• Major European indices are subdued after Friday’s highs and following latest US-China rhetoric
• China reportedly want further discussion before the signing of the Phase One deal with US President Trump
• Brussels is demanding further Brexit concessions from UK which has prompted warnings that a deal based on additional compromise would be rejected by Parliament
• In FX, GBP underperforms a somewhat mixed USD as Friday’s Brexit euphoria fizzles out ahead of Thursday’s summit
• Looking ahead highlights include BoE’s Cunliffe

TRADE

This morning reports noted that China wants more discussions before signing the Phase One deal with US President Trump. (Newswires)

Late Friday/over the weekend: 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. Separately, the 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. (Twitter/Newswires)

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 (+0.8%) and Shanghai Comp. (+1.2%) 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%)

China Exports to US -10.7% YY; Imports from US -26.4% YY. (Newswires)

HKMA lowers counter-cyclical capital buffer to 2.0% (Prev. 2.5%), effective immediately. (Newswires)

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%)

US

WTO has formally authorised the US to impose tariffs on EU imports regarding Airbus (AIR FP) subsidies., as according to Diplomats; US has informed the WTO they would prefer a negotiated resolution. Follows on from reports that the 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)

GEOPOLITICS

Syria's Kurds said Syrian government forces agreed on Sunday to help them fend off Turkey's invasion which was a major shift in alliances and followed an order by US President Trump for all US troops to withdraw from the northern border area. (Haaretz)

France and Germany have announced that they will refrain from exporting weapons to Turkey which could be used by the nation for military operations in Syria. (Politico)

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's deputy Dodds 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)

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 Industrial Production MM (Aug) 0.4% vs. Exp. 0.3% (Prev. -0.4%)

- EU Industrial Production YY (Aug) -2.8% vs. Exp. -2.5% (Prev. -2.0%)

EQUITIES

European stocks kicked the week off on the backfoot [Eurostoxx 50 -1.0%] as the US-China trade truce euphoria dissipated amid reports that China wants more talks before signing US’ “phase 1” deal and as Brexit angst further weighs on sentiment, with the prospect of a breakthrough deal between UK and EU seem further than previously thought. Thus, the UK banking names and housebuilders underperform with substantial losses seen in RBS (-2.4%), Lloyds Banking Group (-3.2%) and Barratt Developments (-2.1%) who all rest at the bottom of the FTSE 100 (-0.5%). Broad-based losses are seen across all other major bourses. Turning to sectors, Materials and Financials underperform, with the former weighed on by a recoil in base metal prices and sentiment and the latter due to a lower-yield environment and the aforementioned Brexit jitters. Meanwhile, defensive sectors fare slightly better due to the overall risk aversion in the market. In terms of individual movers; Swiss heavyweight pharma names Roche (-1.6%) and Novartis (-1.7%) are subdued by source reports that the US is mulling tariffs on the Swiss pharma sector to narrow the US trade deficit with the country. Meanwhile, Daimler (-1.2%) shares are hit on reports that the Co. is to recall hundreds of thousands of Mercedes-Benz vehicles amid diesel emission issues. On the flip side, Spain’s Ferrovial (+1.0%) remains near the top of the Stoxx 600 index as it is reportedly to bid for Spanish railway concessions with French National Railway Company.

FX

NZD/GBP/AUD - The major underperformers after Friday’s arguably outsized and overextended gains on US-China trade and Irish border optimism or even hype, with latest Chinese trade data revealing weak internals and intensive weekend talks between the UK and EU not yielding positive results. Note also, latest reports suggest that China wants to discuss matters further with the US before signing off on Phase 1 of the deal agreed in principle last week. The Kiwi and Pound are propping up the G10 table, as Nzd/Usd slips back under 0.6300 and Cable retreats from just over 1.2705 towards 1.2550. The Aussie has also relinquished big figure-plus status vs its US counterpart, but holding above 0.6750 amidst supportive Aud/Nzd crosswinds within a 1.0760-20 range.

NOK/SEK - Soft oil prices and another shift in the tech landscape alongside fading risk appetite is weighing on the Scandi Crowns, with Eur/Nok bouncing ahead of 10.0000 and Eur/Sek back up over 10.8500 awaiting more top tier Swedish data this week in the form of jobs on Thursday.

