• Asian equities traded with cautious gains in what was a volatile session amid a slew of contradicting trade headlines
• SCMP reported that Chinese delegation is cutting the trade trip short amid no progress on trade issues
• US is reportedly mulling some concessions regarding the currency pact, next week’s scheduled tariffs and Huawei but is to tighten inspections on parcels from China
• FOMC Minutes stated a few members said markets see more accommodation in the future than they see as appropriate
• FX markets whipsawed on the barrage of opposing trade headlines, DXY remains softer, JPY flat and Antipodeans firmer
• Looking ahead, highlights include Swiss CPI, UK GDP, Industrial Output, Manufacturing Output, Construction Output and Trade, US CPI and Initial Jobless Claims, Chinese M2 Money Supply, BoE’s Carney, Fed’s Kashkari, Daly, Mester and Bostic, ECB’s Lane, ECB Minutes, Banxico Minutes, OPEC Monthly Oil Report and Day 1 of US-Sino talks

TRADE

US and China made no progress on key trade issues in two days of deputy-level talks, sources said, and added the China trade team is now planning to leave Washington on Thursday, a day earlier than previously thought. Chinese delegation refused to talk about IP, sources stated. Further, sources noted that Chinese side had not made headway in persuading US negotiators to consider a freeze on tariff increases. (SCMP) It was later confirmed by Fox’ Lawrence, citing a Chinese trade source, that China trade delegation will leave after one day of talks, adding that no progress was made in US-China Deputy Level talks and the US will not suspend or roll back tariffs. (Twitter)

CNBC’s Tausche initially reported that China talks will still go through Friday, citing a Senior Administration source, "We are not aware of a change in the Vice Premier’s travel plans at this time” and there's a dinner planned for the delegation Thursday evening in Washington. However, the source later stated, "Friday is an "open question." One possibility that [Vice Finance Minister] Liao Min stays and [Vice Premier] Liu leaves. A Thursday departure also possible”, via CNBC’s Tausche. Fox’s Lawrence later added that the US team may find out today that Chinese delegation are cutting trade talks short. (Twitter)

US is reportedly weighing a currency pact with China as part of a partial trade deal which could also see a tariff increase next week suspended, according to sources. (Newswires) Further, NYT reported shortly after that US President Trump administration will soon issue licenses allowing some American companies to supply non-sensitive goods to the Chinese telecom giant Huawei, according to source. (NYT) However, the FT later reported that the Trump Administration is reportedly weighing options that would increase inspections on parcels from China in an attempt to crack down on shipments of contraband, according to sources. (FT)

Chinese officials said Beijing has lowered expectations for progress from the US trade talks this week, citing goodwill damaged by the blacklisting of the 28 Chinese companies. However, US President Trump said he does not lower his expectations for a trade deal with China this week. US Commerce Secretary Ross said China trade practices have gotten worse, US prefers not to impose tariffs but tariffs are forcing China to pay attention. US VP Pence said US will demand China open market in trade talks. (Newswires)

FOMC MINUTES

Most policymakers believed a 25bp cut was needed due to the economic outlook, risk management and inflation objectives; several noted statistical models of recession in medium term increased notably. Several policymakers favoured keeping rates unchanged, saying the baseline economic projection had changed very little and that uncertainties would not derail the expansion. A couple of policymakers preferred a 50bp cut and stressed that forward guidance might also be needed, and on the flip side, a couple said a rate cut might be too much insurance and could leave policy with less scope for future shocks. Reminder, Rosengren and George were the hawkish dissenters at the September meeting, whilst Bullard voted for a 50bps cut. A few said markets see more accommodation future than they see as appropriate and might need to better align market expectations with their expectations; Currently markets forecast 33.3bps (just over 1) of cuts by the end of 2019, and 76.8bp (just over 3) worth of cuts worth by the end of 2020. The FOMC are generally more concerned about risks associated with trade, geopolitics and global economy. Adding, although readings on labour markets and overall economy is strong, a clearer picture emerged on weakness on investment, factories and exports. On reserves, several suggested the consideration of an SRF as part of monetary policy; a few noted the possibility of resuming trend growth of balance sheet to stabilise the reserves, and policymakers agreed recent money market developments implied they should soon talk about the appropriate level of reserve balances.

ASIA-PAC

Asian equities traded with cautious gains in what was a volatile session amid a plethora of positive/negative trade headlines and source reports. The initial pessimism from the SCMP article saw the E-mini S&P futures drop almost 40 points, although the index future recovered most of its losses after being swayed on journalists’ updates on Twitter, but the notable upside stemmed from sources which suggested US is mulling a currency pact which would also see a suspension to next week’s planned tariffs on China. Finally, the FT report, which placed an additional obstacle in trade talks, saw US equity futures pause just under the levels seen at the beginning of the session. Back to Asia-Pac, ASX 200 (-0.2%) was initially cushioned by gold miners amid firmer prices in the yellow metal at the Australia cash open, whilst Nikkei 225 (+0.1%) swung between gains and losses in tandem with the JPY. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp (+0.2%) opened flat but drifted into positive territory (albeit off highs) as the NYT reported (citing sources) that the Trump Admin is willing to let some US firms deal with Huawei, thus signalling that US is seemingly willing to make some concessions ahead of trade talks.

