GBP gets a lift from EU sources stating a divorce deal is “very close” temporarily breaking 1.3050 to the upside

BTP’s down by over a point as Italy cut GDP growth targets and Salvini maintains his anti-EU tone

EU equities on the back foot as Italy, yields and US-China tensions weigh ahead of NFP

Looking ahead, highlights include, US and Canadian jobs reports, US trade, Baker Hughes, ECB’s de Guindos, Fed’s Kaplan, Williams and Bostic

ASIA

Asia-Pac stocks are traded mixed following a negative lead from Wall St. where tech names led the sell-off amid US-China trade concerns and as the US 10-year yield hit the highest since 2011. ASX 200 (+0.2%) bucked the trend and recuperated initial losses as financial and precious metal names supported the index, while Nikkei 225 (-0.8%) was subdued due to a recovery in the currency and weakness in tech names. Elsewhere, Hang Seng (-0.2%) struggled after opening in bear-market territory as a result of US headwinds and weakness in the energy sector, while tech names also sold off following reports that U.S. tech companies’ systems had been infiltrated by malicious chips inserted by Chinese intelligence agents. Meanwhile, mainland China remained closed due to the Golden Week holiday.

US President Trump reiterated that China wants to make a deal, but he thinks they are not ready yet; he added US and China will "talk later". (Fox)

US Vice President Pence said China is more proactive than ever in exerting influence, interfering in US policy and politics, while China said US VP Pence's speech makes unwarranted accusations and urged US to stop accusing and slandering China. (Newswires)

US Pentagon-led report noted China as a significant and growing risk to the US supply of critical material and tech. (Newswires)

Japanese Finance Minister Aso reiterated that US talks are not free trade agreement talks, while Japanese government officials said US and Japan are to hold a third round of talks in mid-November. (Newswires)

Australian Retail Sales MM Aug 0.3% vs. Exp. 0.2%. (Prev. 0.0%). (Newswires)

Indian Repo Rate 6.5% vs. Exp. 6.75% (Prev. 6.5%). The RBI changed their stance from stance "neutral" to "calibrated tightening". 5 out of 6 members voted in favor of leaving the rate unchanged. Indian Central Bank Chief Patel says calibrated tightening stance means they are not bound to tighten at every meeting. (Newswires)

EU/UK/US

Former UK Foreign Minister Boris Johnson welcomed EU Council President Tusk's offer of a Canada type deal, he added it shows there is a "superb" way forward. (Newswires)

EU Diplomatic Sources says that a divorce deal on Brexit is "very close" with Britain. (Newswires)

UK Brexit Ministry states they will outline their backstop proposal that will preserve the UK's integrity. (Newswires)

Irish Foreign Minister Coveney says it is "hard to know" if the backstop proposal would work. (Newswires)

Italy sets debt to GDP targets at 130.9 in 2018, 130.0 in 2019, 128.1 in 2020 and 126.7 2021

- Cuts 2018 GDP growth forecast to 1.2% (Prev. 1.5%)

- Hikes 2018 fiscal deficit target to 1.8% (Prev. 1.6%)

- Targets 2019 "structural" deficit at 1.7% of GDP vs. 0.9% in 2018

Italy's fiscal outline was sent to parliament and the government is to allocate EUR 9bln in income support measures. (Newswires)

Italy Deputy PM Salvini said it is in the EU interest that Italy will return to growth, he added bond yields are controlled by a few big investors and speculators that "open and close the tap every morning". Added they will never accept an EU budget that lowers agricultural spending. (Newswires)

EQUITIES

European equities are down again, with traders mindful of Italian updates, the current yield environment, US-China trade tensions and the upcoming US job report. Comments from EU sources that a divorce deal for Britain is close has lifted the GBP and pressured the FTSE 100 into negative territory.

The IT sector is underperforming amidst the technology supply line infiltration, and comments from Trump that he thinks China is not ready to make a deal creating additional strain on US-China relations.

