• Asian equity markets traded mixed but with a mildly positive bias as US equity futures extended on the prior day’s gains
• President Trump noted optimism that stimulus talks are beginning to work and was said to be open to something larger than a skinny bill
• President Trump was said to be worried about the stock market reaction from the decision to walk away from stimulus
• In FX, the DXY was lacklustre below 93.50, EUR/USD trades firmer and GBP/USD sits above 1.2950
• RBI maintained the Repurchase Rate at 4.00% and Reverse Repo Rate at 3.35%, as expected
• Saudi Arabia is reportedly mulling reversing course on the planned OPEC output boost in 2021
• Looking ahead, highlights include UK GDP, Canadian labour market report, BoE's Haldane

CORONAVIRUS UPDATE

US COVID cases +53,051 (prev. +38,984) and deaths +900 (prev. +672). New York COVID cases +1,836 (prev. +1,360) and deaths +10 (prev. +8). (Newswires)

US President Trump said he is doing really good and may do public events sooner than Saturday, while he added he may try to do a rally on Saturday night, probably in Florida and will likely take a test on Friday. There were also comments from the White House physician that President Trump has completed the course of therapy for coronavirus and that his physical exam has remained stable since returning to the White House, while he fully anticipates President Trump's return to public engagements on Saturday and noted that President Trump is devoid of any indications to suggest progress of the virus. (Newswires)

US President Trump and White House Chief of Staff Meadows are urging for the FDA to accelerate its review of Regeneron (REGN) antibody drug for COVID-19. (Washington Post)

Gilead (GILD) announced that the latest data showed its remdesivir drug reduced the recovery time from COVID-19 by one day more than previously reported. (Newswires)

Takeda Pharmaceutical (4502 JT) confirmed the first patient enrolment in Phase 3 trials to evaluate potential COVID-19 hyperimmune medicine, with trials to take place in 18 countries including US and Mexico. (Newswires)

Fujifilm Holdings (4901 JT) unit announced it is to manufacture Eli Lilly (LLY) COVID-19 antibodies for low- and middle-income countries. (Newswires)

China joined the WHO COVAX program and said it will prioritize vaccine supply to developing countries when vaccines are ready. (Newswires)

ASIA

Asian equity markets traded mixed but with a mildly positive bias as US equity futures extended on the prior day’s gains amid stimulus hopes after House Speaker Pelosi and US Treasury Secretary Mnuchin continued their relief discussions, while President Trump also suggested optimism that talks are beginning to work and was said to be open to something larger than a skinny bill. Nonetheless, ASX 200 (+0.4%) was rangebound and took a breather following the outperformance seen for most the week and after the RBA Financial Stability Review noted that domestic banks were well placed to continue lending and supporting the economic recovery, as well as the financial system but added that business failures will increase substantially as loan repayment deferrals and income support end. Nikkei 225 (-0.3%) initially began on the front-foot but then stalled in tandem with a mild pullback in USD/JPY which gave up the 106.00 status and after weaker than expected Household Spending. Hang Seng (-0.1%) and Shanghai Comp. (+1.9%) were varied with outperformance in the mainland as participants returned from the holidays where spending rose by 6.3% Y/Y amid a bout of ‘revenge travel’ which saw Golden Week air passenger numbers recover to 91% of last year’s volume. Participants also welcomed private sector PMI data in which Caixin Services PMI topped estimates at 54.8 vs. Exp. 54.3 and Caixin Composite PMI was lower than previous at 54.5 (Prev. 55.1) but remained at a firm expansion. Finally, 10yr JGBs were steady amid the indecisive risk sentiment seen in Tokyo and as prices continued to eye the psychological 152.00 level, while the BoJ’s presence in the market for nearly JPY 1tln of JGBs has also provided a floor for government bonds.

