• Asian equity markets began the week on the front-foot as the region reacted to last week’s announcement of a US-China Phase 1 dea
• The deal saw China agree to make between USD 40bln-50bln of agricultural purchases from the US and the US refrain from implementing the October 15th tariffs
• Brussels is demanding further Brexit concessions from UK which has prompted warnings that a deal based on additional compromise would be rejected by Parliament
• DXY slightly firmed as safe-havens recovered some of the recent lost ground, EUR/USD failed to hold above 1.1050, whilst GBP pulled back from Friday’s gains
• Looking ahead, highlights include EZ Industrial Production, ECB’s de Guindos, BoE’s Cunliffe, US Columbus Day (not a market holiday), UK Queen’s Speech

TRADE

US President Trump announced the US reached a substantial Phase 1 deal with China on IP, financial services and large agricultural purchases. The deal will take up to 5 weeks to get written in which China has agreed to make between USD 40bln-50bln of agricultural purchases and the sides also agreed on currency and foreign exchange issues. Trump also stated we are working on enforcement currently and are close to ending the trade war, while he suggested some IP aspects will be agreed in Phase 2 which will begin when Phase 1 is signed and that doing it in phases is better as this is such a big deal. (Newswires)

US President Trump tweeted that his deal with China is that they will immediately start buying large amounts of US agricultural products and not wait till the deal is signed over next 3 or 4 weeks, while he noted that China has already started the purchases. (Twitter)

US Treasury Secretary Mnuchin said the US will not implement October 15th tariffs and will be evaluating whether to rescind the currency manipulation designation on China. Mnuchin also noted that there is almost a complete agreement on financial service and a fundamental understanding on the key issues but added there is more work to do and that China Vice Premier Liu has to go back and do more work in China. (Newswires)

US Trade Representative Lighthizer said we are not dealing with Huawei in this agreement and that President Trump has not made a decision on the December tariffs as of yet, just the October 15th tariffs. Furthermore, Lighthizer said we will have an elaborate consultation process for enforcement and on the final details on what will happen if there is not a resolution. (Newswires)

US White House released the letter to US President Trump from Chinese President Xi which stated it is important we address each other’s concerns properly and make positive headway in other areas as well, while he called for working together to manage the differences on the basis of mutual respect. (Newswires)

Chinese Vice Premier Liu He said we have made substantial progress and will continue to make efforts. In related news, China has reportedly extended an official invite to Lighthizer, Mnuchin and their teams for additional trade talks in China ahead of next month’s APEC summit in Chile. (Newswires/CNN)

ASIA-PAC

Asian equity markets began the week on the front-foot as the region reacted to last week’s announcement of a US-China Phase 1 deal, in which China agreed to make between USD 40bln-50bln of agricultural purchases from the US and the latter will refrain from implementing the October 15th tariffs. This spurred a relief rally for the majors across the region with the ASX 200 (+0.6%) led by the energy sector as Santos shares surged from a deal to buy assets from ConocoPhillips, although gold miners suffered after the precious metal retreated further below the USD 1500/oz level. Hang Seng (+1.0%) and Shanghai Comp. (+1.4%) were also lifted by the euphoria from President Trump’s deal announcement and suggestion that the sides were close to ending the trade war, with further violent protests in Hong Kong as well as weaker than expected Chinese Exports and Imports figures, doing little to dent the mood for Chinese stocks. As a reminder, Nikkei 225 was closed as Japan observed Health-Sports Day.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0725 vs. Exp. 7.0743 (Prev. 7.0727)

Chinese Trade Balance (CNY)(Sep) 280.0B vs. Exp. 253.8B (Prev. 239.6B). (Newswires) Chinese Exports (CNY)(Sep) Y/Y -0.7% vs. Exp. 1.5% (Prev. 2.6%) Chinese Imports (CNY)(Sep) Y/Y -6.2% vs. Exp. -2.3% (Prev. -2.6%) Chinese Trade Balance (USD)(Sep) 39.65B vs. Exp. 33.3B (Prev. 34.84B, Rev. 34.83B). (Newswires) Chinese Exports (USD)(Sep) Y/Y -3.2% vs. Exp. -3.0% (Prev. -1.0%) Chinese Imports (USD)(Sep) Y/Y-8.5% vs. Exp. -5.2% (Prev. -5.6%)

Several Hong Kong rallies resulted into violent clashes between riot police and protesters on Sunday, while there were also reports Chinese President Xi warned that anyone attempting to divide China in any part of the country will end in crushed bodies and shattered bones. (Newswires)

Monetary Authority of Singapore announced it will slightly reduce the rate of appreciation of the SGD NEER as expected. MAS noted that GDP growth is expected to be at mid-point of 0%-1% range this year and improve modestly next year, while it sees core inflation to remain subdued in the year ahead. (Newswires)

Singapore GDP (Q3 P) Q/Q 0.6% vs. Exp. 1.5% (Prev. -3.3%). (Newswires) Singapore GDP (Q3 P) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.1%) 

UK/EU

UK PM Johnson told his Cabinet on Sunday that a Brexit deal is achievable but added that that while a pathway to an agreement could be seen, there is still a significant amount of work required and the UK must be prepared to leave on Oct. 31st. Furthermore, it was also noted that EU negotiators warned his plans are not yet good enough to be the basis for an agreement, while it was also  reported that Brussels is demanding further Brexit concessions from UK which has prompted warnings that a deal based on additional compromise would be rejected by Parliament. (Newswires/Telegraph) Main issues, following a briefing by EU Brexit Negotiator Barnier to the EU27 are: rebate system is complex, plans will not be ready for the end of the transition and it’s unclear how we can ensure goods for Northern Ireland remain in Northern Ireland. EU Source notes that a deal at the summit is very difficult, but not impossible., RTE’s Connelly (Twitter)

UK said measures to help the nation prosper post-Brexit are set to be laid out in the Queen's Speech at Parliament today, which will outline 22 bills including some measures to allow Britain to seize the opportunities from the Brexit. (Newswires/Independent)

DUP stated that anything which traps NI in the EU, whether that is the single market or the customs union, will not have the DUP's support. There were also comments from DUP's deputy Dodds who rejected the proposed "double customs" Brexit solution in which he stated that it cannot work and that “Northern Ireland must stay in a full UK customs union, full stop”. (Newswires) Labour leader Corbyn has become increasingly isolated as senior Labour figures defied him and called for Labour to back a second referendum on Boris Johnson’s Brexit deal. (Times) UK has reportedly removed the proposal to include an up-front veto for Northern Ireland politicians in the Stormont Assembly, though still intend for NI to have the power to choose to leave the arrangement at a point in time. (BBC)

EU Council President Tusk suggested on Friday that hope for a Brexit deal maybe a little bit bigger and more tangible than a couple of days ago but added you can never be sure in politics. (Newswires)

BoE Deputy Governor Ramsden has warned that the nation’s ‘speed limit’ for growth has been so hampered by Brexit uncertainty that it could curb the MPC’s ability to assist a weak economy with lower interest rates. (Telegraph)

ECB’s Holzmann criticized ECB President Draghi’s QE policy as counterproductive and stated that several members in the Governing Council are against more bond purchases. (Newswires)

EU made a last-ditch plea to the US to refrain from implementing tariffs related to Airbus (AIR FP) subsidies in which it warned of the impact they could have to both sides, while it reiterated calls for a negotiated solution. (Newswires)