• FX markets rangy and equities directionless in a quiet European morning ahead of the FOMC
• BTP’s back over 127.00 as Italian budget updates surface ahead of the official release on Thursday
• Looking ahead, highlights include, Czech, US and NZ interest rate decisions, US new home sales, ECB’s Draghi and Fed’s Powell

ASIA

Asian equities traded mostly higher despite a mixed lead from Wall St. where the Dow and S&P closed with losses amid cautiousness ahead of the FOMC. ASX 200 (+0.1%) gains were led by the strength in commodity names amid the bounce in base metals, while Nikkei 225 (+0.4%) initially lagged but remained in close proximity to test the 24,000 level to the upside. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp (+0.9%) outperformed as trade tensions took a backseat amid reports that MSCI will consider increasing the weight of China A-shares in its indices to 20% from 5% and with bluechip energy names frontrunning the gains in Hong Kong. Finally, 10yr JGBs saw a slight rebound and printed fresh weekly highs as yields marginally declined across the curve but with gains capped amid weaker than previous 40yr auction results.

PBoC skipped open market operations today for a net daily drain of CNY 40bln. (Newswires)

PBoC set the CNY mid-point at 6.8571 vs. Prev. 6.8440. (Newswires)

PBoC is reportedly to release rules related to foreign company bond sales in the interbank market. (Newswires)

China banking liquidity is to be loose at the end of September; according to a PBoC-run newspaper. (Newswires)

Chinese Senior Diplomat Yi said China and US should avoid falling into a zero-sum game trap; while he added China hopes US can meet China halfway to prevent the spread of negative momentum. (Newswires)

Asia Development Bank sees China growth 2019 growth at 6.3%, slower than July's forecast of 6.4%. (Newswires)

Japan and US are said to have reached a basic agreement on ways to promote trade. (Newswires)

Japanese PM Abe said he is open to a summit with North Korean leader Kim. (Newswires)

EU/UK/US

Sky News’ Faisal Islam tweeted (citing Sky sources) that there are plans for Labour leader Corbyn to meet with EU’s Chief Negotiator Barnier in the coming days. (Twitter)

French Finance Minister Le Maire said UK PM May's Chequers plan "doesn't add up" in its current form as it would send a damaging signal to the rest of Europe. (FT)

UK PM May is said to lay out a speech on Wednesday regarding plans to cut UK corporate tax rates to the lowest in G20 in an attempt to make UK "one of the most business-friendly economies in the world". (Newswires)

Italian Economy Minister Tria said that citizens income will be in the budget alongside tax cuts for businesses in 2019 and income tax cuts in the following years. He added that the first objective of the budget is to avoid the tax burden from rising and avoiding VAT and excise duty increases. (Newswires)

CENTRAL BANKS

Riksbank's Jansson said if the central bank moves too quickly ahead of the ECB, SEK would strengthen too quickly, while he added the Riksbank may have to raise unemployment forecasts slightly in October. (Newswires)

GEOPOLITICS

US National Security Advisor Bolton said the enforcement of sanctions will be aggressive and unwavering and will not be undermined by Europe or anybody else. (Newswires)

South Korean President Moon said North Korea's Kim wants a second summit with US as soon as possible. (Newswires)

EU Commissioner Hahn rejected financial aid to Turkey. (Newswires)

EQUITIES

European equities have started the day directionless, with trade choppy and newsflow light ahead of the FOMC’s rate decision later on in the day. The DAX is once again the major index underperformer with BMW still near the foot of the index after yesterday’s guidance cut.

The CAC is leading the gains in the equity space, with Bouygues lifting the index after an upgrade at JPM to overweight.

M&A related news was the pre-market focus, with suggestions that Unicredit may tie-up with one of Lloyds or ABN Amro; and further reports saying Deutsche Bank was looking at a theoretical merger with UBS, as according to sources; something which their CEO later downplayed.

FX

NZD/GBP - Amidst very rangy or cagy trade in Usd/majors ahead of the FOMC, the Kiwi and Pound are just standing out from the crowd as outliers, with the former outperforming in wake of more encouraging NZ macro news overnight, as a marked improvement in the business outlook overshadowed a worse than expected trade deficit, on balance. Nzd/Usd rebounded towards 0.6700, but is now back down around 0.6650 vs Cable unable to reach 1.3200 and retreating towards 0.8950 again vs the EUR. Note, some bank rebalancing models point to buy signals for the single currency, and SEK, but this is not really evident in Eur/Usd (yet) that remains capped ahead of 1.1800, or Eur/Sek around 10.3700, with mega option expiries in the headline pair in particular perhaps keeping moves in check (1.1755-75 parameters between 1.1725-35 in 2bn, 1.1740-50 in 3.1 bn and 1.1800 in 1.7 bn for the NY cut.

AUD/JPY - The next best G10 currencies in terms of gains vs a still soggy Usd (DXY only just holding above 94.000), with the Aud maintaining 0.7250+ status and Jpy defending 113.00 again, even though month/quarter/Japanese half year end positioning is said to be net negative. Expiry interest may also be influential here with some decent layered run-offs from 112.95-113.00 down to 112.30-35 (1-2 bn).

CAD/CHF - Marginal laggards as the Loonie continues to pivot 1.2950 amidst the ongoing NAFTA stalemate, but cushioned somewhat by elevated oil prices, while the Franc is anchored around 0.9650 and 1.1350 vs the Eur after a sharp deterioration in ZEW’s Swiss investor sentiment index that underscores SNB caution about risks to the economy.

EM - The Try has taken over the mantle as main regional mover, albeit with the Zar not far behind and both firmer vs the Usd. The Lira appears to be encouraged by more assurances about CBRT independence from Turkey’s Finance Minister, while the Rand awaits an address from President Ramaphosa later today. Usd/Try at the lower end of a circa 6.2000-1000 band and Usd/Zar also nearer the base of 14.3800-2750 parameters.

FIXED INCOME

A relatively measured advance in Bunds, Gilts and US Treasuries vs the pace of rebound in Italian debt as Finance Minister Tria tries to walk the tightrope between keeping the coalition content and EU fiscal controllers happy at the same time. 10 year BTP futures are off best levels, but back over 127.00 vs 126.19 in early trade, while there German counterparts are back below 158.00 and re-testing Eurex session lows after a satisfactory rather than sound 5 year Bobl auction. Gilts have also eased back from Liffe peaks of 120.75 (+29 ticks) alongside USTs, albeit with curves still moderately flatter and talk doing the rounds about some asset-switching in favour of bonds over stocks for Friday (or rather the turn of the month, Q3 and fy H1 for Japan). More immediately, a better than expected CBI trades balance before the CNB, US data, ECB’s Draghi, the FOMC and RBNZ.

COMMODITIES

Oil is flat and has erased the slight losses seen following a surprise build in API crude inventories. This comes amid reports from India overnight saying they were set to cut oil imports from Iran to zero, that was later denied.

Commentary on the fossil fuel came from Goldman who said the initial decline in Iran could bring prices to USD 82.50/bbl and that price risks are skewed to the upside given the elevated geopolitical tensions among oil producers and robust oil demand. The Iranian Oil Minister was also on the wires saying that if US President Trump wants oil to stop rising he should stop interfering in the Middle East.

In the metals scope, Gold is once again finding magnetism to the USD 1,200/oz level, with the yellow metal down by a dollar ahead of the FOMC rate decision. Steel futures in China have dropped for the 2nd straight session as Chinese demand falls ahead of their week-long holiday