• European bourses are suppressed as risk-off reigns amid rising COVID-19 cases and renewed lockdown restrictions in major European cities; Dax Dec’20 -3.0%, ES -1.1%
• 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
• Brexit language has reportedly been toughened in the latest EU summit draft document; EU leaders are set to authorise a continuation of negotiations
• FX features a firmer DXY at incrementally increasing highs with major peers subdued as such alongside spot gold while USTs exhibit further bull-flattening
• 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, OPEC+ JTC Meeting

CORONAVIRUS UPDATE

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

UK COVID-19: New Tier 2 restrictions on London from midnight on Friday. (Twitter)

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 (+0.5%) 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 (-0.5%) 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 (-0.8%) also traded with losses despite Big Hit Entertainment shares rising over 150% at its IPO. Elsewhere, Hang Seng (-2.0%) and Shanghai Comp (-0.2%) 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.

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%)

US

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

UK/EU

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)

Brexit language has reportedly been toughened in the latest EU summit draft document. EU leaders are set to authorise a continuation of negotiations with Britain on a trade deal in the "coming weeks", according to a draft document. Additionally, reports note an emergency summit could occur mid-November. (Newswires/Telegraph)

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)

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)

EQUITIES

European equities (Eurostoxx 50 -2.5%) have endured heavy losses throughout the session as markets contemplate a disappointing Q4 growth landscape with lockdown measures tightened across the region once again. Various restrictions have been in place since for several weeks/months; however, the policy responses from various governments throughout the week have clearly placed an even tighter grip on the European economy, particularly in some of the core nations. Earlier today, Germany warned that the nation is facing a very broad second wave, whilst France recently imposed a curfew in the Paris region and London looks set to be designated tier 2 status in the recently announced “traffic-light” system. All of this has served to highlight that some of the expectations for growth this quarter will likely need to be revised lower, however, questions may begin to arise over what policy response such an outturn will be met with, particularly from a fiscal standpoint as negotiations over the EU recovery fund remain at an impasse. Losses can be seen across major European indices with the DAX (-3.0%) the marginal laggard after German Chancellor Merkel cautioned that even tougher lockdown measures might be required. From a sectoral standpoint, all sectors are lower on the session with notable softness seen in some of the more cyclical names such as autos, oil & gas and travel & leisure which have tended to bear the brunt of selling when COVID fears heighten. On travel & leisure, albeit not the worst performing company in the sector, Ryanair (-3%) earlier announced that it will cut its winter capacity to 40% from 60% and cautioned that FY2021 traffic will likely decrease to around 38 million guests. IAG (-4.0%) have also succumbed to the selling pressure despite reports suggesting that hedge fund heavyweight Marshall Wace has built a 3% stake in the Co. Elsewhere, Thyssenkrupp (-5.4%) are lower on the day after comments from the North Rhine-Westphalia premier who believes it would make more sense for the Co. to restructure and produce green steel than the Gov't take a stake. Earnings from swiss heavyweight Roche (-3.3%) have seen their shares lag amid softer than forecast revenues, whilst Schroders (-3.0%) shares are seen lower by an equal magnitude post-earnings. Looking ahead, the main highlight in the pre-market for US earnings comes via Morgan Stanley.

TSMC (2330 TW) Q3 net profit TWD 137.3bln vs. Exp. TWD 124.9bln, EPS TWD 5.30; net 137.3bln vs. Exp. 124.9bln, operating income 150bln vs. Prev. 107.9bln. Gross margin 53.4% vs. guided 50-52%. In USD: revenue 12.14bln vs. Exp. 11.51bln. Raise 2020 sales growth outlook. 2020 CAPEX seen above USD 17bln vs. Prev. forecast USD 16-17bln

Truist Financial Corp (TFC) Q3 20 (USD): EPS 0.97 (exp. 0.89), Revenue 5.60 (exp. 5.44bln).

Roche (ROG SW) – Q3 revenue CHF 14.7bln vs. Exp. CHF 15.4bln. pharma revenue CHF 34.3bln, -1% YY; newly launched medicines including Tecentriq, Hemlibra & Perjeta largely compensate for the COVID-19 impact. US pharma sales breakdown: Tecentriq +46%, Hemlibra +685, Ocrevus +23%; US sales overall, at constant currencies, -4%, Europe +4%, Japan -6%, International +6%. Confirm FY20 outlook. (Newswires)

FX

AUD/NZD - A double hit for the Aussie as broad risk sentiment continues to deteriorate and RBA Governor Lowe upped the ante in terms of a potential 15 bp rate cut at the November policy meeting overnight, while the subsequent jobs report failed to provide much comfort even though headline payrolls and the unemployment rate were not quite as weak as forecast. Aud/Usd has extended its pull-back to sub-0.7100 and the Aud/Nzd cross is hovering just over 1.0700 to the relative benefit of the Kiwi that remains in-site of 0.6600, albeit losing traction from its recent 0.6650 axis ahead of NZ manufacturing PMI.