INTU Properties are up by over 28% following murmurs of privatisation led by a consortium including their deputy chairman. Danske Bank are at the bottom of the Stoxx 600 following yesterday’s share buyback discontinuation and being downgraded today to Neutral at Credit Suisse.

FX

GBP - Cable has extended gains above the 1.3000 mark, and briefly through some stops at the next psychological level around 1.3050 on the back of more constructive Brexit news in the form of EU diplomatic sources suggesting a UK divorce agreement is ‘very close’. Eur/Gbp breached its 200 DMA circa 0.8840 in response and tested bids below 0.8820 before the Pound broadly ran out of steam.

JPY - The other relative G10 outperformer, albeit marginal in the pre-NFP amble, as the headline pair remains hemmed in either side of 114.00, but some way above decent support and option expiry interest at the 113.50 strike where 1.1 bn runs off at the NY cut.

AUD/CHF/NZD - The major laggards yet again, with the Aud shrugging off more encouraging data overnight (retail sales) on overriding US-China trade issues and the ongoing drag of high US Treasury yields, while the Franc has been undermined by benign Swiss CPI and the Kiwi is being buffeted by bearish cross winds. Aud/Usd has been down to 0.7055 and close to purported option and export-related bids layered ahead of 0.7050, with Usd/Chf nudging towards 0.9950, Nzd/Usd hovering just above 0.6460 and Aud/Nzd back over 1.0925.

EUR/CAD - Also softer vs the Greenback, with the single currency unable to sustain momentum on advances beyond 1.1500 and technically weak while under 1.1550 and a 1.1546 Fib, while the Loonie remains contained within a 1.2915-40 range vs its US counterpart awaiting Canadian jobs data due at the same time as NFP.

EM - Some consolidation after widespread depreciation vs the Dollar for the most part this week, but not for the Inr that hit fresh all time lows following the RBI’s decision to stand pat on rates against consensus for a 25 bp hike, although it did switch policy stance to ‘calibrated’ tightening from neutral. Elsewhere, more intervention from the Indonesian Central Bank, while the Real may see some upside ahead of Sunday’s Brazilian election after the latest poll put Bolsonaro a bit further ahead of his main rival.

COMMODITIES

The oil market is uneventful heading into the weekend with trade tentative ahead of the US labour market data later in the day, and the fossil fuel essentially flat for the day. The crude complex is set for its fourth consecutive weekly gain, as supply-driven gains have pushed the commodity to 4 year highs this week.

The latest plats survey revealed OPEC compliance stands at 110% in September for members with quotas, alongside stating that Saudi output rose by 100k BPD, and that they have exceeded their targeted 1mln BPD increase.

In metals markets, gold is also essentially unchanged as traders hold off ahead of a US jobs report that could tempt the Fed to implement a tighter monetary policy should signs of wage growth be seen.  Aluminium is also steady, with the construction material set for its biggest weekly rise since April as supply concerns have lifted prices.

FIXED INCOME

After taking directions for the bulk of the week, Gilts and Short Sterling contracts returned to the box set on latest Brexit reports suggesting a deal between the UK and EU is within touching distance. The core 10 year bond gapped down from the Liffe open through 120.00 vs Thursday’s 120.18 close, and after a fleeting uptick to the big figure extended losses to ½ point at 119.68 before finding some light underlying bids. Bunds recoiled in sympathy it seems to a 157.55 Eurex low (-49 ticks), and perhaps importantly under technical support circa 157.74 that held on Thursday to expose 157.43 next. Back to Liffe, and the 3 month strip also declined further to stand 5 ticks adrift at worst. Halifax hpi was relatively weak, but did not  really impact, however another marked downturn in Italian BTPs (in excess of 100 ticks and almost down to 121.00 the figure vs. 122.17 at yesterday’s close) has recently boosted core bonds with Gilts just off a marginal new session peak (120.02) and Bunds back up towards 158.00.

Source: RANsquawk