• European bourses are firmer this morning as US-China flow has been light following yesterday’s positivity from US President Trump; is to meet China VP He at 19:45BST
• EU’s Tusk says UK PM Johnson is yet to bring forward suitable proposals, have received positivity signals from the Irish PM
• Reports that a Iranian tanker has been hit by missiles near a Saudi port, currently unclear as to where these originated from
• Crude is buoyed on the tanker flow while Sterling is the notable G10 FX outperformer post-Tusk
• Looking ahead highlights include Canadian Employment, US Import & Export Prices, University of Michigan Sentiment and Baker Hughes Rig Count, Fed’s Kashkari, Rosengren and Kaplan, US-China meeting

TRADE

US President Trump said US-China talks went very well today (yesterday), talks will continue tomorrow (today). Trump said we will see if we can make a deal with China, China has been "very nice". President Trump is to meet with Chinese Vice Premier Liu He at 14:45EDT/19:45BST, according to the WH schedule (Newswires)

US White House is reportedly mulling Public Company Accounting Oversight Board (PCAOB) dispute over access to China audits, according to reports. Officials are fixating on why Chinese companies can sell shares in the US when American regulators are prohibited from inspecting their books. (Newswires)

US-China trade talks are going very well, "probably better than expected", says a White House Official. (Newswires)

SCMP notes that China's Vice Premier Liu has a letter from President Xi, which may or may not be given to US President Trump in their meeting today. (SCMP)

ASIA-PAC

Asian equities took their cue from the rally on Wall Street which saw the DJIA close just below 26,500 as US President Trump said he will meet with Chinese Vice Premier Liu He. ASX 200 (+0.9%) was supported by energy and mining names, whilst Nikkei 225 (+1.2%) felt tailwind for a weaker Yen. Elsewhere, Hang Seng (+2.4%) outperformed as heavyweight financials and oil-related stocks bolstered the index amid a high-yield and firmer oil price environment. Meanwhile, Shanghai Comp. (+0.9%) swung between gains and losses with the mainland remains on-guard as sticking points remain between the two largest economies.

Hong Kong Protesters reportedly are mulling whether to scale back on vandalism and violence as it risks alienating more moderate supported, according to reports. (Newswires)

Japanese Typhoon Hagibis is forecast to be the most powerful typhoon to hit Tokyo since 1958, according to the meteorological agency. (Newswires)

PBoC set CNY mid-point at 7.0727 vs. Exp. 7.0803 (Prev. 7.0730) (Newswires) PBoC skips open market operations for a net daily drain of CNY 30bln

US

Fed's Mester (Non-Voter, Hawk) said US likely to avoid a serious downturn, economy continues to perform well, reiterates that she disagrees with the Sept rate cut, but content to keep "shallow" policy path now in hope for firmer inflation. (Newswires)

Fed’s Kashkari (2020 Voter, Dove) said rates are roughly around the neutral mark at the moment, believes US economy is going to grow but it does face risks. He added that the time has probably passed for the central bank to use a supersize rate cut to boost the economy, but he remains on board with the idea that cheaper borrowing costs are still warranted, will support a 25bps cut (Newswires/WSJ)

U.S. Ambassador to the EU Sondland is expected to testify next Wednesday before the House committees investigating President Trump and Ukraine, despite being blocked by State Department from appearing at closed-door deposition last week, sources. (Axios)

Senior adviser to Secretary of State Mike Pompeo, Michael McKinley, has resigned over "rising dissatisfaction inside the State Department over what is seen as Pompeo’s failure to support personnel ensnared in the Ukraine controversy", WaPo reports. (Washington Post)

GEOPOLITICS

US House Republicans will introduce sanctions against Turkey in response to its offensive against Kurds in Northern Syrian, according to newswires. Subsequent reports indicate European response could be debted as early as next week (Twitter/Newswires)

UK/EU

EU's Tusk has stated that UK PM Johnson has promised the EU he will come forward with a solution to work for all; unfortunately this has not happened - if no proposals by today will announce no more chance for a deal at the summit. Have received promising signals from Irish PM that a deal is still possible; No guarantee and time is now essentially up. (Newswires)

EU Chief Brexit Negotiator Barnier says he had a constructive meeting with UK Brexit Secretary Barclay, we are working towards a deal and says if there is a will, there is a way. (Newswires)

According to a ComRes survey for the Telegraph, PM Johnson cannot get a majority in a general election unless he delivers Brexit on October 31. (Telegraph) Note, the poll was presented last week at a conference fringe event attended by Tory MPs

EQUITIES

Major European bourses are firmer thus far this morning as US-China newsflow remains light ahead of Trump and Liu He’s meeting at 19:45BST today; and following a positive Asia-Pac session where sentiment remained buoyed going into day two of talks. Sectors clearly illustrate the mornings heavy newsflow. With IT the notable outperformer following SAP (+7.6%) reporting earnings which were above Prev. and news that the CEO is to step down with immediate effect being well received. Also, firmer this morning are energy names following an Iranian tanker incident this morning, which is outlined in the Commodity section below. However, consumer discretionary names are suffering on the back of Hugo Boss (-13.3%) cutting their FY19 EBIT target citing persistent macroeconomic uncertainties; alongside, a number of downgrades at brokerages. Elsewhere, the FTSE 100 is this morning’s clear laggard given the recent upside in Sterling on positive Irish/UK PM comments regarding Brexit. However, in-spite of the index’s weakness the upbeat Brexit commentary has lent support to politically sensitive Co’s such as housebuilders and banks; although most recent comments from EU Council President Tusk have brought yet more urgency into the talks stating if there are no sufficient proposals today then he will have to announce there is no chance for a deal at next week’s summit.