GBP - Some calm after the midweek session mayhem for Sterling, as Cable pivots 1.3000 within comparatively narrow confines and Eur/Gbp meanders between 0.9037-17 parameters. However, the Pound’s predicament and position remains very fluid and prone to Brexit developments going into Day 1 of the European Council Summit, as any change in stance over the main outstanding issues could heighten the chances of a breakthrough and in turn lower the probability of no deal before deadline day (whenever that might be). As things stand, fishing rights is the key sticking point and area that neither side has given ground on, but the level playing field and state aid are also preventing the 2 sides from penning a draft trade deal.

USD - After Wednesday’s whip-saw moves, in keeping with Sterling if not totally as a bi-product of the Gbp’s choppy price action, the Dollar is firmly back in safe haven demand as EU stocks cave under the weight of rising COVID-19 cases. Indeed, the DXY has rebounded from sub-93.500 lows to 97.763, thus far and eclipsing this week’s prior peak to expose 94.000 in advance of a busier US data schedule and more Fed speakers.

JPY/CHF/EUR/CAD - The Yen is faring better than others given its own allure as a refuge from risk, with Usd/Jpy sitting tight in the low 105.00 zone and well flanked by decent option expiries extending from 105.25 (2.2 bn) through 105.10-00 (1.7 bn) to 104.85 (1 bn). Meanwhile, the Franc has retreated to circa 0.9150, Euro towards 1.1700 where expiry interest may provide some support (1 bn from the round number to 1.1695) and Loonie further from 1.3100 to a test of 1.3200 awaiting comments from BoC’s Lane.

SCANDI/EM - Risk aversion is rattling the Sek and Nok, with the latter also undermined by a recoil in crude prices and ballooning Norwegian trade gap, while EM currencies are all depreciating vs the Usd in typical capital flight trade.

Notable FX Option Expiries, NY Cut:

-        EUR/USD: 1.1695-1.1700 (1BLN), 1.1725-30 (1BLN), 1.1750 (250M), 1.1800 (1.1BLN), 1.1820-30 (650M), 1.1835-45 (800M), 1.1850-60 (1.1BLN)

-        USD/JPY: 104.85 (1BLN), 105.00-10 (1.7BLN), 105.20 (462M), 105.25 (2.2BLN), 105.30 (700M)

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)

FIXED INCOME

The initial/early advances in Bunds, Gilts and US Treasuries extended to 176.15, 136.55 and 139-13 respectively before fatigue set in, and this time clearly in response to the meltdown in stocks as the inverse correlation between debt and equities returns with a vengeance. However, risk aversion has blighted Eurozone periphery bonds and Italian BTPs in particular that have reversed sharply from highs just shy of 150.50 yesterday after fading at 150.24 earlier amidst a sharp technical correction or retracement rather than anything more fundamental it seems. Ahead, weekly US claims amidst a raft of releases and before more Fed speak either side of 20 year and 5-year TIPS auction sizes.

EU Commissioner Hahn says the EU will move away from an exclusive reliance on syndicated transactions towards the use of some auctions for financing of the recovery fund. (Newswires)

COMMODITIES

WTI and Brent front month futures are unsurprisingly pressured this morning, exhibiting losses of circa USD 1.0/bbl, as sentiment in general takes a hit with the FX, Fixed & Equity space all exhibiting risk-off price action. Specifically for crude, updates have been sparse following last nights private inventories which printed a larger than expected draw (-5.4mln vs. Exp. -2.8mln) and as such focus is on the EIA report today, at the slightly later time of 16:00BST/11:00ET given Monday’s US holiday, for confirmation of this; for reference, the headline is expected at -2.835mln. Aside from this the OPEC+ JTC meeting is taking place today but focus is very much on the JMMC meeting for October 19th to get any insight/guidance from the committee as OPEC’s plans for their supply schedule given the changing supply & demand picture since it was agreed. As such, price action this morning is very much being driven by the broader market drivers this morning and particularly the resurgence in COVID-19 cases and additional lockdown measures being implemented this morning in London & Paris already and the associated impacts for the demand side of the equation; evidenced by the poor performance in travel names and similarly sensitive areas of the economy in European equity trade this morning. Moving to metals, spot gold is subdued and back below the USD 1900/oz mark in-spite of the broad risk move as the metal is weighed on by a dominant dollar. Price action which sees the DXY in proximity to ever increasing session highs and therefore the precious metal remains at lows with losses in excess of USD 10/oz.