• APAC equity markets traded mostly lower; ASX 200 bucked the trend whilst Hang Seng lagged
• US sanctions have been imposed on Hong Kong Chief Executive Carrie Lam, according to a statement on the US Treasury's website
• A US battleship crossed the Taiwan Strait on Wednesday, the US Navy said; China said it will resolutely defend territorial integrity
• Treasury Secretary Mnuchin, after speaking with House Speaker Pelosi, said stimulus talks are still far apart and it is difficult to get anything done before the election but will keep trying
• In FX, DXY was contained, EUR/USD and GBP/USD were flat, USD/CNH and USD/JPY modestly firmer, AUD underperformed
• Looking ahead, highlights include US Import/Export Prices, Initial Jobless Claims & Philadelphia Fed Manufacturing Index, European Council Summit, ECB's Lagarde, Fed's Kaplan, Kashkari & Quarles, BoE's Cunliffe, supply from Spain, France and US, OPEC+ JTC Meeting

Earnings: Morgan Stanley

CORONAVIRUS UPDATE

US COVID-19 (D/D): Cases +47,459 (prev. +46,614); death toll +748 (prev. +338). (Newswires)

NIH's Fauci says a COVID-19 vaccine for public is likely available mid-to-end of April; expects fewer than 100mln doses of a vaccine to be available by the end of the year. (Newswires)

France COVID cases +22,951 (prev. +12,993); Deaths +104 (prev. +46). French government declares public health state of emergency starting from Saturday. French President Macron says a new national lockdown would be disproportionate; has decided on a curfew in the Paris region. (Newswires)

Germany reported 6,638 (Prev. 5,132) new COVID-19 cases and 33 (Prev. 40), according to RKI. German Chancellor Merkel said Germany may have to further toughen COVID-19 restrictions. (Newswires)

London could face tighter COVID-19 restrictions within days, FT reports. (FT) UK ministers plan pre-Christmas COVID lockdown for English universities, the Guardian reports. (Newswires)

ASIA

APAC equity markets traded mostly lower following a negative handover from Wall Street which saw major indices post a second straight day of declines amid the dwindling prospect of a pre-election relief bill, rising COVID-19 cases and as US earnings season gets underway. ASX 200 (+0.7%) bucked the trend following dovish remarks from RBA Governor Lowe who noted that it is reasonable to expect that further monetary easing would get more traction than was the case earlier, and it is possible to cut the Cash Rate to 10bps, but the Board has not yet made any decisions. Meanwhile, an overall better-than-expected Aussie jobs data further underpinned the index. Nikkei 225 (-0.6%) was subdued on yesterday’s JPY action, whilst Rakuten shares rested at the foot of the index as it lost out to Amazon on Prime Day deals. The KOSPI (-0.9%) also traded with losses despite Big Hit Entertainment shares rising over 150% at its IPO. Elsewhere, Hang Seng (-1.4%) and Shanghai Comp (+0.1%) were also lower, with the former pressured after US sanctioned Hong Kong’s Chief Executive Lam over her alleged undermining of Hong Kong’s autonomy, albeit the US Treasury stopped short of imposing sanctions on banks. Meanwhile, Alibaba shares fell over 2.5% as US state department reportedly submitted an application to the Trump Admin to put Alibaba’s unit Ant Group on a trade blacklist. Mainland China meanwhile opened with modest gains amid PBoC liquidity injections, but thereafter traded indecisively due to heightened geopolitical tensions after a US destroyer crossed the Taiwan Strait on Wednesday. Finally, JGBs saw modest gains as it tracks price broader price action across the fixed income futures complex.

US sanctions have been taken out on Hong Kong Chief Executive Carrie Lam, according to a statement on the US Treasury's website. US State Department report to Congress on Hong Kong has listed 10 individuals subject to sanctions over China's crackdown. (Newswires) US stopped short of imposing sanctions on banks which was seen as a possibility.