PBoC skipped reverse repo operations for a net drain of CNY 560bln. (Newswires) PBoC set USD/CNY mid-point at 6.7796 vs. Exp. 6.7905 (Prev. 6.8101)

Chinese Caixin Services PMI (Sep) 54.8 vs. Exp. 54.3 (Prev. 54.0) Chinese Caixin Composite PMI (Sep) 54.5 (Prev. 55.1)

Japanese All Household Spending (Aug) M/M 1.7% vs. Exp. 3.2% (Prev. -6.5%) Japanese All Household Spending (Aug) Y/Y -6.9% vs. Exp. -6.9% (Prev. -7.6%)

RBI maintained the Repurchase Rate at 4.00% and Reverse Repo Rate at 3.35%, as expected. RBI reiterated its accommodative monetary stance and that it stands ready to take further measures as necessary. Governor Das stated that financial conditions remain benign but noted that investment in retrenchment, consumption and exports have begun to improve, while he added that the deep Q1 contraction is behind us and silver linings are visible. Furthermore, Das stated that GDP growth may turn positive by Q4 and that inflation would ease closer to target by Q4 2021. (Newswires)

UK/EU

UK Chancellor Sunak is reportedly expected to announce a local furlough scheme which will see employees in businesses forced to close to receive two-thirds of their wages. There were also reports that Chancellor Sunak is considering proposals for a carbon tax to help rebuild the economy and that officials are examining proposals to extend the tax to areas such as gas and agriculture in the longer term. (The Times) Other reports noted that Brussels is reportedly exploring ways to compensate EU fishermen that will be impacted by Brexit by handing them parts of UK's old fishing rights in EU waters. Diplomats noted the plans under discussion would be a way of partially offsetting reduced opportunities in British waters. (FT)

EU Chief Brexit Negotiator Barnier told a meeting of EU ambassadors yesterday that any discussion on potential compromises in areas such as fishing next week could risk damaging unity. Barnier, in a confidential note told European leaders to repeat the need for further concessions from the UK and to not turn next week's summit into a negotiating deadline as requested by UK PM Johnson. (Times) 

UK banks are reportedly shunning government calls to rush back quickly into riskier low-deposit mortgages. (FT)

EU Budget talks between the European Parliament and EU ambassadors have been suspended after just an hour, after a German attempt to get a breakthrough failed. In attempt to get things going again, the Commission has been tasked with coming up with a way forward and talks are suspended until next week. (Newswires)

FX

The DXY was lacklustre and breached 93.50 to the downside as its major counterparts picked up from the prior day’s mundane price action and after risk appetite was spurred by the temperamental stimulus-related headlines with President Trump said to now want a big deal with House Speaker Pelosi and reportedly indicated he was worried about the stock market reaction from his decision to walk away from stimulus. EUR/USD was mildly firmer after prior day’s rebound with the single currency extending above its 100-hour moving average of 1.1763 and GBP/USD prodded above 1.2950 as it managed to shrug off the pessimism on whether a deal can be reached before the October 15th deadline and it was also suggested the sides may need a few months of 'no deal' to clear heads and finish a deal next year. Elsewhere, USD/JPY slipped beneath 106.00 on a breakdown of yesterday’s tight range and antipodeans benefitted from the lacklustre greenback, as well as the outperformance in CNH after the PBoC set a firmer than expected reference rate and drained CNY 560bln of liquidity.

RBA Financial Stability Review stated that Australian banks are well placed to continue lending and supporting the economic recovery, as well as the financial system but added that although the financial system is in a strong position, risks are elevated. Furthermore, it stated that overall household income has increased during H1 2020 but the number of households experiencing financial stress has increased and will increase further, while it noted that business failures will increase substantially as loan repayment deferrals and income support end. (Newswires)

COMMODITIES

WTI crude futures somewhat lagged after the recent momentum stalled near resistance at 41.50/bbl level, although the pullback was only marginal and oil prices still retained most of the prior day’s gains of more than 3%. The recent upside for energy had been fuelled by the constructive global risk tone and worsening disruptions in the Gulf of Mexico where 90.15% of production was estimated to have been shut-in due to Hurricane Delta, while it was also reported that Saudi Arabia was mulling reversing course on planned increases in OPEC production set for next year. Elsewhere, gold prices breached resistance at USD 1900/oz level with the precious metal underpinned by a weaker greenback and copper also prodded higher amid the stimulus hopes, as well as the return to the market of its largest purchaser China.

