• US-Canada-Mexico agreed to new NAFTA named the USMCA; CAD and MXN the major outperformers in FX
• FTSE MIB the outperforming bourse as Italy sees some reprieve
• Looking ahead, highlights include, US mfg PMIs, US construction spending, ISM mfg PMI, Fed’s Bostic, Kashkari, Rosengren, BoE’s Tenreyro

NAFTA

US and Canada said in an official statement that they have reached a trade deal with Mexico in an agreement dubbed the USMCA (US-Mexico-Canada Agreement). US President Trump is to sign the new trade agreement by the end of November, which will then get passed on to Congress.

Canada has agreed to eliminate the "Class 7" milk protein pricing system and increase US access to Canada's dairy market beyond Trans-Pacific partnership levels. The New trade deal does not make major changes to current Chapter 19 trade dispute settlement mechanism which gives the three countries the right to challenge each other’s anti-dumping and countervailing duty decisions in front of an expert panel with members from both countries involved in a dispute. US said the trade deal with Canada does not affect US steel and aluminium tariffs currently levied on Canada, and that these tariffs are separate to the trilateral deal. A Senior Trump Administration official said if Trump imposes auto tariffs, both Mexico and Canada will be accommodated in "side letters".

ASIA

Asian stocks traded mixed following a rather uneventful lead from Wall St. on Friday where major bourses ended the day little changed as markets wrapped up a strong quarter where the S&P showed it best quarterly gain since Q4 2013. ASX 200 (-0.6%) underperformed amid a slowdown in China’s manufacturing sector shown by the Caixin data, while Nikkei 225 (+0.5%) was buoyed on currency effect in a continued weakness of the JPY following a downbeat Tankan release and Manufacturing PMI. Elsewhere, Hong Kong and Mainland China are closed today due to public holidays.

Indonesia’s island Sulawesi was hit by a 7.5 magnitude earthquake, which triggered a 6m (20ft) tsunami that hit the cities of Palu and Donggala. Officials have confirmed the death toll rose to over 800.  (BBC/Sky News/CNN)

China's Foreign Minister Wang Yi said protectionism will only hurt one's self and unilateral moves will bring damage to all, and China won’t be blackmailed or succumbed to pressure over trade. (Newswires)

China reportedly cancelled high-level security talks with the US. (NY Times)

PBoC said the yuan exchange rate and market expectations are generally stable. (Newswires)

China Caixin Manufacturing PMI (Sep) 50.0 vs. Exp. 50.5 (Prev. 50.6) (Newswires)

China NBS Manufacturing PMI (Sep) 50.8 vs. Exp. 51.2 (Prev. 51.3)

China NBS Non-Manufacturing PMI (Sep) 54.9 (Prev. 54.2)

Japanese Tankan Big Manufacturing Index (Q3) 19.0 vs. Exp. 22.0 (Prev. 21.0) (Newswires)
Japanese Tankan All Big Industry Capex (Q3) 13.4% vs. Exp. 14.2% (Prev. 13.6%)

Japan Manufacturing PMI (Sep) 52.5 vs. Exp. 52.9 (Prev. 52.9)

EU/UK/US

UK PM May said the Chequers plan is not dead, while added she is prepared to listen to EU counter-proposals but she wants to hear the details of EU’s concerns, and EU leaders want a deal just as she does. She said she believes Chequers will not destroy the single market and a Canada-style deal is not on the table for EU. In the interview, she refused to answer whether a no-deal Brexit will mean a hard border in Ireland. Note: BBC’s Andrew Marr noted a no-deal under WTO would result in a hard border. (BBC)

UK PM May, in a Sunday Times interview, told Tory rebels to “stop playing politics” and the only proposal on the table at the moment that delivers, is the Chequers plan, while she reiterated that no deal is better than a bad deal but she thought a good deal could be reached. She also challenged the EU to come forward with a counter proposal. (BBC/Times/Sun)

Former UK Foreign Secretary Boris Johnson has refused to rule out a leadership challenge to UK PM May. Furthermore, in an interview with The Sunday Times, Johnson questioned whether UK PM May believes in Brexit and branded her Chequers plan “deranged”. (BBC/Times)

EU’s Chief Negotiator Barnier told Labour leader Corbyn that they believed they might be close to finding agreement with UK PM May, but everyone is needs to act calmly and responsibly if the agreement was to get through parliament. (Guardian)

UK Labour leader Corbyn was told his stance made a no-deal Brexit more likely than not; according to sources in Brussels. Brussels is said to hope for the Tory conference to break the deal deadlock. (Newswires)

UK’s Labour party claims UK PM May’s government is the “most divided ever” as it releases a dossier of over 100 Tory MPs criticising the government or colleagues. (Independent)

UK Brexit Secretary Raab is set to warn that if the EU tries to force the UK into accepting a customs union then it will leave without a deal. (BBC)

UK Foreign Secretary Hunt has warned the EU that it will stir Britain's “Dunkirk spirit” if it tries to force a bad Brexit deal on the UK. (Telegraph)

UK Business Secretary Clark has said there are “grounds for optimism” that UK will strike a Brexit deal with the EU. (Sky News)

UK Brexit Secretary Raab says the EU must get serious, and that the EU approach is one sided and allows no scope for compromise. (Newswires)

EU Commissioner Dombrovskis said what emerges so far from discussions in Italy does not seem to be in line with EU fiscal rules, he added it's important to stick to responsible fiscal policy to keep interest rates low. The Dutch PM has also expressed his concerns over the Italian budget plan. (Newswires)

Italian Finance Minister Tria is attempting to head off a confrontation between the EU and Italy that by insisting that the country will reduce public debt despite its plans to increase spending. (FT)

EU Commission are set to reject Italian budget plans, as according to EU sources. (Newswires)