White House is in no rush to approve TikTok Oracle (ORCL) deal as the election enters the home stretch. (Twitter) US State Department has submitted an application for the Trump administration to put China's Ant Group on the trade blacklist, according to sources. (Newswires)

EU lawmakers brand Huawei, ZTE ‘high-risk’ 5G vendors; more than 40 lawmakers signed letter the Chinese companies a security risk. (Politico)

PBoC injected CNY 50bln via 7-day reverse repos at maintained rate of 2.20% and injected CNY 500bln via 1yr MLF at a maintained rate of 2.95% for a net injection of CNY 300bln. (Newswires)

PBoC sets USD/CNY midpoint at 6.7374 vs. Exp. 6.7382 (Prev. 6.7473)

Chinese CPI YY (Sep) 1.7% vs. Exp. 1.8% (Prev. 2.4%) (Newswires)

Chinese CPI MM (Sep) 0.2% vs. Exp. 0.3% (Prev. 0.4%)

Chinese PPI YY (Sep) -2.1% vs. Exp. -1.8% (Prev. -2.0%)

UK/EU

European Commission President von der Leyen and Council President Michel told UK that it is ready to continue trade talks, but the UK has to move on three key unresolved issues. UK PM Johnson, after the call with the EU officials, noted the desirability of a deal but expressed his disappointment that more progress had not been made over the last fortnight (Newswires)

UK Chief Brexit Negotiator Frost reportedly told PM Johnson not to walk away from trade talks as deals covering security and fishing are possible over the next two weeks. Frost is said to have advised the PM that a deal with the EU was not impossible, although time was tight to agree on legal text this month, according to a source. He told Downing St both sides would need to work hard, with a shift to daily talks, but that a deal could be reached in time. (Times)

EU regulators may narrow scope of Amazon (AMZN) antitrust investigation to speed up the inquiry, sources said. (Newswires) France and Netherlands jointly issued a call for EU's competition authorities to take pre-emptive measures against emerging tech giants and "gatekeeper" platforms, including the option to break them up. (FT)

FX

In FX, DXY was caged in a tight range after dipping below 93.500 in early APAC hours as a breakthrough in State-side stimulus talks is seen as almost non-existent before the election with Treasury Secretary Mnuchin acknowledging that the two sides remain far apart on certain issues, whilst others suggested that US House Speaker Pelosi does not want to give President Trump a “win” before November 3rd. EUR/USD and GBP/USD traded relatively flat with the former on either side of 1.1750 and the latter north of 1.3000 as the EU summit is poised to commence today (arrivals at 12:30BST), albeit officials have tempered down expectations of a breakthrough as key issues remain unresolved. Elsewhere, USD/JPY eked mild gains but the breadth of the price action relatively shallow after the pair failed to break below 105.00. Antipodeans were eventful overnight, with AUD/USD initially unreactive to the prepared statement by RBA Governor Lowe, which failed to give any more meat on the bone with regards to the next potential move. However, at the Q&A, the Governor remarked that it is possible to cut the Cash Rate to 10bps. This prompted calls for imminent easing to mount, with Goldman Sachs, CBA, RBC, and Nomura now all expecting the next meeting to be “live”. The pair saw little action on the Aussie labour force data as this was overshadowed by Governor Lowe earlier in the session. NZD/USD saw a leg lower in tandem with its Aussie counterpart, but losses were cushioned as the AUD/NZD cross continued to decline below 1.0750, with New Zealand also eyeing its elections this weekend – with some polls projecting PM Arden to win a rare outright majority.  

RBA Governor Lowe said it is reasonable to expect that further monetary easing would get more traction than was the case earlier, but the Board has not yet made any decision. The Board will not be increasing the cash rate until actual inflation is sustainably within the target range. It is not enough for inflation to be forecast to be in the target range. RBA wants to see more than just ‘progress towards full employment’. The Board views addressing the high rate of unemployment as an important national priority. At the Q&A, RBA governor Lowe said it is possible to cut rates to 10bps. He would like more fiscal stimulus from Australian states, has not yet decided on whether to expand government debt program. (RBA) NB. the next meeting is on November 3rd.

Australian Employment (Sep) -29.5k vs. Exp. -35.0k (Prev. 111.0k) (Newswires)

Australian Unemployment Rate (Sep) 6.9% vs. Exp. 7.1% (Prev. 6.8%)

Australian Participation Rate (Sep) 64.8% vs. Exp. 64.8% (Prev. 64.8%)

Australian Full Time Employment (Sep) -20.1k (Prev. 36.2k)

COMMODITIES

WTI and Brent front-month futures traded flat overnight amid a lack of fresh catalysts for the complex, and with little initial reaction seen to the larger than expected draw in the Private inventory crude stockpiles amid effects from Hurricane Delta, with traders on the lookout for confirmation of the numbers via the weekly DoE’s set to the released later today, whilst leaks may also arise from the OPEC+ JTC meeting. WTI Nov held its head above USD 41/bbl ahead of Friday’s high just shy of USD 41.50/bbl, whilst Brent Dec remained sub-43.50/bbl ahead of last week’s high of ~USD 43.57/bbl. Elsewhere, spot gold and silver were uneventful within tight overnight ranges as the former drifted below the 1900/oz mark, whilst Standard Chartered expects the yellow metal to average USD 2,000/oz in Q4. Copper prices tracked the overall downbeat tone in the markets but the red metal eyes labour talks in Chile – with the Escondida Mine Union extending wage talks until tomorrow.