Saudi Arabia mulls reversing course on planned OPEC output boost for next year, while OPEC and partners will make a final decision at meetings on November 30th and December 1st, according to sources. (WSJ)

NHC said Delta regained major hurricane strength over western Gulf of Mexico and was a level 3 hurricane, while it later updated that maximum sustained winds for Hurricane Delta rose to 120mph from 115mph and that hurricane conditions, as well as a life-threatening storm surge is expected for parts of the Northern Gulf coast on Friday. (Newswires)

BSEE said 91.5% of offshore Gulf of Mexico crude oil production has been shut in (prev. 80.4%) and 61.8% (prev. 49%) of natural gas production. (Newswires)

Norway's Lederne Union said they are to meet with oil industry representatives at the state mediator’s office on Friday morning in an attempt to end the strike. (Newswires)

GEOPOLITICAL 

Azerbaijan President Aliyev denied that his country is being aided by Turkish troops or F-16 jets in the ongoing conflict over Nagorno-Karabakh and said that they only used Turkish military equipment to target Armenian military positions. In related news, it was reported that Armenia and Azerbaijan Foreign Ministers have been invited to Moscow for talks on Friday, according to the Kremlin. (Newswires/CNN)

US

The Treasury curve flattened moderately as near-term stimulus hopes face obstacles and investors begin to wonder if the Fed will start ramping up QE. By settlement, 2s -0.8bps at 14.9bps, 10s -1.8bps at 76.7bps, and 30s -2.3bps at 156.6bps; futures volumes were not as buoyant on Thursday, although the option space continued to see some rates vol/downside protection trades. After a good run of bear-steepening, it was unsurprising to see rates come back down a bit from the top-end of its trading ranges, as House Speaker Pelosi poured cold water on any pre-election piecemeal stimulus (although she is clearly still negotiating). Additionally, Fed’s George said today that it was important to provide guidance on the Fed’s QE. Some participants are also highlighting a new Fed research piece which alludes to the need for a big step up in asset purchases with the FOMC now at the zero lower bound; the author, who is not a policymaker, estimates the need for an additional USD 3.5trln of purchases. Meanwhile, there was some brief downside pressure after the 30-year bond auction, which tailed by 1.1bps, with a lower than average cover ratio and non-dealer participation. T-Note (z0) futures settled 6+ ticks higher at 138-29+.

Fed's Kaplan (voter) sees the US economy contracting by 2.5% in 2020 (note: FOMC September forecasts project -3.7% by end-2020) and explained this is due to not seeing a downward spiral in consumer spending and because of early, sizeable relief. Kaplan later commented his guess is we will get additional stimulus at some point but noted that we could go on for a while without additional stimulus and that he doesn't see Fed needing to buy more bonds now. Kaplan also stated that the Fed is already buying a significant amount of bonds and he would be sceptical of doing more, while the Fed’s bond buying should be pared when the crisis ends. (Newswires)

Fed's Rosengren (non-voter) said there is a great need to extend the payroll protection programme. (Newswires)

US President Trump told US House Minority Leader McCarthy he wanted a big deal with House Speaker Pelosi and President Trump was said to be worried about the stock market reaction from decision to walk away from stimulus, while there were also comments from White House Communications Director Farah that President Trump is open to something larger than a skinny bill. (Newswires/Axios)

US House Speaker Pelosi and Treasury Secretary Mnuchin spoke again regarding stimulus yesterday for 40 minutes, while other reports noted that Pelosi spoke with Mnuchin and Committee Chairs about improving access to capital for restaurants and other small businesses. (Newswires)

US Senate Majority Leader McConnell said he agrees on the need for another rescue package and that vast differences on how much to spend on aid, although later noted that there is a large portion of GOP Senators who think that enough has been done on aid. (Newswires)

US Small Business Administration and US Treasury announced simpler PPP forgiveness for loans of USD 50k or less which SBA stated streamlines PPP forgiveness to provide financial and administrative relief to the smallest businesses. (Newswires)

US President Trump's campaign called for the October 15th debate to go ahead in person and stated there is no medical reason for a virtual second debate, although the Presidential Debate Commission Chair stated they will not reconsider shifting the second debate from virtual back to an in-person debate despite a request from President Trump's campaign team. (Newswires)

US House Democrats reportedly want a panel to investigate President Trump’s capacity to govern. (Newswires)