• Asian equity markets traded lower following a lacklustre lead from Wall St where continued weakness in tech and underperformance in energy dragged most US majors lower
• US President Trump reportedly hinted that a trade fight with Japan could be next 
• In FX markets, the DXY was flat and consolidated around the 95.00 level as the greenback traded mixed against its major counterparts ahead of today’s key US jobs data
• Looking ahead, highlights include German trade, EZ GDP, US & Canadian jobs reports, Baker Hughes rig count, Fed’s Rosengren, Mester, Kaplan and ECB’s de Guindos

ASIA

Asian equity markets traded negative following a lacklustre lead from Wall St where continued weakness in tech and underperformance in energy dragged most US majors lowers, while upcoming NFP jobs data and trade-related concerns added to the tentative tone. ASX 200 (-0.6%) and Nikkei 225 (-0.9%) were lower with nearly all sectors in Australia in the red and energy among the worst hit following the recent pullback in crude, while Tokyo stocks underperformed on a firmer currency and after US President Trump hinted that Japan could be next on the agenda. Conversely, Hang Seng (-0.9%) and Shanghai Comp. (+0.4) initially outperformed despite the potential escalation in the trade dispute with the consultation period for the proposed tariffs on USD 200bln of Chinese imports now expired. Furthermore, China had declared it would retaliate against fresh tariffs and plans to take necessary countermeasures to support its companies, while the PBoC were also active today and injected CNY 176.5bln through its 1yr MLF. Chinese stocks then deteriorated heading into the tariff deadline to conform to the overall risk-averse tone and amid increases in money market rates which saw the Hong Kong overnight CNH HIBOR hit its highest level since late June. Finally, 10yr JGBs were marginally higher as they tracked the prior session’s gains in T-notes and with support seen amid the risk averse sentiment in the region, while today’s enhanced liquidity auction for 2yr-20yr JGBs also saw improved results across all metrics.

US President Trump reportedly hinted that a trade fight with Japan could be next as he stated that he has good relations with Japan which will end as he tells them how much they have to pay. In other news, US President Trump also stated he believes Canada will end up being part of new NAFTA, while he also commented that the US will get a great deal with China for farmers and stated that the US is in a little bit of a skirmish with China but is doing well. (WSJ/Newswires)

PBoC skipped reverse repos but injected CNY 176.5bln through 1yr MLF. (Newswires)
PBoC set CNY mid-point at 6.8212 (Prev. 6.8217)

UK/EU

UK negotiators stated that PM May's Chequers plan does not give UK any competitive advantage over EU in an effort to sell the plan to Brussels, although reports noted that this has infuriated Tory Brexiteers who view the plan as a sell-out. (Independent)

EU Chief Brexit Negotiator Barnier was said to have been left furious in a meeting last month after UK Brexit Secretary Raab threatened that an Irish border may have to be reinstated in the event of a no-deal. (Telegraph)

The European Research Group has decided to pull back from publishing the first of its series of alternative proposals this weekend, according to CityAM. (CityAM)

FX

In FX markets, the DXY was flat and consolidated around the 95.00 level as the greenback traded mixed against its major counterparts ahead of today’s key US jobs data, with EUR/USD and GBP/USD static at the 1.1600 and 1.2900 handles respectively. AUD/USD pulled back from resistance around the 0.7200 level and JPY remained firm amid safe-haven inflows after Trump seemingly set his sights next on Japan. Elsewhere, CAD extended on gains seen from BoC Deputy Governor Wilkins comments that the governing council agreed a gradual approach to rate hikes was still appropriate after discussing the current trade environment and after President Trump stated he believes Canada will end up being part of the new NAFTA.

BoC Deputy Gov Wilkins reiterated BoC guidance that higher rates will be warranted to reach inflation target and that they will continue to move rates gradually. Wilkins also commented implications of current trade environment dominated governing council's discussions at its September meeting and that the GC discussed whether gradual approach to rate hikes was still appropriate which it agreed it was. (Newswires)
 

COMMODITIES

Commodities were mixed overnight with WTI flat as it took a breather from the prior day’s losses in which prices declined to briefly test USD 67.00/bbl to the downside despite a larger than expected draw in DoE crude inventories, as Cushing, gasoline and distillate components all showed builds. Elsewhere, gold was choppy around the USD 1200/oz level as participants await the key US jobs data, while copper prices underperformed amid ongoing trade-related concerns and sharp deterioration of sentiment in China.
 

GEOPOLITICAL

Russia, Iran and Turkey leaders will meet in Tehran on Friday to discuss path towards ending Syrian civil war. (Axios)
 

US

Yields were higher across the curve, modestly bull-flattening as EM concerns, and the possibility that the US could hit china with 25% tariffs on $200bln of imports this week keeping Treasuries attractive as a haven; soft German factory data early in the European day also kept fixed income in demand. In afternoon trade, Cigna’s $20bln 10-part M&A bond helped the curve to steepen, but at settlement, major curve spreads were slightly narrower. US T-note futures (Z8) settled 7 ticks higher at 120-05+.

Canadian Foreign Minister Freeland said they are making good progress in trade talks and plan to continue discussions on Friday, although a Canadian government official stated that NAFTA talks are unlikely to reach an agreement this week. (Newswires)

US President Trump is reportedly to say most he most likely won’t pursue a government shutdown over the border wall, while there were earlier comments from US House Speaker Ryan that he has a good understanding with Trump that they will keep the government funded. (Fox News/Newswires)

Fed's Evans (non-voter, dove) stated the FOMC should raise rates to neutral and "likely a bit beyond", while he added higher inflation than expected would necessitate more tightening and that downside risks of trade uncertainty or stalling inflation expectations would require a shallower rate path. (Newswires)

Fed's Rosengren (Non-Voter, Hawk) said it is important to examine potential costs of long period of low rates as they could impact how policy reacts to a recession, while he added there should be more attention to creating policy buffers to mitigate future shocks. (Newswires)

Trump Lawyer Giuliani stated US President Trump will not answer obstruction questions in potential interview with Special Counsel Mueller. (Newswires)