• Asian equity markets were mostly subdued following the weak lead from Wall St, Australia outperformed
• Chinese Foreign Minister said China is willing to buy more US products needed by the Chinese market, ahead of principal-level talks on October 10-11th in Washington
• Pentagon is to send 200 troops, a missile system and radar equipment to Saudi Arabia following the attack on its oil facilities
• In FX markets, the DXY was firmer, EUR/USD edged further below 1.1000; USD/JPY and JPY-crosses were indecisive
• Looking ahead, highlights include EZ Economic Sentiment, US Personal Income, Core PCE, PCE Price Index, Durable Goods, University of Michigan (F), Baker Hughes Rig Count, BoE’s Saunders, ECB’s de Guindos, Lane, Weidmann, Riksbank’s Floden, Fed’s Quarles and Harker

ASIA-PAC

Asian equity markets were mostly subdued following the weak lead from Wall St where all major indices finished negative on what was a choppy session due to trade uncertainty and as political concerns regarding the whistleblower complaint lingered. ASX 200 (+0.4%) and Nikkei 225 (-1.4%) were mixed in which Australia bucked the overall downbeat trend in the region ahead of next week’s anticipated RBA rate cut although metal names and gold miners lagged as the precious metal eyed the USD 1500/oz level to the downside, while the Japanese benchmark was led lower by losses in Kansai Electric after reports of illicit payoffs and with notable declines in SoftBank due to the ongoing WeWork woes. Hang Seng (-0.3%) and Shanghai Comp. (Unch.) trades lacklustre as participants mulled over the latest trade rhetoric in which an official stated the US is unlikely to extend temporary waivers to supply Huawei although reports later noted no decision has been made and US-China talks are to resume on October 10th-11th, while the latest data provided no comfort as Chinese Industrial Profits contracted by 2%. Finally, 10yr JGBs were higher with mild support seen amid underperformance of stocks in Tokyo but with the gains in bonds capped by predominantly weaker results at the 2yr JGB auction. 

PBoC injected CNY 30bln via 14-day reverse repos for a net daily drain of CNY 10bln. (Newswires) PBoC set CNY mid-point at 7.0731 vs. Exp. 7.0883 (Prev. 7.0729)

Chinese Industrial Profits (Aug) Y/Y -2.0% (Prev. 2.6%). (Newswires)

Chinese Foreign Minister Wang Yi said China is willing to buy more US products needed by the Chinese market as the US has shown goodwill by waiving tariffs on Chinese products. Furthermore, he hopes both sides can take more "enthusiastic" measures and reduce both negative language as well as actions in the trade dispute, while he added that if everyone does this the talks will yield results. (Newswires)

US-China principal-level trade talks will take place on October 10-11th in Washington DC, according to CNBC citing sources. (CNBC)

UK/EU

UK PM Johnson faces a revolt in which 3 Cabinet ministers plan to confront him after the Tory annual conference and demand he drops the strategy of trying to bluff EU with the threat of a no-deal, as well as insist he accept a last-minute deal. (The Sun)

EU's Juncker said we are doing all we can to achieve a deal and that it will be Britain's fault if we don't. (Newswires)

ECB's Lane said we are experiencing a temporary weakness in the economy but added there is no recession and the risk of deflation is small. (Handelsblatt)

UK GfK Consumer Confidence (Sep) -12.0 vs. Exp. -14.0 (Prev. -14.0). (Newswires)

FX

In FX markets, the DXY was firmer after having made its way back above the 99.00 level to approach its best levels in 2 years, while its major counterparts were subdued in which EUR/USD edged further away from the 1.1000 handle and with GBP/USD lacklustre amid Brexit uncertainty with UK PM Johnson insisting that Brexit will happen on October 31st and that there is good chance of getting a deal, although many disagree with this as some EU sources described the chances of the UK and EU reaching a deal as nil. Elsewhere, USD/JPY and JPY-crosses were indecisive amid a similar risk tone in the region, and antipodeans also lacked conviction due to their high-beta statuses with only minimal gains seen following a firmer than expected PBoC reference rate setting, while there were also comments from Morgan Stanley on the RBA in which it suggested next week’s decision could be a close call and that the RBA may be waiting to see more economic data.

