• Asian equity markets traded mostly higher as the region got a tailwind from US where the S&P 500 and Nasdaq extended on record highs
• In FX markets, the DXY remained below the 95.00 level following a 2-day selldown
• Looking ahead, highlights include a speech by ECB’s Praet, and weekly API crude inventories

ASIA

Asian equity markets traded mostly higher as the region got a tailwind from US where the S&P 500 and Nasdaq extended on record highs with sentiment supported after US and Mexico reached a trade agreement. This lifted the ASX 200 (+0.7%) back above the 6300 level with gains led by outperformance in financials, while Nikkei 225 (+0.4%) was underpinned by a weaker currency but with upside capped by resistance around 23000. Shanghai Comp. (Unch) and Hang Seng (+0.3%) both initially conformed to the positive tone although the mainland then failed to sustain gains amid ongoing US-China trade uncertainty and as focus shifts to earnings with 3 of China’s big 4 banks to announce results today. Finally, 10yr JGBs traded subdued with demand sapped as focus centred on riskier assets and following weaker demand at the enhanced liquidity auction for longer dated JGBs.

PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires)

PBoC set CNY mid-point at 6.8052 (Prev. 6.8508)

UK/EU

US President Trump and German Chancellor Merkel agreed on more discussions concerning US-EU trade barriers. (Newswires)

UK PM May reportedly signalled a no-deal Brexit is not the end of the world. (Newswires)

UK PM May is to announce plans to boost UK’s in Africa post-Brexit. (BBC)

The French Government is to prepare contingency plans in the case the EU and UK fail to agree terms of Brexit. (Newswires)

Reports noted that UK and EU are to agree to push back its Brexit agreement deadline by 4 weeks to a ‘hard deadline’ in mid-November. (Telegraph)

FX

In FX markets, the DXY remained below the 95.00 level following a 2-day selldown although resistance in EUR/USD and GBP/USD at 1.1700 and 1.2900 respectively, provided the greenback with some mild reprieve overnight. JPY was predominantly weaker on the heightened risk appetite which helped USD/JPY edge a firmer footing on the 111.00 handle, while antipodeans also marginally pulled back. Elsewhere, MXN continued to pare its trade-related gains and CNY also softened despite the PBoC strengthening the fix by the most in over a year.

COMMODITIES

Commodities were lacklustre overnight with WTI crude future flat after failing to hold above the USD 69.00/bbl level, while gold was also uneventful with the rebound in the precious metal stalling at around 2-week highs as the greenback began to nurse losses. Elsewhere, copper underperformed amid underperformance in mainland China and weakness in Chinese commodities with rebar prices dampened on ongoing trade tensions and after the US imposed anti-dumping duties on some steel and iron products from China.

China Dalian Commodity Exchange announced to reduce trading limit and margin requirements for iron ore, coke and coking coal futures effective today. (Newswires)

US Commerce Department issued preliminary duty determination of between 58.75%-172.51% on certain steel wheels from China and imposed anti-dumping duties on Chinese-made cast iron soil pipe. (Newswires)

GEOPOLITICAL

US Secretary of State Pompeo said Iran does not control Strait of Hormuz which is an international waterway and that the US will continue to ensure freedom of navigation and free flow of commerce in international waterways. (Newswires)

Syrian Air Defences were reported to be on full alert due to concerns of a possible US strike. (Newswires)

Russia plans to respond to US sanctions according to reports citing Foreign Minister Lavrov. (Tass)

Iranian President Rouhani said Tehran will defeat economic challenges and anti-Iranian officials in the White House. (Newswires)

US

Treasuries were sold in the European morning in sympathy with bunds following a solid IFO report out of Germany. There was additional selling as the S&P 500 hit fresh record highs, carrying on from last week. Additionally, selling action was spurred after the US and Mexico reached a bilateral trade deal. The US Treasury sold $36bln of 2-year notes with the high-yield coming in on the screws (2.655%). The participation metrics were in-line with recent auctions and saw average demand, with indirects taking the largest portion whilst dealers were awarded the biggest share since May and directs the smallest portion since February. US 10-year T-notes settled 5+ ticks lower at 120-11.

US President Trump said he will terminate existing NAFTA agreement to go into the deal made with Mexico, while he added he will either put tariffs on Canada or reach a negotiated deal with them. In related news, In related news, US President Trump had a call with Canadian PM Trudeau which the latter described as constructive and was said to be hopeful for a successful conclusion. (Newswires)

White House Economic Adviser Kudlow said Mexico-US trade agreement is a significant victory for the economy and that they would like a good deal with Canada but may resort to auto tariffs if Canada rejects the deal. Kudlow also commented that US-Mexico trade agreement can be pushed through Congress and stated ‘will see’ in regards to Canada, while Kudlow also commented that that they have things cooking with EU and that China should just agree to some of the US trade demands.

Mexico Foreign Minister Videgaray said it would be ideal if there was a trilateral NAFTA but added that Mexico can accept a bilateral, while he added US and Mexico will go ahead if US and Canada cannot agree. In related news, a Canadian official said flexibility is required in order to get a NAFTA deal this week and that several issues are still outstanding for Canada, while Canada's Foreign Minister Freeland is said to be heading to Washington on Tuesday for trade talks. (Newswires)

US President Trump said he is working on a major infrastructure project and a massive roadway. (Newswires)

Source: RANsquawk