EUR/CAD/CHF/JPY - The Euro and Loonie are both sticking to relatively tight lines against the Greenback between 1.1015-50 and around 1.3200 respectively, but the single currency deriving some underlying support via marginally firmer than forecast Eurozone ip in contrast to the latter that is also having to contend with the decline in crude noted above. Meanwhile, the traditional safe-havens that were roundly shunned last week have regained some poise alongside Gold as the Yen pares losses from circa 108.50 to almost 108.00 and the Franc rebounds through 0.9950 and 1.1000 against the Euro even though latest Swiss sight deposit balances infer ongoing official activity aimed at curbing Chf demand. Back to Eur/Usd, decent option expiries may keep the headline pair in check, as 1.1 bn roll off between 1.0995-1.1000 vs 1.5 bn from 1.1090 to 1.1100.

EM - The Lira continues to depreciate and slumped to 4 month lows against the Buck near 5.9200 on a negative mix of investor concerns about Turkey’s offensive in Northern Syria and the consequences of military action, such as sanctions. Moreover, data has also undermined the Try with a steeper deceleration in ip adding to the case for further CBRT easing ahead of next Thursday’s policy meeting.

Notable FX Expiries, NY Cut:

- EUR/USD: 1.0940-50 (1.8BLN), 1.0995-1.1000 (1.1BLN), 1.1035 (400M), 1.1050-55 (550M), 1.1090-1.1100 (1.5BLN)

Poland ruling nationalist party is set to retain its ruling majority in the Parliament elections with about 49% of votes. (Newswires)

Russia is examining currency settlements in EUR and RUB for its vast energy exports in an attempt to circumvent the USD and insulate Moscow from the US-led global financial system. (FT)

FIXED

Fresh intraday highs for Bunds, Gilts and US Treasuries forged on the latest US-China trade headlines that imply more negotiation needed on the part of Beijing before any formal ratification of Phase 1, assuming the reports are reliable. However, given multi-centre holidays adding to the usual Monday lethargy, 10 year debt futures remain reluctant or merely lack enough conviction to cross the next significant upside levels, as the core Eurozone bond tops out at 172.94, its UK equivalent eases back from 132.90 and their US counterpart stalls at 130-19. Ahead, the Queen’s Speech and BoE’s Cunliffe.

COMMODITIES

WTI and Brent futures are mirroring the risk aversion in the market with both benchmarks down around USD 1.5/bbl on the day as further downside was exacerbated by reported that China wants more talks before committing to President Trump’s mini deal. The complex has been little influenced by news-flow during the European session thus far, although Russian president Putin is in Saudi Arabia for the first time in over a decade, with the two countries poised to sign a partnership agreement. On the OPEC front, sources stated that the OPEC+ compliance in September will be in excess of 200%, albeit this is mostly to account for the attack on Saudi oil facilities in early September. Meanwhile, Russian Energy Minister Novak said that Moscow is currently fully committed to the OPEC+ deal and there is no current discussion to alter it. ticking with OPEC, Kuwaiti energy ministry noted that it prefers oil prices around 50-70/bbl. Turning to Aramco, its chairman noted that the IPO could be carried out this month, whilst last week, WSJ noted that the Aramco IPO prospectus could be released by month-end. As a reminder, this week’s inventory data will be delayed by a day as the US observes Columbus Day, albeit this is a non-market holiday. Elsewhere, gold edged higher towards the 1500/oz mark on the aforementioned China news with the next level to the upside seen at 1507.30/oz (50 DMA). Meanwhile, copper prices retreated back below the 2.60/lb mark on the risk sentiment coupled with poor China import figures. Copper sees its next level to the downside at 2.5866/lb (50 DMA).

Russian Energy Minister Novak says there are no discussions to alter the OPEC+ deal; are fully committed to the deal. (Newswires) For reference, the next OPEC+ meeting is on December 6th.

Saudi Energy Minister reiterates the Kingdom will reach a capacity of 12mln BPD at the end of November, oil market is not yet stable, sees Saudi oil output in October and November at 9.86mln (vs. 9.05mln BPD in September). (Newswires)

OPEC+ September compliance with oil cuts is seen in excess of 200%., according to sources. (Newswires)

Saudi Aramco IPO could be carried out this month, according to the Saudi Aramco Chairman. (Newswires)

Buzzard oil field (150k BPD) has reportedly restarted production. (Newswires)

Kuwait Oil Minister says that oil price of USD 50-70bbl is acceptable. (Newswires)