COMMODITIES

Commodities were mostly subdued amid the lacklustre risk tone which weighed on oil prices in which WTI crude futures faded some of the geopolitical risk premium seen in late US trade on the back of reports the US was sending missiles and sentinel radars to bolster the Saudi defence forces. Elsewhere, gold remained stuck near the psychological USD 1500/oz level amid a firmer greenback, while the attempt to nurse losses in copper was limited by the lack of risk appetite. 

GEOPOLITICS

Pentagon is to deploy one patriot battery, four sentinel radars and 200 support personnel to Saudi Arabia and the US is looking for contribution from other countries also. (Newswires)

EU has warned that it may be forced to start withdrawing from the nuclear deal in November if Iran goes ahead its threats to takes new steps away from the deal. (Guardian)

Iran President Rouhani reiterated the regional crisis can only be resolved through diplomacy, while he reiterated Iran was not involved in the attack and that Tehran does not need to provide evidence. Furthermore, Rouhani said some talks did take place with the US regarding a prisoner swap in which Iran released a prisoner but the US did not reciprocate. In related news, UK tanker Steno Impero which was detained by Iran has left Iran’s Bandar Abbas Port. (Newswires)

US Secretary of State Pompeo said the US has concluded that Syria’s Assad government used chlorine as a chemical weapon on May 19th and the US has sanctioned two Russian entities for providing fuel to Syria. (Newswires)

US Secretary of State Pompeo said US was not able to arrange working level meeting with North Korea in September but the US is ready to meet and believes it is important to do so, while other reports suggested US officials may be in North Korea to lay the groundwork for talks which could take place in the next few weeks. (Newswires/Korea Times)

North Korea said lack of progress casts doubts on prospects for future summit with US and that US failure to implement agreements make breakthrough doubtful but added that it sees US President Trump as different and places hope on his wisdom and bold decision. (KCNA)

Turkish President Erdogan said issues of F-35 jets with US is not yet completely resolved and proposed to US President Trump to buy Patriot defense system if US can match Russia S-400 deal. (Newswires)

US

After Wednesday's bear-steepening on trade optimism, the curve bull-flattened overnight, with desks suggesting the 'impeachment' story remaining influential and that Trump’s off-the-cuff remark on a China trade deal seems to be have been just that, lacking much rationale for the optimism. The US sold USD 32bln in 7-year notes, stopping through the WI by 0.5bps, a notable rebound from the prior 2bps tail; it was a decent auction, printing an above average B/C ratio of 2.49x, with dealers taking below average and indirects taking a chunky 65.2%. US T-note futures (Z9) settled 10+ higher at 130-09.

NY Fed maintained its overnight repo operation at USD 100bln and 14-day term operation at USD 60bln for operations on the 27th September. (Newswires)

Fed's Clarida (voter, neutral) said rising wages were not putting upward pressure on inflation which was running close to the Fed's target and that inflation expectations were consistent with price stability, while he added that the neutral rate appears to have fallen and that the natural rate of unemployment could be 4% or below. (Newswires)

Fed's Barkin (non-voter, hawkish) said the recent rate cuts does not mean the Fed is in a prolonged easing period and that the economy is giving mixed signals due to the strong labour market but low inflation. Barkin added that not easing could undermine the credibility of the 2% inflation target or leave policy makers behind the curve if growth slows further, but over easing could overstimulate inflation, distort labour markets or fuel an asset price bubble, while he suggested that it is too early in the cycle to determine if another rate cut is needed. (Newswires)

Fed's Kashkari (non-voter, dove) said he advocated for a steeper rate cut at the September meeting, while he stated there are some signs US businesses are slowing hiring but also noted they are seeing wages slowly start to pick up. (Newswires)