BSEE said 31% of offshore Gulf of Mexico crude oil production has been shut in (prev. 44%); natural gas 18% (prev. 30%). (BSEE)

US Private Inventory Crude Stocks (w/e October 9th) -5.4mln (exp. -2.8mln, prev. +0.5mln) (Newswires)

·       Cushing: +2.2mln (prev. +0.5mln) 

·       Gasoline: -1.5mln (exp. -1.6mln, prev. -1.4mln)   

·       Distillate: -3.9mln (exp. -2.1mln, prev. -1.0mln)

GEOPOLITICAL

A US battleship crossed the Taiwan Strait on Wednesday, the US Navy said. The guided-missile destroyer USS Barry conducted a “routine Taiwan Strait transit October 14 (local time) in accordance with international law,” Seventh Fleet spokeswoman Reann Mommsen said in a statement. (SCMP) China said the US is seriously undermining peace and stability in the Taiwanese Strait and added that China will resolutely defend territorial integrity and maintain peace and stability in the Strait. (Newswires)

EU said Russians facing sanctions over Navalny poisoning include head of spy agency, administration’s domestic policy director, and two deputy defense ministers. (Newswires)

US

The Treasury curve initially extended its bull-flattener before reversing to little changed as supply pressures rose. By settlement, 2s -0.2bps at 13.9bps, 10s -0.5bps at 72.2bps, 30s -1.5bps at 149.9bps; futures volumes were fairly lacklustre when compared to recent averages. Rates had been rising gently throughout the session, seeing the 10-year yield come down close to the 70bps figure. There weren’t many incremental changes to the general outlook, although the talking heads had touted the latest risk aversion was due to Mnuchin noting differences remained in talks with House Speaker Pelosi on stimulus, although that seemed a stretch given the comments were largely reiterations. Nonetheless, it’s possible the negative tone in thin trade accentuated the bull-flattener. However, yields came off their lows in later trade as supply pressures weighed, with China pricing USD 6bln of paper (3s, 5s, 10s,30s) and Franklin Resources pricing USD 750mln of 10yr. T-note futures (Z0) settled half-a-tick higher at 139-07

Treasury Secretary Mnuchin, after his conversation with House Speaker Pelosi, said stimulus talks still far apart; difficult to get anything done before election; doesn't agree with Pelosi's 'all or nothing' approach'. Mnuchin warned economy needs money now but House Speaker Pelosi rejected an airline-only bill. Mnuchin added that they are still working on comprehensive deal, progress being made on 'certain' issues, but liability protections remain a sticking point. US Treasury Secretary Mnuchin said the Trump administration will keep trying to get a deal on COVID-19 relief, stating that President Trump told him to keep at it to secure a deal. (Newswires) US President Trump said a recovery for airlines and cruises is a tough question, and he is trying to get some stimulus money. Trump added Dems want trillions of dollars of bail out money. (Newswires)

POLL: NBC/WSJ Poll sees Biden 11ppt (Prev. +14ppts) ahead of Trump at 53% to 42%; poll conducted between Oct 9-12 among registered voters with error margin +/- 3.1ppts. (NBC News) NB. this poll was conducted after Trump returned to the White House from his hospitalization for the coronavirus vs. prior poll which was conducted right after the first Presidential debate – movement in the poll is within margin of error

POLL: NYT/Siena North Carolina poll shows Biden leading Trump by 4 percentage points (vs RCP's average of Biden +3.2; prev. NYT/Siena poll had Biden at +1). (NYT/Siena)

Fed's Kaplan (voter) said his sense of moderate inflation is around 2.25% - not 2.5-3.0%. Kaplan expects the US economy to contract by 2.5% this year followed by 3.5% growth in 2021 (Newswires)

Fed's Quarles (voter) is optimistic the recovery will continue to be robust. When asked about QE, says the sheer size of the Treasury market may have outpaced the private market's ability to absorb any stress