• Italian budget dispute takes centre stage as Finance Minister and League/5SM 2% conflict comes to the fray
• BTP roam toward 3% to the upside in early European trade and FTSE MIB leading the losses in equities
• Looking ahead, highlights include, German CPI, US GDP, Durables, Italian budget presentation and a slew of central bank speakers

ASIA

Asian stocks were indecisive following a lacklustre lead from Wall St. where the major bourses ended the day with losses after a mixed-perceived FOMC. ASX 200 (-0.1%) was subdued by a pullback in commodity names, while Nikkei 225 (-1.0%) swung between gains and losses at the whim of a choppy currency but ended the day in the red. Shanghai Comp (-0.5%) and Hang Seng (-0.4%) also flip-flopped with the region somewhat cautious as it digested the FOMC and a lock-step hike by the HKMA, while the PBoC skipped open market operations again for a net daily drain of CNY 60bln. Finally, 10yr JGBs tracked US Treasuries higher with prices also supported amid the BoJ’s Rinban announcement for JPY 880bln in JGBs across the curve before hitting resistance at 150.20.

HKMA hiked base raise by 25bps to 2.50% in lock-step with the Fed just as expected and said capital outflows will not have significant impacts on HK's money markets. Furthermore, Hong Kong Finance Secretary Chan said Hong Kong's super low rate environment could change and that rising interest rates could pose high risks for asset markets. (Newswires)

RBNZ Cash Rate (Sep) 1.75% vs. Exp. 1.75% (Prev. 1.75%). The RBNZ reiterated it expects to keep OCR at this level into 2020 and that next move could be up or down, while it sees early signs of an increase in core inflation and outlook for OCR assumes growth will pick up over the coming year. (Newswires)

US President Trump suggested he is going to call Chinese President Xi on Thursday, while he added that the China tariffs have had no effect on the US economy. US President Trump also stated US is "winning big" in trade dispute with China, and that there is plenty of evidence of China meddling in upcoming US election. (Newswires)

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires)

PBoC set CNY mid-point at 6.8642 (Prev. 6.8571)

China Industrial Profits (Aug) Y/Y 9.2% (Prev. 16.2%) (Newswires)

EU/UK/US

UK PM May Spokesman said PM May and US President Trump agreed that Brexit provides a wonderful opportunity for an ambitious UK-US free trade deal. (Newswires)

UK PM May is reportedly losing support for a no-deal Brexit if EU discussions fail, according to sources. Sources suggest there are concerns that May will stick to her promise to force a no-deal Brexit if Europe rejects her Chequers plan again. (Times)

Italy Deputy PM Di Maio said a new government meeting is needed on budget targets and there is still work to be done. Reports suggested the Italian Government may postpone their 2019 budget plan meeting and the league were set to join 5SM in seeking a 2.4% deficit target, this came amid reports that FinMin Tria was set to resign over disagreements on the budget but this was later denied.

After this denial, Salvini said that it is "obviously" worth having a deficit above 2%/GDP, and the announcement that a meeting was scheduled at 10:30am to discuss the budget alongside the Italian Budget Target meeting being pushed back to 7:00pm BST. This came amid further reports that the Italian Finance Minister is ready to resign and sticking to a target deficit/GDP of 1.6%. The ruling parties are in agreement and want a debt/GDP above 2%, as according to a 5 Star source. (Corriere Della Sera/La Stampa/ANSA)

US President Trump said he rejected a one-on-one meeting with the Canadian PM and added the US is not getting along at all with Canadian negotiators. However, Canadian PM Trudeau spokesman later said Trudeau did not request a one-on-one meeting after (Newswires)

USTR Lightizer plans to tell Congress that upcoming talks with Japan are just one item on a list of new negotiations and that he wants to submit notification for negotiations with the EU, Philippines and the UK, according to WSJ citing sources. In related news, the text of US-Mexico trade deal expected to be released today; the deal has been written to allow Canada to join later as according to sources. (Newswires/WSJ)

US House of Representative passed the USD 850bln spending bill, which avoids plans to shut the government on Sunday. (Newswires)

GEOPOLITICS

US President Trump said he does not want to get into a "time game" in regard to North Korea's denuclearisation. (Newswires)

Japanese and North Korean Foreign Ministers are said to have held talks, while it was also reported that China is to send a top official to North Korea in October. (Newswires)

EQUITIES

European equities have been driven by mixed reports from Italy this morning ahead of their upcoming budget. This led equities to start the day in the red on suggestions of possible resignation of the Italian Finance Minister, and/or a delay to today’s presentation.

