• Asian stocks traded lower (South Korea, Japan, Taiwan and mainland China away due to public holidays) with risk sentiment dampened after China cancelled trade talks with the US
• UK PM May’s aides have reportedly begun contingency planning for a snap election in November to save the Brexit talks; later denied by Raab
• Looking ahead, highlights include German IFO and ECB’s Draghi

ASIA

Asian stocks traded lower with South Korea, Japan, Taiwan and mainland China away due to public holidays, with risk sentiment dampened after China cancelled trade talks with the US. In addition, fresh US-tariffs took effect from today with 10% US tariffs on USD 200bln worth of Chinese goods and China had previously announced a retaliation of 5-10% tariffs on USD 60bln of US goods. ASX 200 (-0.1%) losses were led by weakness in the metals sector, while healthcare and financial names also weighed on the index. Hang Seng (-1.3%) extended on losses from the open as trade concerns remained in focus and amid continued increases in money market rates in Hong Kong with the 3-month HIBOR at its highest in 10 years.

China cancelled upcoming trade talks with the US. (WSJ) In related news, there were comments from US President Trump stating the US have a lot more tariffs if China retaliates. (Newswires)

China are to issue a white paper on the China-US trade frictions. (Xinhua)

UK/EU

UK PM May’s aides have reportedly begun contingency planning for a snap election in November to save the Brexit talks and her job after EU leaders rebuffed the PM’s Chequers plan. Strategists have begun “war-gaming” an autumn vote to win public backing for a new plan. (Times) However, there were also reports UK Brexit Secretary Raab dismissed claims of a snap general election in Autumn, while playing down the chances of the government pivoting towards a Canada-style deal and EU officials are also thought to be working on a counter-proposal to Chequers, which is likely to appear in early October. (Guardian)

A majority of the UK cabinet is now supporting moves towards a Canada-style Brexit deal. As such, May will now be asked to reassess her approach and opt for a free trade agreement that represents a ‘clean Brexit’. (Telegraph)

UK Cabinet Ministers will be required to grant limitless access to European Union migrants for more than two years after a “no-deal” Brexit, according to the Times. Such a move proposed by Home Secretary Javid will likely anger Brexiteers. (Times)

Labour leader, Jeremy Corbyn plans to use Conservative Brexit rebels to force PM May into a General Election as early as November. Furthermore, the Labour leader will reluctantly back a second EU referendum if his party conference calls for it. (Daily Mirror)

Jeremy Hosking, a City financier who donated GBP 1.5mln to the Leave campaign and has given GBP 375k to the Conservatives since 2015, is threatening to fund a new pro-Brexit party if PM May fails to deliver on the EU referendum. (Telegraph)

EU's Tusk said the UK knew EU's position on Chequers for weeks and that EU fully respects UK's Brexit decision, while he added a compromise is still possible and he is focused on getting a deal that would minimise damage resulting from Brexit. Furthermore, Tusk said EU will treat Chequers plan as a step in the right direction. (Newswires)

Italy's League said Economy Minister Tria acknowledged the political will of League and 5-Star, adding steps for are to be adopted for change. He added he would look for budget solutions to perfect both League and 5-Star proposals. Later reports suggest Tria will try and fix the 2019 budget deficit at 1.6% but the government could hold talks with the EU on a potential wider gap. (Newswires)

Fitch affirmed Switzerland at 'AAA'; Outlook Stable and affirmed Norway at 'AAA'; Outlook Stable. S&P raised Latvia’s rating one notch to A from A-; outlook revised to stable from positive. (Newswires)

FX

With FX markets quiet amid the lack of participants due to mass closures, price action was dictated by risk sentiment. AUD underperformed amid weakness in the CNH and the commodities complex, while high-beta currencies were also subdued by the trade concerns. DXY traded relatively flat, albeit above the 94.00 level and EUR/USD languished around Friday’s lows, while GBP/USD was lacklustre below 1.3100 after Friday’s heavy losses due to the impasse at the Salzburg summit and with the UK seemingly on-course for a no-deal Brexit.

COMMODITIES

Mixed trade for commodities with Brent eyeing USD 80/bbl to the upside post-JMMC where OPEC ministers dismissed US President Trump’s claim to keep oil prices down, while Saudi Energy Minister al-Falih said he believes oil demand will be higher in October. The OPEC 2018 world outlook noted oil demand at the global level is expected to continue growing at healthy rates over the medium-term. Elsewhere, gold is subdued as the USD remains firms, while copper underperforms amid risk sentiment and demand concerns from trade escalations.

OPEC+ affirmed plans to gradually continue increasing crude output in-line with the summer decision. Saudi’s Energy Minster al-Falih said the country’s output will largely depend on demand which he thinks will be higher in October, while he added producers have enough capacity to meet unexpected market situations. Furthermore, he stated 100% compliance is not a fixed production target and countries in the past 3 months have opened taps to compensate for Iran. (Newswires)

OPEC+ monitoring compliance rose to 129% in August from 109% in July, while there were separate source reports on Friday OPEC and Non-OPEC countries discussed a 0.5mln BPD increase. (Newswires)

Saudi Arabia was said to be concerned about oil prices being above USD 80, according to sources that added Saudis are running low of Arab Light for October allocations. (WSJ)

Indian oil refining companies reducing oil imports amid the declining INR and rising crude prices. (Newswires)

Baker Hughes Rig Count (21 Sep): Oil rigs -1 at 866, gas rigs unchanged at 186, total rigs -2 at 1053. (Newswires)

GEOPOLITICAL

US Secretary of State Pompeo said the US is working on a second Trump-Kim meeting, but work still needs to be done to get the right conditions. (Newswires)

There was a shooting at a military parade in Iran that was claimed by anti-government group as well IS militants, while Iranian President Rouhani criticised the US and Gulf states as having enabled the attack. Iran revolutionary guards threatened retaliation for the attack on the Iranian military parade; although it is not clear who they will retaliate against. (Newswires)

US

News flow generally had little impact on the complex; volumes and ranges were thinner ahead of next week’s FOMC meeting, leaving the bias for yields to dip slightly, though not more than 1bps across the curve. There is USD 233bln on the supply slate for next week, including 2s, 5s, and 7s. US T-note futures (Z8) settled 2+ ticks higher at 118-21.

White House Official said on Friday US goal is not to divorce US and Chinese economies, while the official added it would not be good for long term growth, and if China continues on its path, there is a risk that companies may move their supply chains. (Newswires)

Canadian PM Trudeau said it is very likely that US and Canada may hold informal NAFTA talks on the sidelines of this week’s UN meeting, but no decisions have been made yet on the informal talks. (Newswires)

Source: RANsquawk