• Italy are said to seek cuts in their 2021 and 2020 deficit/GDP ratio to 2.0% and 2.2% respectively from 2.4%
• EUR immediately caught a bid as the reports signal a potential compromise from Italy. Asian stocks traded choppy following a mixed lead from Wall St.
• Looking ahead, highlights include EZ, UK and US services PMI, US ADP, ISM non-mfg, ECB’s Mersch, Fed’s Evans, Barkin, Harker, Bullard, Brainard and Mester

ASIA-PAC

Asian stocks traded choppy following a mixed lead from Wall St. where the Dow hit all-time highs aided by gains in Intel shares, while Nasdaq was pressured by large-cap tech names tumbling over a percent. ASX 200 (+0.3%) outperformed as miners boosted the index, while Nikkei 225 (-0.7%) was weighed on by auto names with Honda and Toyota falling 3% and 2% respectively, while the index was also mirroring currency fluctuations throughout the session. Elsewhere, Hang Seng (-0.6%) traded lower amid weakness in financial names and as the tech sector failed to support the index following Tencent’s plans to IPO it’s music arm in the US, in what could be one the biggest IPOs to date. Meanwhile, mainland China and South Korea were shut due to public holidays.

NEC Director Kudlow said US and China keep talking about trade, while the White House Advisory said China has not made a serious enough effort at appeasing the US. (Newswires)

Tokyo Financial Exchange plans to expand trading to Hong Kong and Taiwan. (Newswires)

Japan Nikkei Services PMI (Sep) 50.2 vs. Exp. 51.8 (Prev. 51.5) – 2 year low. (Newswires)
Japan Nikkei Composite PMI (Sep) 50.7 (Prev. 52.0)

UK

UK PM May is reportedly under pressure to set out a timetable for her departure after Cabinet ministers said it was now a question of “when, not if” she stands down as Prime Minister. Sources suggest that if she refuses to step down, plans will be drawn up to force her departure before the next general election. (Telegraph)

UK PM May said in the event of a no-deal Brexit, WTO tariffs would come into effect. (Newswires)

UK Brexit Minister Raab said we can expect to have a deal in time for Christmas and the UK must get a deal in November otherwise it’s too short on time for legislative time-frame. (Newswires)

EU

Italy are said to seek cuts in their 2021 and 2020 deficit/GDP ratio to 2.0% and 2.2% respectively from 2.4%. (Corriere della sera/) Note: Previously, the Italian government set the deficit/GDP target at 2.4% for each year from 2019 to 2021.

Italian deputy PM Di Maio confirmed the outlines of the 2019 budget, he reiterated the 2.4% deficit-GDP and the budget will include EUR 10bln for "Citizen's Income". (Newswires)

Italian PM Conte said the budget is aimed at accelerating the fall in the debt/GDP ratio over the coming three years, while Italian house budget committee president Borghi said Italy needs its own currency. (Newswires)

US President Trump said he does not think President of EU Commission Juncker like the US very much, while he added EU was set to take advantage of the US. (Newswires)

FX

FX markets reacted quickly to reports that Italy was seeking a cut to their 2021 deficit/GDP ratio to 2.0% from 2.4%. EUR immediately caught a bid as the reports signal a potential compromise from Italy. The EUR strength weighed more on the Japanese currency than the USD with EUR/JPY and EUR/USD spiking higher by 82 pips and 53 pips respectively. DXY fell to session lows while USD/JPY rose just over 20 pips. Elsewhere, AUD experienced weakness earlier in the session amid a substantial miss in the Australian building approvals with NZD/USD moving lower in sympathy.

Australian Building Approvals (Aug) M/M -9.4% vs. Exp. 1.0% (Prev. -5.2%)
Australian Building Approvals (Aug) Y/Y -13.6% vs. Exp. -2.5% (Prev. -5.6%)

CENTRAL BANKS

Fed Chair Powell (Neutral) said a downward yield curve could signal that Fed policy is tight and policy is not that tight at the moment. He said trade tariffs could increase prices but US is not yet seeing effects from trade policy. Powell added gradual rates are meant to balance risks and there is a "remarkably positive outlook" on inflation and employment. (Newswires)

Fed's Kaplan (Dove, Non-voter) said he is happy with one more rate hike this year in December, base case is two next year. He is hopeful the Fed can raise rates to neutral without inverting the yield curve and the US economy is at or past full employment, while he said his view that US GDP will grow at 3% this year, 2.5% next year as fiscal stimulus fades. In regards to oil, he sees more upside risk to prices. (Newswires)

 

COMMODITIES

Commodities trade mostly higher with outperformance in precious metals amid a subdued USD where gold found a firmer footing over USD 1200/oz and silver rose almost a percent. WTI and Brent are relatively flat following a muted reaction to the narrower-than-expected build in API crude stocks as the oils take a breather near 4-year highs.

Russian Energy Minister said he is in favour of Iran maintaining its position in the oil market and said for now OPEC and non-OPEC are operating on a case by case basis. (Newswires)

NEC Director Kudlow said oil prices seem a little high. (Newswires)

US API Weekly Crude Stocks (28 Sep) +0.907M vs. Exp. +2.000M (Prev. +2.903M) (Newswires)
US API Weekly Gasoline Stocks (28 Sep) -1.703mln (Exp. +1.300mln, Prev. +0.949mln)

GEOPOLITICS

US Secretary of State Pompeo is to meet with North Korean leader Kim Jung Un on Sunday. (Newswires)

US

Action in the Treasury complex was dictated by developments on the 2019 budget over in Italy which led to a steeper yield curve as the Italy/German spread widened above 300bps. The complex dipped later in the session after Comcast launched a 12-part dollar bond to fund its USD 27bln acquisition of Sky; subsequently some flattening was seen across the yield curve. Most of the action was concentrated in the long end of the curve were yields were higher by c.3bps. 2s10 s and 2s30s were narrower by c.2bps at settlement. US T-note futures (Z8) settles 4+ ticks higher at 118-26.

US President Trump said there seems to be great support for the trade deal in Congress, while Senator Cornyn said the Senate may lack votes to approve the USMCA and the earliest vote could occur after November elections and could slip until next Congress. (Newswires)

Mexican Steel Chamber said if no solution can be found for the US steel and aluminium tariffs, Mexico should impose reciprocal measures on US steel imports. (Newswires)

New York State Taxation Department spokesperson said they are reviewing fraud allegations against US President Trump reported by the NYT. While comments from the White house stated the NYT article on US President Trump is "misleading" and added "the IRS reviewed and signed off these transactions"