• Indices have started the week on the backfoot with substantial losses given COVID-19 concerns & heavyweight SAP posting disappointing earnings
• SAP (-19.0%) missed on revenue cut FY20 guidance and pushed out 2023 targets by two-years; Stoxx 600 tech sector -5.3%
• France and Italy reported record surges in daily infections, whilst Spain announced a state of emergency
• AstraZeneca’s (+0.8%) COVID-19 vaccine is said to have triggered protective antibodies and T-cells in the elderly
• FX features a firmer USD with DXY having eclipsed 93.00 as EUR slips further post-Ifo and sentiment continues to sour
• Zeta is expected to bring Hurricane conditions later today prompting BP to commence shuttering production in the Gulf of Mexico; all Libyan ports/facilities are now open
• Looking ahead highlights include US New Home Sales, New Zealand Trade Balance, Chinese Communist Party Key Meeting (26th – 29th), SNB’s Jordan; NXP Semiconductor, Hasbro

CORONAVIRUS UPDATE

US total coronavirus cases rose to 8.55mln vs. Prev. 8.47mln and total deaths increased to 224.2k vs. Prev. 223.4k, while a major newswire tally noted that US cases rose by at least 60,413 to a total 8.67mln on Sunday and that deaths rose by at least 333 to a total of 225.3k. (Newswires)

US VP Pence's top aides have tested positive for COVID-19 including his chief of staff, a senior political advisor and three more staff members. However, reports added that the VP and his wife both tested negative for the virus and he will continue campaigning in the week ahead. (CNN/Daily Mail)

NIH Dr Fauci said we will know if a vaccine is safe and effective by end of November or early December and that vaccinating a substantial portion of the population is unlikely until Q2 or Q3 next year. Dr Fauci also commented that he is hopeful at least 2 vaccines will prove to be safe by early December and that monoclonal antibodies are quite promising, while he added that the US can curb the spike in COVID-19 without closing down the country. (Newswires)

The University of Oxford COVID-19 vaccine drug being developed with AstraZeneca (AZN LN) is said to have triggered protective antibodies and T-cells in the elderly according to early results which offers hope to the most vulnerable. (Newswires/FT) Separately, a London hospital trust has been notified that batches of the potential AstraZeneca (AZN LN)/Oxford Covid-19 vaccine could be available from the week beginning November 2, according to sources, quoted by the Daily Mirror

UK COVID-19 cases rose by 19,790 (prev. +23,012) and there were 151 new deaths (prev. +174). (Newswires)

Italy COVID-19 cases rose by a record 21,273 and deaths rose by 128. Italy also announced tighter restrictions such as early closing for restaurants and bars which PM Conte said should allow the increasing curve of the virus to be brought under control, while he also noted that sectors affected by the latest controls will be compensated and that individual regions will be able to decide more restrictive measures. (Newswires)

Spanish PM Sanchez announced that a state of emergency in which curfews will be imposed between the hours of 23:00-06:00 with a 1 hour flexibility set by individual regions and stated that travel between regions could be banned, while he asked allies in parliament to support the state of emergency for 6 months until May. (Newswires)

France COVID-19 cases rose by a record 52,010 cases (prev. +45,222 record on Saturday) and deaths increased by 116 (prev. +137). In related news, the French Transport Minister said the government was ready for all possibilities including imposing another lockdown, while reports also noted that patients in southern France were transferred between hospitals due to ICUs being pressured. (Newswires)

Sport and cultural facilities will shut in Brussels and a longer curfew will be imposed from Monday, according to the regional government amid a continued surge in COVID-19 infections. (Newswires)

Irish Deputy PM Varadkar said he is confident businesses will be able to reopen after a 6-week lockdown and is increasingly optimistic that Ireland will be able to begin vaccinating people in Q1 or H1 next year with the optimism due to information the government receives from companies developing vaccines. (Newswires)

Australia is mulling reopening state borders in time for Christmas and is also weighing plans for alternative options to hotel quarantine with PM Morrison noting that all states & territories except for Western Australia had agreed to a framework that would end regional border closures before December 25th. It was also reported that Australia’s Victoria state Premier Andrews announced the reopening of retail, restaurants, hotels, cafes and bars in Melbourne from Wednesday. (Newswires/Sky News)

