• Oil up by over 2% as JMMC takes no heed to Trump’s calls for lower oil prices
• Risk sentiment takes a hit as China cancels trade talks with the US; European bourses all in the red
• Looking ahead the highlights are ECB’s Draghi speaking and the UK Cabinet meeting at 14:00BST

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 (-1.6%) 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)

EU/UK/US

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)

UK PM May's spokesman says cabinet will meet at 1400BST, adding that the cabinet gave full backing to the Chequers proposal and that remains the case. Canada-style deal will not resolve the Northern Ireland border issue. (Newswires)

German European Affairs Minister says a Brexit deal is still possible by November. (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)

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)

Italian PM Conte, Interior Minister Salvini, Deputy PM Di Maio and Finance Minister Tria reportedly were having top level talks. (ANSA)

German IFO Expectations New 101.0 vs. Exp. 100.2 (Prev. 101.2, Rev. 101.3)

German IFO Current Conditions New 106.4 vs. Exp. 106.1 (Prev. 106.4, Rev. 106.5)

German IFO Business Climate New 103.7 vs. Exp. 103.2 (Prev. 103.8, Rev. 103.9)

CENTRAL BANKS

ECB's Dolenc said that ECB's interest rates will remain low through the summer of 2019, says he can't comment on when they will change. (Newswires)

GEOPOLITICAL

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)

EQUITIES

European equities have started the day on the back foot as trade concerns have come back into the fray after US-China sanctions have taken effect and China cancelled US trade talks. The automotive sector is struggling in the wake of this, with weakness in Daimler (-1.3%) and Volkswagen (-1.0%) pressuring both the DAX and consumer discretionary sector into underperformance. This is being further exacerbated by The German Government and carmakers failing to strike a deal on hardware retrofits for older diesel vehicles.

The energy sector is the outperformer and benefitting from higher oil prices as market participants digest commentary from the JMMC meeting in Algiers over the weekend.  

The 2 year takeover saga of Sky (+9.0%) has reached a conclusion as the Co. have accepted Comcast’s bid of GBP 17.28/share made in a blind auction over the weekend. Comcast beat out 21st Century Fox and value the UK broadcaster at over GBP 30bln.

Randgold Resources (+4.9%) and Barrick Gold have confirmed they are in late stage discussions regarding a merger valued at USD 18bln.

FX

GBP/EUR - The Pound has regained some composure after last week’s fall from grace, and its recovery is perhaps even more impressive given weekend UK press reports full of talk about a snap election. Moreover, some market observers are pinning the rebound on latest remarks from Raab striking a defiant message amidst all the growing criticism of and opposition to PM May’s Chequers plan as he maintains that this is the best formula for a deal with the EU, but M&A flows also look supportive given Comcast’s conquest in the battle for Sky. Cable has reclaimed 1.3100+ status, and techs are also noting the fact that a daily cloud base around 1.3055 has held on a couple of occasions, while Eur/Gbp is back below 0.8900 even though the single currency looks more solid around 1.1750 bs the Dollar. In fact, Eur/Usd is trying to probe higher towards 1.1800 in wake of Germany’s Ifo survey that saw a clean sweep of beats vs consensus and only minor moderation in components from the previous month. However, a 1.1780 Fib still needs to be breached from a chart perspective and there is decent option expiry interest from 1.1740-50 (1.4 bn) exerting a gravitational pull.

JPY/NZD/CHF/AUD/CAD - All softer vs the Greenback to varying degrees, and essentially keeping the DXY afloat, or above 94.000 at least. Usd/Jpy is holding near the higher end of its recent range and above 112.50, while the Kiwi and Aud have both retreated from big figure levels (0.6700 and 0.7300 respectively) amidst an escalation in US-China trade wars, as Beijing rejects talks and the latest tit-for-tat import tariffs go live. The Franc remains relatively firm just above 0.9600, but the Loonie is back below 1.2900 even though crude prices continue to rally on lingering NAFTA no deal disappointment ahead of yet another round of talks planned this week.

EM - In contrast to the Cad, Brent’s outperformance vs WTI and further advances towards $81/brl have boosted the Rub to test sub-66.0000 peaks vs the Usd, while the Try has resumed its recovery momentum vs the Usd and bounced off 6.3300+ lows to sit just off 6.2150.

FIXED INCOME

Bonds have succumbed to further selling pressure, albeit relatively gradual rather than quick-fire even though near term technical levels have been breached on the way down to fresh intraday lows, while oil prices continue to simmer and are fuelling bearish activity to an extent. Bunds just extended losses to 26 ticks at 158.74 having slipped through 158.86, but held in above last Friday’s session low of 158.68, which now obviously becomes the next technical support/target to aim for. Turning to Liffe, and Gilts have also probed below nearest tech and pysch support at 121.00, to 120.96 (-24 ticks) , but remain some way off last Thursday’s 120.77 base and the Dec18 contract low (120.54), though not really deriving any traction from a weaker than forecast UK CBI Trends survey. Elsewhere, US Treasuries are declining in sympathy with EU equivalents and steepening ahead of 2 year supply.

COMMODITIES

The oil sector is benefitting from commentary over the weekend where OPEC stated that they would only boost production should customers require it, with Saudi Energy Minister Al-Falih also saying that the “market is well supplied”, and that demand will increase in October. This commentary disregarded US President Trump’s calls to markedly increase output to reduce oil prices, and also came amid the OPEC world outlook that stated demand is expected to continue growing at a healthy rate in the medium-term. This has seen Brent up over 2% today and with it finding a firm footing above USD 80/bbl in European trade.

In reaction to this markets are gearing up for higher oil prices in the medium-term, with Bank of America Merrill Lynch revising their 2019 oil price forecasts. This has gone from USD 75/bbl to USD 80/bbl for Brent and USD 65/bbl to USD 67/bbl for WTI.

In the metals space, gold is essentially unmoved after declining over a percent on Friday, with the yellow metal trading within a thin USD 5/oz range. London copper has fallen from 10 week highs as trade concerns hit the market, with the construction material trading around USD 6,330/T in Monday’s session.

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)

Saudi Aramco's CEO says that they have 1.5mln barrels of space capacity and they can provide additional barrels if needed. (Newswires)

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