• Asian equities traded mixed after initially opening higher, Mainland China and Hong Kong were closed
• China is narrowing scope for a trade deal with the US ahead of principle-level talks in Washington this week, according to reports
• North Korea has terminated working level nuclear talks with the US due to US’ “old viewpoints and attitude”, according to NK
• UK PM Johnson is reportedly willing to go to the Supreme Court to avoid having to write a letter asking for a delay to Brexit
• Looking ahead, highlights include German Industrial Orders, US Consumer Credit, Fed’s Powell & Kashkari

TRADE

China is narrowing scope for a trade deal with the US ahead of principle-level talks in Washington this week, reports stated. Chinese officials this week are expected to come with an offer that doesn’t include anything on industrial policy or subsidies. Meanwhile on Friday, US President Trump said we have a very good chance of making a deal with China. (Newswires) Note: US equity futures gapped lower at the open amid the reports.

US President Trump tweeted that China devalued its currency and "therefore paying the cost!", adds "we are helping the great farmers of the USA to the tune of USD 28bln, for the last two years, paid for out of tariffs paid to the US by China"

EU regulators have opened a probe into Boeing (BA) and Embraer (ERJ) deal, citing competition concerns; will decide by February 2020. (Newswires) Further, EU antitrust enforcer Vestager will signal a further clampdown on US tech giants by imposing an interim order on Broadcom (AVGO), according to FT (FT)

EU to ease restrictions on Japanese food imports, according to NHK World. (NHK)

ASIA-PAC

Asian equities traded mixed after initially opening higher following the US jobs report, which was robust enough to temper recession fears but lacklustre enough to keep the Fed on track to cut rates again in October, albeit upside in the region is capped amid reports that China is narrowing scope for a trade deal with the US ahead of talks in Washington this week. ASX 200 (+0.7%) was kept afloat by mining names after base metals posted gains late Friday, meanwhile Nikkei 225 (-0.2%) traded lower throughout the session as exporters were pressured by an unfavourable currency. Elsewhere KOSPI (+0.2%) shrugged off the breakdown of North Korea/US denuclearisation dialogue on Sunday as South Korea focused on the upcoming large-cap earnings, with heavyweight Samsung Electronics expected to announce its Q3 guidance tomorrow. As a reminder, Hong Kong and Mainland China were closed due to public holidays.

Hong Kong court declined an injunction to suspend the anti-mask law. Separately, a second teenager has been shot in the leg by police and is in a serious condition, according to Sky News citing sources. It is not clear if the teenager was shot by a rubber bullet or a live round. (Newswires/Sky News)

Australian PM Morrison is reportedly rejecting calls to add new fiscal stimulus. (Newswires)

China Foreign Reserves (Sep) 3.092tln vs. Exp. 3.105tln – first decline in four months. (Newswires)

UK/EU

UK PM Johnson is reportedly willing to go to the Supreme Court to avoid having to write a letter asking for a delay to Brexit, as set out in the Benn Act, according to sources. (Telegraph) Additionally, UK PM Johnson reportedly reiterated that we will either have a new deal or a no deal but will not endorse a delay. (Newswires) Senior UK Government figures are reportedly considering a series of proposals to “sabotage” EU’s structure if Brussels does not agree to a new deal or lets UK PM Johnson leave the bloc without one, according to sources. Plans under consideration include blocking the EU’s 2021-27 budget which is due to be agreed early 2020. (Telegraph)

UK PM Johnson reportedly reiterated that we will either have a new deal or a no deal but will not endorse a delay. (Newswires)

EU diplomats have been briefed by the EU Commission that discussions are in a stalemate, citing the UK as not budging on custom checks and the timed backstop veto (Stormont veto). (FT) EU sources said Member States agreed that the UK proposals do not provide a basis for concluding an agreement; PM Johnson requested weekend talks on his Irish backstop proposals, but Commission doesn’t see more discussions as useful at this stage. (Newswires) Further, French President Macron said the EU will decide at the end of the week whether a Brexit deal is possible. (BBC) UK PM Johnson told French President Macron that he will not delay Brexit, spokesperson said the Britain will consider publishing a full legal text on proposals if deemed helpful. (Newswires)

Portugal’s incumbent Prime Minister Costa’s Socialists won a general election on Sunday but fell short of an outright majority. The Socialist Party (PS) took 37% of the vote, followed by the centre-right Social Democrats (PSD) with 28%, with 98% of constituencies counted, according to the interior ministry. (Newswires)

Fitch affirmed Belgium at 'AA-'; Outlook Stable. (Newswires)

GEOPOLITICS 

North Korea has terminated working level nuclear talks with the US. North Korea’s Chief Nuclear Negotiator said it was “totally due to the fact that US would not give up its old viewpoints and attitude”. (Newswires)

Apparent Iranian government-linked hacking operation targeted US President Trump’s re-election campaign, attempt was unsuccessful, sources said. (Newswires)

Turkish President Erdogan and US President Trump discussed in a telephone conversation the plan to establish a safe area east of the Euphrates in Syria. Erdogan expressed unease with the US military and added that security bureaucracies are not doing what is necessitated by the agreement between US and Turkey. President Trump agreed to meet with Erdogan in Washington next month, upon Trump’s invitation. US White House confirmed the call between the two Presidents and notes that US will not be involved or stand in the way of Turkey's long planned operation into Northern Syria. Turkey will now be responsible for all ISIS fighters captured in Northern Syria. (Newswires)

Japanese Government patrol boat is said to have collided with a North Korean fishing boat in the Japan North Sea, according to NHK, about 20 NK crew members are adrift in the Sea of Japan following the collision. (NHK) Japanese Fisheries Agency said the North Korean fishing boat was operating illegally. (Kyodo)