ASIA

Asian equity markets began the week lacklustre and US equity futures were pressured with risk appetite subdued by the deteriorating COVID-19 situation in Europe after France and Italy reported record surges in daily infections, which prompted Italy to announce tougher restrictions and Spain also declared a state of emergency, as well as a nationwide curfew. ASX 200 (-0.2%) was initially buoyed by M&A news including an approach by Coca-Cola European Partners to acquire Coca-Cola Amatil which saw shares in the latter surge by more than 15% and Link Administration received a revised takeover proposal, although gains in the index were eventually offset by weakness in the commodity-related sectors and with financials on edge after Westpac flagged a AUD 1.2bln hit to H2 earnings. Nikkei 225 (-0.1%) was indecisive with price action choppy around the 23,500 level amid a mixed currency and the KOSPI (-0.7%) failed to hold onto opening gains in the absence of any significant follow-through to the early nostalgic lift in Samsung Group shares after the death of its Chairman Lee Kun-hee. Shanghai Comp. (-0.8%) was the worst performer amid commodity-related weakness, with demand also subdued by the absence of Hong Kong participants due to a holiday closure and tentativeness as China begins its 4-day plenum where policymakers will hammer out details of the next 5-year plan. Finally, 10yr JGBs traded higher as they made their back towards the 152.00 focal point with support provided by the cautious mood and with the BoJ in the market for a total of JPY 920bln of JGBs.

PBoC injected CNY 50bln via 7-day reverse repos at a rate of 2.2% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.6725 vs. Exp. 6.6698 (Prev. 6.6703)

PBoC Governor Yi Gang said China will seek to improve the flexibility of its currency and will reduce restrictions on cross-border use of the CNY. (Newswires)

US Judge declined to reverse its decision blocking the US government order barring US app stores from offering Tencent’s WeChat (700 HK) for download, according to a court order. (Newswires)

US

US House Speaker Pelosi said that she is not giving up regarding COVID-19 relief and is still optimistic, while she hopes to hear from the administration regarding a possible deal on Monday and wants an agreement ASAP but would still pursue COVID-19 relief after the election no matter the outcome. Furthermore, Pelosi stated that she will seek another term as House Speaker if Democrats retain control of the House. (Newswires)

White House Chief of Staff Meadows said on Friday that they hope to get a COVID-19 deal in a day or so and that they are all hands-on deck to get a stimulus deal. However, there were separate comments from US Republican Senator Shelby that the chances for a stimulus deal are slim. (Newswires)

US Senate voted to limit the debate on Supreme Court Nominee Amy Coney Barrett which paves that way for a confirmation vote on Monday. (Newswires)

US President Trump reportedly plans to immediately remove the heads of the FBI and CIA, as well as Defence Secretary Esper if he wins re-election. (Daily Mail)

A new Axios-SurveyMonkey poll found President Trump's last debate performance surpassed Americans' expectations, although wasn't enough to alter the dynamics which has left him trailing behind Democrat candidate Biden across most measures, while the survey had noted that over 4 in 10 viewed that President Trump did better than expected at the last debate. However, the SurveyMonkey poll also showed President Trump was leading Biden in the states of Texas at 51% vs. 48%, Ohio at 51% vs. 48% and Florida at 49% vs. 48%, while Biden was ahead in Nevada at 50% vs. 49%. (Newswires)

Facebook (FB) is reportedly preparing measures for possible election unrest. (WSJ)

UK/EU

UK senior government ministers are increasingly worried that working from home is significantly impacting productivity in the economy and business leaders warned that jobs could be shifted abroad if there is a long-term shift away from the office. (Telegraph)

EU's Chief Brexit Negotiator Barnier signalled that his team was preparing to remain in the UK for 3 more days through to Wednesday, while reports later confirmed that talks have been extended to October 28th. (Telegraph)

UK government sources are hoping that German Chancellor Merkel will intervene to break the current Brexit impasse with French President Macro unwilling to soften his stance on fishing. (Telegraph)  

Senior officials and ministers in several European governments are said to believe UK PM Johnson is to hold off making a decision regarding a ‘no deal’ Brexit until there is clarity regarding the result of the US Presidential Election, as a Biden administration would likely prioritise improving ties with the EU and could prolong achieving a US-UK trade deal. (Observer)

Irish Deputy PM Varadkar stated that he believes that a Brexit deal will be reached on balance of probabilities. (Newswires)

German Ifo Business Climate New (Oct) 92.7 vs. Exp. 92.7 (Prev. 93.4)

-        Current Conditions New (Oct) 90.3 vs. Exp. 89.7 (Prev. 89.2)

-        Expectations New (Oct) 95.0 vs. Exp. 96.0 (Prev. 97.7)

-        IFO says that increasing COVID-19 infections have led to nervousness in the German economy; auto sector is an exception to the gloom in the general economy

UK regulators are reportedly mulling plans to permit banks to begin paying out dividends again next year. There were also separate reports that UK banks are turning away mortgage business by raising interest rates on many new home loans amid a struggle to cope with a surge in demand, as homebuyers look to take advantage of the temporary stamp duty holiday that offers a tax saving of up to GBP 15k which expires end-March next year. (The Times/FT)

