• European bourses are mixed/little changed overall, as focus remains firmly on US-China updates
• SCMP reports that Chinese delegation is cutting their trip short due to a lack of progress
• FBN’s Lawrence highlights that the China team have been debating leading early, may hinge on today’s talks
• US is reportedly considering some concession on a currency pact, next week’s tariffs and Huawei
• USD is softer vs. G10 peers, while the debt complex remains slightly firmer Stateside though the 10yr is borderline
• Looking ahead highlights include US CPI and Initial Jobless Claims, Chinese M2 Money Supply, Fed’s Kashkari, Daly, Mester and Bostic, ECB’s Lane, ECB Minutes, Banxico Minutes, OPEC Monthly Oil Report (12:45BST) and Day 1 of Principal level 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. Subsequently reporting that the Chinese delegation went back and forth on whether they are staying for Friday talks, sense is moves this week re. entity list and visa's soured the atmosphere; whether they stay could still depend on today.

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)

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)

China's MOFCOM urges the US to stop unreasonable pressure on Chinese companies, including Huawei. (Newswires)

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 (U/C) was initially cushioned by gold miners amid firmer prices in the yellow metal at the Australia cash open, whilst Nikkei 225 (+0.5%) swung between gains and losses in tandem with the JPY. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp (+0.8%) 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

US

French Finance Minister Le Maire says there is no settlement in the trade war with the US and the EU will have to retaliate. (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) Subsequently, Turkish Defence Ministry states that they have seized designated targets in the north east of Syria. (Newswires)

North Korea says the UN security council meeting and the US' ballistic missile tests are provocative, may reconsider steps to rebuild trust with the US, according to ICNA. (Newswires)

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)

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)

- ECB's Rehn says the FT article about MPC reportedly advising against resuming APP in a letter to ECB Draghi is exaggerated. (Newswires)

UK GDP Estimate MM (Aug) -0.10% vs. Exp. 0.00% (Prev. 0.30%, Rev. 0.40%)

- UK GDP Est 3M/3M (Aug) 0.30% vs. Exp. 0.10% (Prev. 0.00%, Rev. 0.10%)

- ONS says September GDP would need to slip to 1.4% or 1.5% M/M for GDP in Q3 to be zero and have received no anecdotal reports of Brexit preparations affecting GDP in August.

EQUITIES

Major European bourses mixed, as the market digests a plethora of mixed US/China trade headlines during AsiaPac hours, ahead of principal level talks between the two sides today that resulted in tumultuous back and forth trade overnight. A bout of selling at the European open coincided with some comments out of China MOFCOM (condemning the US for smearing China over treatment of Uighars and for putting pressure on Chinese companies incl. Huawei), although the move quickly pared and although now higher, Indices are still well within overnight ranges. The CAC 40 (+0.5%) is an outperformer, with better than expected earnings from LVMH (+4.1%) and Christian Dior (+3.5%) propping up the index and pulling other luxury names such as Kering (3.2%) higher. Conversely, the FTSE 100 (unch.) is lagging on sterling strength on account of the broadly weaker buck. Looking ahead, though trade developments will likely continue to be the crucial driver of sentiment today, traders will also be watching US CPI, a slate of Central Bank speak from Fed’s Kashkari, Daly, Mester and Bostic and ECB’s Lane for any more clues as to the next move from two of the world’s most important central banks. In terms of the sectors, the picture is mixed; Consumer Discretionary (+1.0%) is the outperformer on aforementioned outperformance in luxury names. The defensive Utilities (-0.5%), Health Care (-0.6%) and Consumer Staples (-0.7%) sectors are the underperformers, while Tech (-0.1%) and Industrials (-0.1%) are also lower. In terms of other individual movers, Lafargeholcim (+2.0%) opened higher after Co. reportedly decided not to bid for Bayer’s USD 3bln Mortar Business, news which saw the latter’s share price fall substantially. Phillips (-8.0%) sunk after earnings underwhelmed. BHP Billiton (+1.5%) shares were supported on the news that Standard Life Aberdeen (+0.9%) own a 4.9% stake in the Co. and are reportedly urging them to suspend membership of groups which engage in obstructive lobbying for the broad fuel industry.

FX

USD - The Greenback is softer across the board following FOMC minutes that revealed a bit more polarisation beyond the official divergent dissentions, but a higher recession risk via statistical models that warranted and justified the second insurance cut. Moreover, the Fed remains ready to respond to further threats and headwinds with Chair Powell signalling balance sheet expansion in separate comments, albeit for reserve rather than monetary policy purposes. Ahead, the first weekly claims update post-NFP, while headline inflation data follows weak PPI, as the DXY slips back below 99.000 to test the water under the 21 DMA (98.780) within a 99.073-98.653 range.