US President Trump is said to have ordered a substantial reduction in National Security Council Staff. (Newswires)

Iranian Oil Minister assured his Saudi counterpart that Iran did not start the dispute and that the enemies of the region abroad feed on the conflict between the two countries. (Al-Jezeera)

FX

In FX, the DXY traded sideways within a narrow intraday band ahead of this week’s key risk events which include US/China trade talks, FOMC and ECB Minutes, US CPI and a slew of Fed speak including a triple appearance from Fed Chair Powell. EUR/USD and GBP/USD traded flat above 1.0975 and 1.2300 respectively, with sources noting that UK PM Johnson is poised to go to the Supreme court to avoid having to write a letter to the EU asking for an another Article 50 extension, which comes as the PM’s Brexit proposals look increasingly unlikely to morph into a deal. Elsewhere, USD/JPY was initially subdued as reports of China narrowing its scope for a trade deal coupled with the breakdown in North Korea and US talks caused the pair to gap lower at the open, USD/JPY remained sub-107.00 with 1.6bln in options expiring at strike 106.70 at the NY cut. AUD/USD and NZD/USD were choppy and were subdued by the aforementioned China news, albeit more so the Aussie, as the pair tested 0.6750 to the downside and briefly dipped through the level. Meanwhile, Kiwi fared slightly better as the AUD/NZD cross fell back below the 1.07 mark, however some downside in NZD/USD coincided with ANZ forecasting the pair at 0.5900 by the end of March 2020, citing a lower OCR and uncertainty surrounding capital decision. Finally, USD/CNH gapped above 7.12 at the open (vs. a Friday close ~7.1080) and reached a high just shy of 7.1400 before drifting lower.

ANZ forecasts NZD/USD to 0.5900 by end of March 2020 and 0.6100 by end of June next year, citing RBNZ lower cash rate and uncertainty surrounding capital decision, ANZ sees the OCR at 0.75% in May 2020 (currently 1.00%)

COMMODITIES

WTI and Brent futures moved sideways after gapping lower at the open as the prospect of a US-China trade deal this week receded after reports stated that the range of topics China is willing to discuss has considerably narrowed. WTI fell back below 53/bbl while Brent traded just above 58/bbl (below its 200 WMA at 58.40/bbl) throughout the Asia-Pac session. Gold posted modest gains as the aforementioned China reports saw some flight to safety at the open, albeit most of the gains dissipated throughout the session. Copper remained flat and held onto its NFP-induced gains as the red metal sets eyes on this week’s risk events.

Chinese State Oil Company has pulled out of a USD 5bln deal to develop a portion of Iran’s offshore natural gas field amid escalating tensions with the US. (SCMP)

Motiva Port Arthur Texas Refinery (636k BPD) is to shut its small coker early next week for maintenance, according to sources. (Newswires)

Baker Hughes: Oil rigs -3 at 710, NatGas rigs down 2 at 144; Total rigs down 5 at 855. (Newswires)

US

* US T-NOTE (Z9) FUTURES SETTLE 5 TICKS HIGHER AT 131-29: Treasuries are mixed at the end of the week, though the bias is towards a flatter curve. The T-Note future surged immediately after the release of the September payrolls report, with traders raising bets that the data would lead to a Fed rate hike at the October meeting; the implied probability of an October hike started the week at around 40%, rising to 90% at one point in wake of grim ISM data, though is around 75% as we close out the week; that is despite the constructive tone of Fedspeak, where Chair Powell and Vice Chair Clarida seeing the economy in a good place. Meanwhile, the NY Fed has said it is extending its repo operations through 4th November, at the size of USD 75bln.

Fed Chair Powell repeated economy is in a good place despite some risks; inflation running close to, but below Fed's 2% target. (Newswires)

Fed's George (Voter, Dissenter, Hawk) said leaving US rates unchanged would have been appropriate, citing moderate growth, record-low unemployment and benign inflation outlook. If US consumer is losing confidence, the Fed might need to rethink position on rates, George says each meeting is a meeting to rethink views on rates. George added that it would be realistic to accept fluctuations by as much as 100 bps around the Fed's 2% target and currently, concerns about low inflation seems necessary, muted inflation would not warrant policy response unless downside risks materialise (Newswires)

Fed’s Rosengren (Voter, Dissenter, Hawk) said we have to keep in mind where we are in the cycle, we have low unemployment and inflation is near the 2% target, so a pace of jobs between 90-150k a month is normal for a healthy economy. Rosengren added that the overall US economic growth will be around 1.7% for Q3/Q4 in 2019 and the data in recent weeks is not a complete surprise, tariffs effecting both manufacturing and exports. Further, he said indicators for consumer spending remain strong and monetary policy is currently accommodative. (Newswires)

Fed's Mester (Non-voter, Hawk) said she is data-dependent and the US economy doing pretty well, jobs report was good; Fed knew economy would slow this year; headwinds on trade must be taken seriously. (CNBC)

Fed's Bostic (Non-voter, Dove) said stimulus is intended to address weaknesses and assist the economy through difficulties; and added that Fed is trying to determine if the economy is heading towards a soft or hard landing. (Newswires)

A second whistle-blower has come forward in the impeachment inquiry against US President Trump, according to lawyers representing the first one. (BBC) Meanwhile, US President Trump allies reportedly pressed Ukraine over its state gas company, according to sources cited by AP. (AP) US President Trump accused House Speaker Pelosi of being as guilty of treason as House Intelligence Committee Chairman for his characterisation of the call with the Ukrainian President. (Newswires) Key documents related to Ukraine are sought from US VP Pence by House committees. (US House)