S&P affirmed UK at AA; Outlook Stable and affirmed Greece at BB-; Outlook Stable, while it affirmed Italy at BBB; Outlook revised to Stable from Negative. (Newswires)

GEOPOLITICAL         

US State Department said the humanitarian ceasefire in Nagorno-Karabakh will take effect at 0800am local time or midnight EDT on October 26th, while OSCE Minsk Group said co-chairs and foreign ministers are to meet again in Geneva on October 29th to discuss the conflict in the Nagorno-Karabakh. However, it was later reported that Armenian army violated the cease-fire by shelling units of the Azerbaijan army in village of Lachin, according to the Azerbaijan Foreign Ministry. (Newswires/Anadolu)

EQUITIES

European equities (Eurostoxx 50 -1.5%) have kicked the week off with heavy losses as the region contends with the deteriorating COVID-19 situation in Europe after France and Italy reported record surges in daily infections, which prompted Italy to announce tougher restrictions whilst Spain declared a state of emergency and a nationwide curfew. The German DAX (-2%) is the laggard in Europe amid losses in SAP (-18.3%) who carry a 10.2% weighting in the index. Losses for the German tech heavyweight followed Q3 earnings in which the Co. reported declines in revenues and operating profits, cut guidance for 2020 and removed its forecast that profitability would expand over the medium-term. As such, the Stoxx 600 tech sector (in which it carries a 24% weighting) is the clear laggard in Europe. Elsewhere from a sectoral standpoint, health care names are bucking the trend and are modestly firmer on the session with AstraZeneca (+1.0%) shares supported by news that its COVID-19 vaccine is said to have triggered protective antibodies and T-cells in the elderly according to early results which offers hope to the most vulnerable. The upside in AstraZeneca, allied with gains in UK banks (Natwest +1.1%, HSBC +0.5%, Lloyds +0.4%, Barclays +0.5%) has helped stem the losses in the FTSE 100 (-0.2%) with support seen for the domestic banking sector in the wake of reports noting that UK regulators are reportedly mulling plans to permit banks to begin paying out dividends again next year. In contrast, in the Eurozone, regulators that were previously in favour of lifting the current ban on dividends are reportedly now more concerned and are looking at dividend caps as a compromise. In terms of M&A activity, Bayer (+0.9%) are to acquire Asklepios Biopharmaceutical for USD 2bln in up-front payments with a potential further USD 2bln in milestone payments. Finally, Rolls Royce (-2.5%) are lower on the session amid source reports in The Times suggesting that major investors in the Co. will only put their support behind its emergency fundraising bid if a massive overhaul of the "sprawling" business is undertaken.

China's Foreign Ministry says they will be imposing sanctions on US entities that partake in US arms sales to Taiwan; Lockheed Martin (LMT), Boeing Defence (BA) & Raytheon (RTN) will be sanctioned. (Newswires)

SAP (SAP GY) – Q3 revenue EUR 6.54bln vs. Exp. EUR 6.84bln, EPS EUR 1.32 vs. Exp. EUR 1.29, non-IFRS operating income EUR 2.07bln vs. Exp. EUR 2.15bln, operating profit EUR 1.47bln, -12%. Cloud revenue EUR 1.90bln, +11%; cloud and software revenue EUR 5.54bln vs. Exp. EUR 5.80bln. Current cloud backlog EUR 66.bln, +10% YY. Net debt EUR 6.89bln. FY20 guidance: non-IFRS revenue EUR 27.2-27.8bln vs. Prev. EUR 27.8-28.5bln; non-IFRS cloud revenue EUR 8.0-8.2bln vs. Prev. EUR 8.3-8.7bln; non-IFRS cloud & software revenue EUR 23.1-23.6bln vs. Prev. EUR 23.4-24.0bln; operating cash flow ~EUR 6.0bln vs Prev. >EUR 5.0bln; FCF EUR 4.5bln vs. Prev. EUR 4.0bln. Pushes out 2023 target attainment to 2025 given COVID-19. Accelerating the transition to cloud. (Newswires) -19.0% in European trade.

FX

USD – The Dollar is back on a firmer footing and in demand as a safe-haven even though the US is far from immune to the 2nd pandemic waves sweeping through many countries and the upcoming election poses uncertainty alongside the ongoing stimulus stalemate. However, aversion is taking a toll on the more cyclical, activity and commodity currencies, with the DXY revisiting 93.000+ territory within 93.069-92.784 parameters as a result ahead of the national activity index, new home sales data and the Dallas Fed manufacturing business survey.

