’s bonds amid political turmoil. Furthermore, Barclays (-0.1%) and Lloyds Banking Group (-0.8%) were amongst the worst performers due to weak growth, credit losses and Brexit uncertainty.

Moving on, major sectors are mixed with utilities (+0.6%) and consumer staples (+0.6%) outperforming, while industrials are lagging (-0.5%).

In terms of individual equities, GAM (+2%) shares are in the green after being approached by Schroders (-1.6%) regarding a potential acquisition; which sources say GAM rejected. On the flip side, Hiscox (-7.3%) are lagging in the Stoxx 600, after their earnings showed a substantial increase in written premiums.

FX

USD - The broad Dollar has lost some of Friday’s post-NFP recovery momentum ahead of the US mid-term elections and FOMC, but the index is holding relatively firm around 96.500 as major pairings trade somewhat mixed.

GBP/NZD - Vying for top spot amongst G10 rivals, and perhaps surprisingly or unexpectedly as the Pound recovers from another UK PMI miss, and from the major services sector. However, Cable is back above 1.3000 from a knee-jerk dip to circa 1.2970 and still benefiting from latest press reports suggesting the EU has made concessions on the Irish border and customs front, albeit someway off high just over 1.3060 at one stage. Similarly, the Kiwi has rebounded firmly from overnight lows on the back of a pretty downbeat NZ Treasury business survey revealing a further deterioration in sentiment over Q3 and risks to the growth outlook for 2018 and next year due to global trade spats. Nzd/Usd back up around 0.6665 vs 0.6635 at worst, with cross-winds also helping as AUD/Nzd remains anchored near 1.0800 and Aud/Usd struggles to climb through 0.7200.

EUR/CAD/JPY/CHF - All underperforming vs the Greenback, with the single currency capped around 1.1400 and still wary about another Italy vs EU face-off on the budget, while the Loonie straddles 1.3100 after last Friday’s NA jobs data (Canadian not as upbeat as US, largely on soft wages) and ahead of a speech by BoC Governor Poloz. Usd/Jpy has nudged further beyond 113.00 and soaked up offers/hedges vs a modest 113.25 option expiry and the Franc is back under parity within a 1.0020-55 range.

EM - Regional currencies are broadly weaker vs the Usd with the Yuans undermined by less encouraging US-China trade vibes and weak Chinese PMIs, while the Try is pivoting 5.4500 in wake of Turkish inflation data showing a further rise in CPI.

COMMODITIES

WTI (-0.3%) and Brent (-0.1%) are just off session lows with choppy trade experienced in the complex following the implementation of oil-related sanctions on Iran by the US. Iranian President emerged stating that Iran will sell oil and break sanctions, while he added that Iran is open to talks with the US once President Trump respects commitments. Temporary exemptions are being granted to eight countries making the sanctions less severe than anticipated, additionally removing the risk of a supply shortage according some analysts. Furthermore, Iranian press noted that the terms of the Special Purpose Vehicle (SPV) with the EU will be announced soon. The SPV is the European effort to process Iran’s import and export payments. Diplomats said the details are being discussed by finance ministers, with EU Finance Ministers due to meet in Brussels on Tuesday, although the SPV was not on the agenda as of Sunday.

Gold (+0.1%) is flat and off of session highs as the yellow metal mirrors USD moves. Elsewhere, copper prices pulled back on profit taking and amid the averse risk tone.

FIXED INCOME

Only a fleeting uptick in Gilts on the UK services PMI miss before a retest of pre-release Liffe lows and subsequent minor loss of Fib support to 121.60 (-24 ticks vs +8 ticks at best), as the FTSE regroups alongside other EU indices, and only partly on currency effect. In truth, trade is all very choppy with Bunds also back down near worst levels traded on Eurex having climbed to 159.91 (+28 ticks) when Italian bonds lost grip of the 122.00 handle, and the 10 year Eurozone benchmarks now somewhat decoupled. However, US Treasuries remain on a modestly firmer footing and rather oblivious ahead of a big week, with mid-term election, Fed and supply risk all impending.