• Asian equity markets were negative and followed the lead from Wall Street, ASX 200 underperformed, Mainland China and Indian markets were shut
• North Korea fired short-ranged projectiles towards the East Sea, one missile reportedly landed inside Japan’s Exclusive Economic Zone (EEZ)
• UK PM Johnson will today unveil a new ‘two borders for four years’ Brexit plan which will leave Northern Ireland in a special relationship with Europe until 2025
• Irish Foreign Minister Coveney said the UK PM’s Brexit plan does not look like basis for an agreement, DUP sources confirmed that the party is largely “content” with the proposals
• In FX, DXY held onto a bulk of its recent losses, JPY, EUR and GBP were flat, Aussie and Kiwi modestly outperformed
• Looking ahead, highlights include UK Construction PMI, US ADP National Employment and EIA Weekly Crude Stocks, ECB’s de Guindos, Fed’s Harker, Williams, Evans, UK PM Johnson, EU27 Ambassadors’ meeting and supply from Germany

ASIA-PAC

Asian equity markets took the cue from the negative lead on Wall Street where the major indices declined on the first day of Q4 after US ISM Manufacturing PMI contracted to its worst level since June 2009. Losses in ASX 200 (-1.3%) accelerated after NAB shares tumble 3% amid an additional AUD 1.2bln charge relating to increased provisions for customer-related remediation, whereas upside in the Nikkei 225 (-0.5%) was limited by the unfavourable currency flow, whilst Toyota shares slumped due to poor North American vehicle sales and Sony remained near the bottom of the index after cutting streaming prices ahead of Google’s Stadia launch. Elsewhere, the Hang Seng (-0.3%) climbed off lows after returning from a long weekend, albeit oil giants remained pressured after Norway’s Sovereign Wealth Fund received the green light to sell USD 6bln worth of oil and gas stocks, meanwhile upside in the index was capped by the ongoing situation in Hong Kong as protestors vowed to step up action after a police officer shot a teenager yesterday. Meanwhile, South Korea’s KOSPI (-1.4%) was pressured after North Korea fired short-ranged projectiles towards the East Sea. As a reminder, Mainland China and Indian markets were closed today due to public holidays.

UK/EU

UK PM Johnson will today unveil a new ‘two borders for four years’ Brexit plan which will leave Northern Ireland in a special relationship with Europe until 2025. Under the terms of the proposal, Northern Ireland would continue to follow all EU single market rules for agricultural and industrial goods until 2025, four years after the end of the ‘transition’ period in 2021. Elements of the deal (particularly the creation of two borders), are understood to have puzzled senior European diplomats and officials. (Telegraph) Irish Foreign Minister Coveney said if the Telegraph reports are true, it does not look like basis for an agreement, however DUP sources have confirmed that the party is largely “content” with the proposals, which are believed to still include a lot of elements of the backstop and  a “Stormont lock” which gives NI politicians a say in future EU rules. (Newswires/Guardian) Separate reports noted that officials and diplomats in Brussels are concerned that UK PM Johnson's plan has been specially designed to be unacceptable to the EU. (Times) UK PM Johnson says he has nine days left to negotiate a Brexit deal with the EU as on October 11th, the agenda will be set for the EU summit taking place on October 17th. (Sun)

Three EU sources stated the EU is not considering or have discussed a time limit on the backstop, however added that there are 27 countries and that they cannot rule out brainstorming outside of the EU formal process, according to The Guardian's Rankin. (Twitter) This follows sources reports that the EU is ready to consider time limit on Irish border backstop, considering a backstop for Northern Ireland only and reportedly sees possible concessions if the UK accepts backstop. EU27 Ambassadors will be meeting this afternoon, according to BuzzFeed's Europe Editor Nardelli. (Twitter)

Senior UK government official said the government is working for a new deal or a no-deal Brexit, there will be no delay. (Newswires) UK Downing Street is planning to prorogue parliament for three days next week to prepare for the Queen's speech on October 14th. (Sun)

UK Chancellor Javid is expected to delay the Budget until after October 31st amid uncertainty about whether the UK will leave the EU with a deal. (FT)

ECB's Weidmann (Hawk) said it is important that intensive discussions on far reaching measures such as government bond purchases are held, hoping decision will not lead to APP restrictions being called into question. Weidmann called for intensive discussions if it is to avoid pitfalls such as giving the impression the ECB is bankrolling governments. (Newswires)