CAD/NOK/EUR/CHF – Another retreat in crude prices and the more severe coronavirus resurgence in Spain, Italy, France and Germany to name just a few Eurozone member states, is weighing on the Loonie, Norwegian Krona and Euro in particular. As such, Usd/Cad has rebounded further from recent lows towards 1.3200 in the run up to Canada’s by-elections, Eur/Nok has retested 11.0000+ resistance and Eur/Usd has retreated from 1.1850+ through decent option expiry interest between 1.1840-35 (1 bn). Note also, Ifo metrics were softer than expected to keep the single currency pressured, while the Franc will have noted a rise in Swiss bank sight deposits as it straddles 0.9050 again.

JPY/GBP/AUD – Also weaker vs the Greenback as the Yen trades at the lower end of a 104.97-66 band, Sterling recoils from 1.3060+ to probe support around 1.3000 in the form of the 50 DMA (1.3012) and 10 DMA (1.2996), and Aussie wanes from just shy of 0.7150 despite Australia looking to lift more of its anti-COVID measures intime for Xmas.

NZD – The relative G10 outperformer, albeit largely due to cross flows than anything NZ specific, as the Kiwi pivots 1.0650 against its Antipodean counterpart and hovers just below 0.6700 vs its rival awaiting trade data for some independent direction.

EM – Broad losses due to the downturn in risk appetite impacting oil and other commodities, but with Lira losses exacerbated by heightened diplomatic tensions as Usd/Try finally clears the 8.0000 level that was being defended. Ahead, CBRT minutes and the latest inflation report may explain why the Bank opted to shock markets and stand pat last Thursday, while an improvement in manufacturing confidence has hardly helped the worsening mood with the pair elevated between 8.0658-7.9628 extremes.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1800 (523M), 1.1835-40 (1BLN)

-        EUR/GBP: 0.8900 (880M), 0.9000 (2.2BLN), 0.9020 (895M), 0.9100 (565M)

-        USD/JPY: 104.00 (2BLN), 104.20 (481M), 105.00 (918M), 105.30-35 (1.3BLN)

FIXED INCOME

Debt and equities are still in lock-step it seems, or at least price action would suggest a return to ‘norm’ in terms of asset-reallocation for risk considerations. Hence, Bunds, Gilts and US Treasuries have all drifted off earlier peaks as stocks stabilise and recoup losses awaiting the arrival of US market participants one hour sooner due to clocks going back in Europe over the weekend. The respective 10 year benchmarks are currently at 175.53, 135.63 and 138-17+ within 175.43-73, 136.56-80 and 138-11/138-19+ bands ahead of a relatively busy pm agenda for a Monday, but much more pivotal data and events as the week progresses, including BoC and ECB policy meetings plus the first look at Q3 GDP, October inflation and month end.

COMMODITIES

WTI and Brent futures are subdued this morning following the substantial losses seen in the equity space alongside poor earnings from European heavyweight SAP (see equity section). At present, WTI and Brent are lower by just shy of USD 1.0/bbl but similarly to the equity space have lifted off lows most recently with a number of factors in play for the crude complex this morning. On the demand side, the rising COVID-19 cases and new restrictions implemented in areas such as Italy and France have served to bring existing concerns back to the forefront; while updates from Lufthansa that additional craft are to be grounded for the Winter period will be an area of concern. Moving to the supply side where factors are both supporting and hindering the crude complex; firstly, Tropical Storm Zeta is expected to become a Hurricane later on today and has already prompted BP to commence shut-in procedures within the Gulf of Mexico. However, updates out of Libya indicate that the force majeures on all ports and fields have now been lifted after El Feel field reopened this morning following such action for the Ran Lanuf and Es Sider ports on the weekend. As such, the NOC believes production will surpass the 1mln BPD mark in around 4-weeks’ time. Moving to metals, spot gold is essentially flat on the day but has been attempting to move higher throughout the morning given the general risk-tone. However, any potential shine for the metal has been halted by the USD’s upside which has seen the DXY eclipse 93.00. Elsewhere, steel output for the year from China is forecast to eclipse 1bln/T which would be a 3-5% YY increase according to the CISA industry association. An increase which is explained by increased consumption globally as well as support domestic gov’t policies for China’s steel industry.

NHC said tropical storm Zeta is strengthening and is expected to bring hurricane conditions, as well as a storm surge in parts of the Yucatan peninsula by late Monday. Furthermore, BP (BP/ LN) is evacuating its offshore workers and securing from Gulf of Mexico platforms ahead of tropical storm Zeta. (Newswires)

Saudi Energy Ministry says a recovery in oil demand has taken place in the last few months, Energy Intel's Bakr. (Twitter)

Libya's El Feel (70k BPD) field has had its force majeure lifted. (Newswires)

UK armed forces conducted an operation onboard the tanker Nave Andromeda in the English Channel in which 7 seven suspects were detained after reports that a number of stowaways made verbal threats towards the crew. (Newswires)