Hong Kong officials are reportedly struggling to come of with impactful "big bang" measures ahead of Chief Executive Carrie Lam's policy address next week, according to sources. (SCMP) PBoC set CNY mid-point at 7.0730vs. Exp. 7.0862 (Prev. 7.0728) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 20bln

UK/EU

EU insists a Brexit extension will not be granted without a new referendum or general election, according to The Times. (Times) UK Labour Party will grant UK PM Johnson a general election on November 26 if Brexit isn’t delivered by October 21st, according to the Sun citing sources. (Sun)

UK PM Johnson will meet Irish PM Varadkar on October 10th at 1200BST. (Newswires) UK Brexit Minister Barclay's visit to Brussels has been delayed until Friday, according to AFP citing an EU source. (Twitter)

Top Advisor for UK PM Johnson, Nikki Da Costa has resigned, according to The Sun's Tom Newton Dunn. (Twitter)

Downing Street position is still very much that PM could adopt a 'straight no-deal' position if talks collapse, despite UK PM Johnson assuring he will not commit the conservative party to a no-deal manifesto, according to The Times. (Times) Former UK Chancellor Hammond says that Brexiteers should abandon their dreams of signing free-trade deals around the globe after leaving the EU because of their “very limited” economic value. (Telegraph)

ECB’s MPC reportedly advised against resuming APP in a letter to ECB President Draghi and other members of the Governing Council days before the September decision, according to sources cited by the FT. (FT)

Eurozone countries have reportedly reached a deal on budget for investment and reforms, according to sources. A News Conference outlining to the details is to take place at 0830BST. (Newswires)

UK RICS Housing Survey (Sep) -2 vs. Exp. -7.0 (Prev. -4.0) (Newswires)

GEOPOLITICS 

Bipartisan framework for Turkey sanctions includes targeting Turkish President Erdogan's assets, imposing Visa restrictions and defining the purchase of Russian S-400 Missile System as "significant" and subject to sanctions. (Newswires)

Turkish troops have entered Northern Syria and started ground operations, according to the Defence Ministry. Reports also noted that the Turkish bombing in border region killed 3 SDF fighters and 5 civilians with dozens injured. Further, the White House called the Turkey operation in Syria a "bad idea". (Newswires/Twitter) US President Trump reportedly knew ‘precisely’ about the scope of the Northern Syria operation, according to CNN citing Gulnur Aybet, Senior Adviser to the President of Turkey.  (Newswires)

FX

FX markets whipsawed amid the flurry of opposing trade reports, with the initial risk aversion emanating from the SCMP sources article which stated that trade talks will be cut a day short. This saw USD/JPY decline from 107.45 to a low just shy of 107.00, whilst high-beta currencies saw downside with AUD/USD and NZD/USD falling to session lows of 0.6705 and 0.6275 respectively. Further, USD/CNH saw substantial upside and reached a high of 7.1680 whilst DXY remained near intraday highs of 99.07. However, later headlines which suggested that US is weighing a currency pact which could see the scheduled tariff increase suspended, coupled with source reports that the Trump administration will soon issue licensing allowing some US firms to deal with Huawei saw a bout of risk appetite. USD/JPY reversed the earlier move and reached a peak of 107.80 (with USD 1.3bln in option expiring at 107.70) whilst AUD/USD and NZD/USD rose to session highs (0.6755 and 0.6313 respectively). USD/CNH fell briefly fell below its 50 DMA (7.1061) and the 7.1000 mark to a low of 7.0950, and the DXY hit session lows (at the time) to test 99.00 to the downside. In another twist, FT reported that the Trump Administration is reportedly mulling increased inspection in parcels from China, which could add a new point of friction. Thus, some of the price action pared back with USD/JPY stabilising around 107.50, AUD/USD and NZD/USD moved back to around 0.6740 and 0.6300 respectively, whist USD/CNH moved back above its 50 DMA and DXY settled middle the range after little reaction to the FOMC minutes. As trade headlines died down, DXY continued to print session lows as participants digested the barrage of headlines and thus G10 FX (ex-JPY) hit session highs. EUR/USD and GBP/USD largely moved at the whim of the Buck.

COMMODITIES Another trade-driven story, WTI and Brent futures found bases at 51.40/bbl and 57.80/bbl respectively as sentiment and demand outlook took a hit on the SCMP article, although prices recovered back above 52/bbl and 58/bbl following a volley of US-China headlines. The benchmarks remain lower on the day ahead of the OPEC Monthly Oil Report, with participants eyeing OPEC members’ production figures as the global oil demand forecast may prove somewhat stale as trade talks in Washington go underway. Elsewhere, gold has given up a bulk of its earlier gains after it hit an intraday high of 1517/oz amid the SCMP-induced risk aversion. The yellow metal resides sub-1510/oz but above its 50 DMA (1506/oz) as all eyes turn to developments in Washington. Meanwhile, copper prices were also swayed by the aforementioned headlines, but the red metal is poised to end the Asia session in the green after testing its 50 DMA (2.58/lb) to the upside.

US

* US T-NOTE FUTURES (Z9) SETTLED 13+ TICKS AT 131-09: The TPLEX drifted lower through the session as risk appetite improved in reaction to (somewhat) progressive developments out of the Chinese delegation, who showed interest in making some progress in talks. The September meeting FOMC minutes had a muted reaction on the Treasury curve with market pricing for future cuts little changed. By settlement yields were higher by 4.5bps across the entire curve. The 10-year Treasury auction held-up decent, stopping through the WI by 0.1bps and covered 2.43x, above the six-auction average of 2.38x, although indirects took a haircut off their average.