Some reprieve was offered by a rejection of these reports, but most major bourses are still in the red, with the FTSE MIB leading the losses. The FTSE is bucking the trend as a result of the softer GBP.

Italian banks have been hit the hardest by the budget dispute reports from Italy, as the rise in Italian yields has pushed Unicredit (-2.9%), Banco BPM (-2.5%) and Intesa Sanpaolo (-2.7%) close to the foot of the Stoxx 600. These stocks are languishing in the red alongside Indivior (-20%), who is leading the losses in the Stoxx 600, after a guidance cut in late European trade yesterday

H&M (+10%) is the marked outperformer in Europe after they tempered investor concerns of slowing profit figures, by highlighting a positive underlying sales trend.

FX

EUR - Not the biggest G10 lose in the FOMC aftermath vs a broadly firm USD (DXY back above 94.500 and up to 94.645 at best), but struggling to maintain 1.1700+ status amidst more Italian fiscal bickering in Rome between Economy Minister Tria and the more anti-austerity factions of the coalition Government. The single currency has derived some underlying support from firmer than expected German state CPI reports implying an upside skew to the national print, while hefty option expiry interest at 1.1700-05 (1.35 bn) may also be keeping the headline pair afloat.

GBP/AUD/CHF/CAD/NZD - The major underperformers against the Greenback, partly on Fed policy guidance reaffirming a final and 4th 25 bp hike this year, followed by 3 more in 2019 and another the year after, but also on other factors. Cable is retesting 1.3150 after decline to just above 1.3100 as Brexit uncertainty persists, but acknowledging latest EU efforts to continue negotiating including words that effect from Chief negotiator Barnier. Meanwhile, the Aud/Usd is slipping from the 0.7250 level that has been pivotal amidst the ongoing US-China trade rift. The Franc is only just holding circa 0.9700 and around 1.1350 vs the Eur, conscious that the SNB will be watching out for any Roman repercussions and ready to intervene if the Chf strengthens excessively on safe-haven grounds. Elsewhere, the Loonie has lost much of its crude traction following latest NAFTA news that suggests little prospect of a deal anytime soon, with Usd/Cad up over 1.3050 ahead of Canadian average weekly earnings data and a speech from BoC’s Poloz later tonight, while the Kiwi only got a fleeting boost from a relatively upbeat RNBZ assessment of the economy and core inflation as the OCR outlook remained neutral. Hence, Nzd/Usd has reverted to its 0.6650 axis and veering south. 

JPY - Holding up much better than the rest in contrast to recent sessions, even though BoJ Governor Kuroda has maintained a dovish stance with powerful easing still appropriate, and it appears that technical impulses may be impacting after the latest rejection of 113.00+ levels. The headline pair retreated towards 112.50 before finding some underlying bids ahead of a 112.35 Fib and a decent expiry between 112.50-40 (1.1 bn), while Eur/Jpy topped out in advance of 133.00 and a quadruple top just above the big figure.

FIXED INCOME

Bunds have pared losses and retreated to a fresh Eurex intraday low of 158.26 (+22 ticks vs +75 ticks at best) in wake of German state inflation data suggesting a circa 0.2% point upward bias to the national y/y consensus, and a partial reprieve for Italian bonds ahead of more budget meetings before the Cabinet convene that has been delayed, but still scheduled to take place today. Moreover, BTPs have gleaned some comfort or at least sighed relief in the knowledge that nervous investors did not shun the latest cash offering, but the 10 year benchmark remains below 126.00. Elsewhere, Gilts continue to track Bunds within tighter confines and recently slipped back below 121.00, to 120.89 (+10 ticks vs +51 ticks at one stage), while US Treasuries are consolidating and unwinding a degree of bull-flattening after the Fed and in front of a pretty packed penultimate session before the end of September (from the trading standpoint). Aside from a raft of data and more from Powell, plus Kaplan, the 7 year auction could be interesting given mixed impulses via softer yields/less concession vs more clarity regarding the FOMC outlook.

COMMODITIES

The oil market is still in positive territory, with Brent trading around the USD 82/bbl area. Some pressure was offered to the fossil fuel, however, by source reports from Saudi Arabia saying that they are set to increase production by 200-300k BPD to make up for lost Iranian supply for the next 2 months.

In the metals scope, gold is in the green and trading within a thin range after the yellow metal hit 2 week lows in the previous session. Chinese steel rebar has fallen by over 1%, hitting a two week low, with aluminium also slipping to a month long low as demand continues to dry up for the construction materials ahead of the week-long Chinese holiday,