NZD/AUD/EUR/CHF/GBP - The major beneficiaries of general US Dollar weakness and probably some anticipation or at least hope that out of the mass of conflicting reports on US-China trade talks some form of progress emerges towards a deal. The Kiwi is forming a base above 0.6300 ahead of NZ manufacturing PMI, the Aussie appears more buoyant around 0.6750 and the Euro has finally cleared stiff resistance to breach 1.1000 on the way through a Fib retracement at 1.1021, with 1.1050 next on the radar before another Fib at 1.1055. Elsewhere, the Franc is approaching 0.9900 again, but lagging behind the single currency with the cross elevated between 1.0940-00 parameters and a hefty 1.1 bn Eur/Chf option expiry at the base looks safe for now, if not over the NY cut. Meanwhile, Sterling remains prone to breaking Brexit headlines awaiting PM Johnson’s meeting with his Irish counterpart at midday, but also digested a data deluge that was soft overall albeit not as bad as some feared perhaps. Thus, Cable has survived another scrape with 1.2200 and stops on a break of 0.9000 in Eur/Gbp did not trigger too much further upside.

CAD/JPY - The Loonie and Yen have been subject to US-China trade news congestion and knock-on swings in risk sentiment, but both gleaning traction from the aforementioned Buck underperformance, as Usd/Cad retreats to 1.3300 from 1.3345 and Usd/Jpy pares back between 107.75-04 bounds and decent expiry interest spanning 107.00, 107.35-50 and 107.70 (1.2 bn, 1.5 bn and 1.3 bn respectively).

SEK/NOK/CNH/TRY - Somewhat mixed fortunes for the Scandi Crowns as Eur/Sek reverses sharply from new decade highs circa 10.9325 to almost 10.8300 on the back of firmer than forecast Swedish inflation data, but Eur/Nok meanders within 10.0880-10.0480 ‘extremes’ after inconclusive Norwegian CPI prints. Similarly, Usd/Cnh is on the soft side and not far from a 7.1000 low on the US-China trade hype in contrast to Usd/Try edging closer to 5.9000 as Turkey’s Syria mission continues amidst mounting international condemnation.

FIXED

Bunds and Gilts continue to collapse following the break below prior weekly lows, with new intraday bases just hit at 173.42 and 134.09 respectively, but contagion along the UST curve remains contained post-FOMC minutes and pre-CPI/initial claims, which could offer some interim impetus and distraction pending more updates on the state of US-China trade negotiations. Prior to all that, Brexit developments and ECB minutes will be eyed for more on the backstop saga and divisions about unleashing another round of APP that seems to have been opposed beyond the GC. Note also, the last leg of this week’s US supply after indifferent 3 and 10 year auctions.

COMMODITIES

The crude complex is slightly lower on Thursday morning, although price action for now largely mirrors that in the equity market, following similarly choppy moves on the mixed trade headlines overnight. In terms of supply updates; Ecuador’s Petroecuador declared a force majeure on exports yesterday after local unrest resulted in the closure of oil fields. The country exported roughly 0.315mln BPD of crude oil in September 2019; ING point out that nearly half of it went to the US West Coast and as such a lack of oil supplies from Ecuador could create some shortages at the West Coast in the short term. Additionally, Shell lifted a force majeure on Bonny Light exports from Nigeria (in place since 13 September), bringing around 0.150mln BPD back online. However, crude markets remain seemingly fixated on demand side factors for now, with the outcome of today’s principal level talks between the US and China likely the key determinant of near-term direction, although traders will also be eyeing OPEC’s Monthly Oil Report at 12.45 BST. In terms of levels; technicians will be eyeing support at USD 51.40/bbl (yesterday’s low) and USD 51.00/bbl (low of the 3rd) and resistance at USD 53.70/bbl (yesterday’s high) and USD 54.00/bbl (high of the 7th) for WTI Nov’ 19 futures. For Brent Nov’ 19 futures, recent highs at the USD 59.35/bbl and USD 59.70 levels may provide some resistance, while Wednesday’s USD 57.40/bbl low may provide some support. Over in the metals complex; price action in Gold has calmed down after the overnight action, with the precious metal currently range bound between the USD 1509/oz and USD 1515/oz levels, well of last night’s USD 1522/oz highs. ING note strong demand for the yellow metal; “Gold ETF investments increased by 0.2mOz yesterday, the seventeenth consecutive day of increases in gold ETF holdings”, the bank notes. Demand for safe-haven gold continues to be strong, they argue, due to the uncertainty over the US-China trade talks, increasing possibilities of another Fed rate cut and geopolitical tensions in the Middle East including the recent clashes between Turkey and Syria. Copper, which also saw choppy action overnight, is higher, after breaking above its USD 2.59/lb 50DMA.