Italy's EU Affairs Minister Savona says there has been no discussion on the EUR. (Newswires)

UK Markit/CIPS Manufacturing PMI (Sep) 53.8 vs. Exp. 52.6 (Prev. 52.8, Rev. 53.0)

EU Markit Manufacturing Final PMI (Sep) 53.2 vs. Exp. 53.3 (Prev. 53.3)

German Markit/BME Manufacturing PMI (Sep) 53.7 vs. Exp. 53.7 (Prev. 53.7)

French Markit Manufacturing PMI (Sep) 52.5 vs. Exp. 52.5 (Prev. 52.5)

Italian Markit/ADACI Manufacturing PMI (Sep) 50.0 vs. Exp. 50.3 (Prev. 50.1)

GEOPOLITICS

North Korea’s Foreign Minister announced that North Korea would not take the first steps towards denuclearisation without further guarantees from the US. He also warned of the increasing mistrust between Pyongyang and Washington DC. (Telegraph)

Russian Foreign Affairs Minister Lavrov said everything possible will be done to preserve Iran nuclear deal. (Newswires)

CENTRAL BANKS

ECB’s Rehn (Neutral) said interest rates will remain at this low at least until summer 2019. (Newswires

EQUITIES

European equities have started the day on the front foot, with the FTSE the laggard, as a slightly bid GBP is weighing on the index. The consumer discretionary sector is the marked underperformer as RyanAir (-8.7%) cutting guidance due to lower than expected Q2 and Q3 traffic has hit European airline stocks, with all of Air France (-2.5%), EasyJet (-3.0%) and Lufthansa (-1.0%) in the red.

Linde (+1.2%) is leading the gains in Germany and has supported the DAX to near the top of the index pile after receiving antitrust approval from China for their Praxair merger. The FTSE MIB is the outperforming index as Italian stocks are seeing some reprieve from last week’s sell off. Index heavyweight Telecom Italia (-1.5%) are, however, in the red after a broker downgrade at Barclays.

FX

CAD - The Loonie has leapt to the top of the G10 leader board, and aside from testing resistance round 1.2800 vs its US counterpart that Cad is bid and outperforming right across the board. The clear catalyst is a somewhat unexpected pre-‘deadline’ deal between the US and Canada on a new style NAFTA deal that will include Mexico and be renamed as USMCA. Looking at technicals, if Usd/Cad breaches 1.2800 and remains below multi-month chart support around 1.2813-19, that includes a 50% Fib, nearest or next downside targets are seen circa 1.2730, 1.2685 and even 1.2500, while from a more fundamental perspective comments from BoC’s Lane later may impact.

GBP - Another relatively firm major currency, as Cable inches up over 1.3050 and Eur/Gbp retreats from just above 0.8900 on the back of a considerably firmer than forecast UK manufacturing PMI, which goes some way towards offsetting more Brexit deal jitters mixed with cautious optimism ahead of the crucial weeks of negotiation before ‘deadlines’ to strike an arrangement between the UK and EU.

JPY/CHF - The clear underperformers, as Usd/Jpy continues to break higher and just climbed above 114.00 following dips in Japan’s Q3 Tankan survey and September manufacturing PMI, while Usd/Chf remains within 0.9845-00 parameters in wake of a less robust Swiss manufacturing PMI that overshadowed a recovery in retail sales.

EUR/NZD/AUD - All relatively flat or narrowly mixed vs the Greenback, with the single currency pivoting 1.1600 amidst somewhat divergent Eurozone manufacturing PMIs and reports suggesting that the EU will register its objection to Italy’s proposed 2.4% 2019 budget (in November, according to sources). Note also, the spill-over from SOMA may well weigh on the headline pair at some stage. Meanwhile, the antipodean Dollars are just holding above 0.6600 and 0.7200 respectively following a weaker than expected Chinese Caixin manufacturing PMI overnight (50.0), as the Kiwi eyes NZIER Q3 confidence and cap u tonight, and the Aud awaits the RBA on Tuesday. 

EM - The Peso and Lira are heading the regional pack, with Usd/Mxn testing bids around 18.5000 on the aforementioned NAFTA breakthrough to include all 3 countries in a new pact, while Usd/Try has made a more convincing break below the 6.0000 handle as healthy or at least encouraging Turkish trade data offset a disappointing manufacturing PMI (former boosted by exports vs latter deeper in sub-50 territory).

FIXED INCOME

Italian bonds have maintained their recovery momentum to trade in positive territory for the first time since the open and almost touching 124.00 at 123.97 vs last Friday’s 123.84 close and a low of 122.80. No obvious fundamental reason for the more sustained rebound, but the 10 year benchmark has lost a lot of ground since the 2.4% deficit was announced and in truth the EC’s damning verdict is hardly a surprise given comments from Brussels in response to developments unfolding in Rome.  Consequently, Bunds have recoiled further from best levels and through the next line of chart support around 158.50 to test the resolve of the 158.40 level (158.37 low, -42 ticks vs +11 ticks at one stage), and with 158.24 next on the radar if stops are tripped. Elsewhere, Gilts recently receded to 120.66, -28 ticks vs +5 ticks at the Liffe pinnacle, and US Treasuries have declined further amidst more pronounced curve steepening as the 10 year contract eyes tech support at 118-16+.         

COMMODITIES

The oil market is uneventful this morning and seeing a lack of newsflow for the fossil fuel, with Brent essentially unchanged for the day and hanging just below the USD 83.00 handle after last week’s rise to over 4 year highs.

A senior Iranian Oil Official said they have no plans to reduce oil production.

Most metals are in the red this morning with zinc and copper down by over 1% and gold down by 0.5% as the week-long holiday in China is hitting demand.