International Air Safety Panel have faulted the FAA for their certification of the Boeing (BA) 737 Max; FAA failed to sufficiently assess the MCAS system, did not sufficiently consider now design features of the craft, some regulations are out of date. (Newswires)

FX

AUD - Aud/Usd has extended gains beyond 0.6750 and through the 50 DMA (0.6778) to within a whisker of 0.6800 on a wave of US-China trade optimism after day one of talks in Washington and generally positive updates from both sides on the status of trade negotiations thus far.

GBP - Yet another white knuckle ride for Sterling after a more pronounced short squeeze on Irish backstop breakthrough hype inspired by Thursday’s meeting between UK PM Johnson and Ireland’s Varadkar, and the latest catalyst came via EU’s Tusk rather Britain’s Brexit Minister Barclay or EU kingpin Barnier that have now completed their rendezvous to discuss the situation. In short, Tusk said the deadline for alternative border/customs proposals is today and as yet they have not been submitted, prompting an abrupt/sharp Pound plunge, but then revived bullish momentum by noting that promising signs from the Irish PM mean a deal can still be done. In terms of market moves, Cable collapsed to almost 1.2400 before regrouping and flying back up to 1.2500+ awaiting the debriefing from Barnier to EU states and fading just short of 1.2550, while Eur/Gbp has whipsawed between 0.8867-0.8789 and is poised just above 0.8800, but below the 200 DMA (0.8830).

NZD/EUR/CAD - All firmer vs a flagging Greenback (DXY only just holding above 98.500), with the Kiwi piggy-backing its Antipodean counterpart and climbing towards 0.6350, Euro consolidating above 1.1000 and Loonie maintaining a bid over 1.3300 ahead of Canadian jobs data and as oil prices rally in wake of an Iranian tanker missile attack . Back to Eur/Usd, decent option expiries at the 1.1000 strike may figure (1.4 bn), while tech levels could also influence trade/direction given Fibs at 1.1021 and 1.1055 and DMAs at 1.1054 and 1.0987 (55 and 21 respectively).

CHF/JPY - More safe-haven unwinding has nudged the Franc a bit nearer parity vs the Dollar and a test of 1.1000 against the single currency, while the Yen has slipped under 108.00 to expose September’s peak a fraction below 108.50.

EM - The Cnh is also anticipating good news from the President Trump-VP Lui He date at the White House that will officially close the latest round of talks, with the offshore Yuan hovering around 7.0900, but the Try has retreated in wake of US sanctions over Turkey’s military actions in Syria awaiting the EU’s response at next week’s summit – Lira back down towards 5.8750.

FIXED

Core bonds have lost all and more of their earlier recovery momentum, with Gilts leading the latest leg down on the Brexit bandwagon and premise that the EU may also have deemed latest developments worthy of pursuing efforts to forge a deal. Indeed, Barnier’s meeting with Barclay is said to have been constructive following along the same line as Johnson and Varadkar on Thursday when the 2 PMs declared that there is a path towards reaching agreement/compromise on Irish border checks. The 10 year UK benchmark has been down to 132.54, dragging Bunds back under 173.00 and the T-note to 130-15+, breaching Fib support (130-17) and very close aligning/clustered downside chart levels (130-14, 13, 12) that could exacerbate the retracement if broken. Ahead, a few NA data/survey releases and Fed speakers ahead of the long US holiday weekend.

COMMODITIES

Brent and WTI have been lifted this morning to gains of over USD 1/bbl at best on the back of early geopolitical newsflow that a Iranian tanker was on fire after a explosion near Saudi’s Jeddah port which led to heavy tanker damage and reports that oil was leaking into the Red Sea. TankerTrackers believe this tanker could be the SINOPA tanker which was on route to Syria and had a cargo of 1mln barrels on board. Subsequently, newsflow noted that the explosion was due to missiles and there were some reports that this originated from Saudi Arabia; however, Iran’s National Tanker Co. have denied reports that they said the missiles originated from Saudi Arabia though the Foreign Ministry confirm two hits on the tanker. The updates evidently led to a crude bid on further geopolitical tensions, particularly as reports note this is the 3rd Iranian tanker to be hit in around 6-months in this area; focus now turns to clarity on where the missiles originated from. Separately, today’s IEA report marked the end of the monthly trio where they cut their demand forecast form 2019 in stead with the other two reports. In terms of metals, spot gold was lifted above the USD 1500/oz mark on the middle-east geopolitical premium with the upcoming US-China trade talks also in focus; although it has since dropped back below.

IEA Monthly Report: 2019 oil demand forecast cut to 1mln bpd from 1.1mln bpd, 2020 cut to 1.2mln bpd from 1.3mln bpd. (Newswires)