GEOPOLITICS 

North Korea fired short-ranged projectiles towards the East Sea, Yonhap reported. Japanese Cabinet Minister Suga said the launch did not directly impact Japan but one North Korean ballistic missile landed inside the Exclusive Economic Zone (EEZ) and one outside. Japanese PM Abe condemned the North Korea launches and added that it violates UN resolutions. Further, Japanese PM Abe will hold a meeting of the National Security Council to decide how to respond to the projectile firings. In terms of details, South Korean Defence Ministry said the missiles launched by North Korea have a range of circa 1300km and was likely launched at a higher apogee to decrease range and could have been fired from a submarine. Japan has not yet determined whether North Korea's missiles were Submarine-launched ballistic missile and notes it may have been one missile which split into two. The White House said it is aware of the launch and is monitoring the situation. (Newswires/SCMP)

Saudi Arabia Foreign Minister said Iranian claims that Saudi Arabia has sent messages to the Iranian regime are inaccurate, WSJ's Summer Said reported. The Foreign Minister said, “Regarding what the Iranian regime’s spokesman referred to about de-escalation in Yemen, the Kingdom did not and will not talk about Yemen with the Iranian regime.” (Twitter)

FX

In FX markets, the DXY held onto a bulk of its recent losses after its slide from YTD highs down towards the 99.00 mark amid persisting weakness from the dismal US ISM Manufacturing metric. Thus, EUR/USD and GBP/USD have clung on to most of its Dollar-induced gains as the former hovered just below the 1.0950 level, whilst the latter meandered around 1.2300 ahead of PM Johnson’s formal unveiling of his final Brexit plan. Elsewhere, the JPY remained underpinned by the risk sentiment, with overnight focus on the geopolitical landscape as North Korea test-fired projectiles in which one reportedly landed inside Japan’s Exclusive Economic Zone. USD/JPY resided around its 100 DMA (107.76) with just under 1bln in options expiring between strikes 107.50-70 ahead of the pair’s 50 DMA at 107.05. Meanwhile, antipodeans are modestly firmer amid the Dollar’s demise, NZD/USD tested 0.6250 to the upside whilst its Aussie counterpart reclaimed the 0.6700 handle following yesterday’s fall to YTD lows (0.6670). 

Goldman Sachs economists say the RBA's internal economic model suggests the Central Bank will need to release a USD 200bln QE programme to achieve its unemployment and inflation targets. (AFR)

Mexico's Finance Minister said he is optimistic that the "New North American Trade Deal" will be ratified by US congress. (Newswires)

COMMODITIES

WTI and Brent futures have recovered off the ISM-influenced lows as the benchmarks received a modest lift from the API crude inventory data which showed a surprise draw in headline crude stocks, albeit upside was limited as the internals were mostly bearish. WTI has reclaimed 54/bbl to the upside (ahead of its 50 WMA at 56.34/bbl), whilst its Brent counterpart regained USD 59/bbl+ status. Elsewhere, gold prices were uneventful after finding a base at 1460/oz yesterday, with the next level to the upside at 1496/oz (50 DMA). Meanwhile, copper benefitted from the softer Buck after the red metal price briefly saw one-month lows on the poor ISM metric.

API Crude Inventories -5.9mln (exp. +1.6mln, Prev. +1.4mln) (Newswires) API Cushing Inventories +0.37mln (Prev. +2.3mln) API Distillate Inventories -1.7mln (exp. -1.8, Prev. -2.2mln) API Gasoline Inventories +2.1mln (exp. +0.4mln, Prev. +1.9mln)

US

*US T-NOTE FUTURES (Z9) SETTLED 11 TICKS HIGHER AT 130-21: The TPLEX lived up to its haven status, disappointing US ISM data saw yields break lower as investors flocked into sovereign bonds amid US growth concerns jumping right back into the limelight and of such raising chances of further Fed accommodation. However, prior to the US session Fixed Income assets were on the backfoot, with JGBs leading the losses after a disappointing 10-year auction; desks were attributing the move as somewhat of a “taper tantrum” amid the BoJ’s latest efforts in reducing its bond purchases to steepen the curve. Fed’s repo operation was again undersubscribed in more evidence to easing liquidity conditions in money markets. By Treasury settlement the curve had bear steepened, no part assisted by growing market expectations of an October rate cut by the Fed, with the 2-year yield down by 6bps, 10-year yield down by 2bps, and the 30-year yield little changed.

Australia's Labor party is intensifying its demands for the Australian PM Morrison to release the transcript of a conversation with US President Trump, accusing the PM of cosying up to the US President at the expense of Australia's national interest. (ABC) As a reminder, this follows reports US President Trump pushed Australian PM Morrison for information to discredit the Mueller probe.