Asian stocks traded on the backfoot as the region mimicked the lead from Wall St. where the S&P 500 posted its worst week in nearly a month

The Telegraph reports The EU is preparing to offer Theresa May a “supercharged” free trade deal this week but will reject Mrs May’s demands for frictionless tradee

The Telegraph also reports that Brexiteers offered UK PM May a lifeline that will see EU officials based at UK borders

Brazilian far-right candidate Bolsonaro won the first round of elections but failed to get an outright victory, as he managed to bag 46.1% of valid votes

Looking ahead, highlights include German industrial production, Fed’s Bullard and ECB’s Nowotny, US Columbus Day (US equities open)

 

ASIA

Asian stocks traded on the backfoot as the region mimicked the lead from Wall St. where the S&P 500 posted its worst week in nearly a month as the tech sector underperformed, while Nasdaq Comp. pulled back over a percent as tech giants lagged and the Dow notched its second straight weekly declines as the index was pressured by heavyweights Intel and Caterpillar. ASX 200 (-1.1%) was weighed on by material and financial names following ANZ’s profit warning which dragged the likes of CBA, WBC and NAB lower in sympathy, while KOSPI (-0.4%) initially outperformed amid positive developments in the Korean peninsula before dipping in the red and Nikkei 225 is closed due to a public holiday in Japan.  Elsewhere, Shanghai Comp. (-3.0%) plummeted as mainland China played catch-up, with participants re-entering the market and reacting to last week’s trade developments, rising yields, China downgrades and weak Caixin manufacturing data. Hang Seng (-0.8%) eroded initial gains as sentiment turned sour along with the mainland.

PBoC cut the RRR for some banks by 100bps to 14.50% from 15.50% (effective Oct 15th) in order to release CNY 750bln of liquidity. This is the fourth cut this year, while the central bank said it will continue to adopt prudent, neutral monetary policy and added the cut will not lead to pressure of CNY depreciation. (Newswires)

PBoC set CNY mid-point at 6.8957 (Prev. 6.8792) (weakest since May 11th 2017)
PBoC skipped open market operations for a net daily drain of CNY 100bln.

US Commerce Secretary Ross said he does not expect movement on China talks until after midterms, he added the USMCA 'non-market country' clause to act as a poison pill against potential trade deals with China, and the US could be replicated in future trade deals with EU and Japan. (Newswires)

US Department of Homeland Security said they have no reason to question denials by US tech firms that Chinese spies infiltrated US computer networks via microchips. (Newswires)

Chinese Caixin Services PMI Sep 53.1 vs. Exp. 51.4 (Prev. 51.5) (Newswires)
China Caixin Composite PMI (Sep) 52.1 (Prev. 52.0)

UK

Head of the European Commission Jean-Claude Juncker told Austrian press that the chance of the UK and the EU agreeing a Brexit deal has grown in the last few days. He added that while he was not sure an agreement could be reached by October, it could be by November. Juncker declined to comment on whether he believed that Brexit might yet be avoided, given the divisions in the British government and parliament on the issue. (BBC/ The Guardian)

The EU is preparing to offer Theresa May a “supercharged” free trade deal this week but will reject Mrs May’s demands for frictionless trade, it has emerged. The offer from Brussels, which will be put to British negotiators on Wednesday, is said to contain “30 to 40 per cent” of the demands made in Mrs May’s Chequers proposal. (The Telegraph/Times) The Telegraph also reports that UK PM May will soon have to tell the UK that the country will be forced to stay in the Customs Union. (The Telegraph)

The Telegraph reported that Brexiteers offered UK PM May a lifeline that will see EU officials based at UK borders in a package of concessions to help unlock a Canada-style trade deal with Brussels. (The Telegraph) Reports in the Independent took a slightly different spin on the situation by stating that Conservative Brexiteers are giving UK PM May an ultimatum, that if her negotiating strategy fails she must accept plans for a Canada-style trade deal or face a leadership challenge. (The Independent) Further to this, the Times reports that Brexiteers have issued a last-ditch threat to vote down the budget and destroy the government unless UK PM May takes a tougher line with Brussels. The Times also reported that Brexiteers warned UK PM May that she could keep the UK within the EU customs arrangements only until 2022. (The Times)

UK PM May has appealed to Labour voters unhappy with Labour leader Corbyn's leadership to consider switching to the Conservatives. Writing in the Observer the PM insisted her party had a "moderate and patriotic programme". (BBC) May has also drawn up plans for a secret charm offensive aimed at persuading dozens of Labour MPs to back her Brexit deal even if it costs Labour leader Corbyn the chance to be PM, the Guardian has learned. Senior Tories say they have been in private contact with a number of Labour MPs over several months. (The Guardian) The Telegraph reported that UK Government whips in talks with 25 Labour MPs to push Chequers deal through Parliament. (The Telegraph)

SNP leader Sturgeon has said her MPs would back a new Brexit referendum if there is a vote to approve one in parliament. (The Independent)

Japanese PM Abe said he would welcome the UK to a TPP trade deal with "open arms". (FT)

The ECB warns banks to curtail booking trades and loans in UK post-Brexit; three people familiar with the situation said the ECB had written to financial institutions and told them to limit their reliance on back-to-back booking models by 2022. (FT)

EU

EU Commission letter stated the targets in Italy budget are a source of "serious concern". (Newswires)

Italian PM Conte’s office reportedly said Italy wants constructive dialogue with the EU. (Newswires)

German Economy Minister Altmaier said the government is willing to talk with the US about equal tariffs on cars. (Newswires)

S&P affirmed France at AA/A-1+, outlook stable. (Newswires)              

BRAZILIAN ELECTION

Far-right candidate Bolsonaro won the first round of elections but failed to get an outright victory, as he managed to bag 46.1% of valid votes (short of the 50% needed for an outright victory) while left-wing Workers’ Party candidate Haddad came second with 29.2%. The runoff election is to take place on 28th October 2018 where opinion polls conducted before the election predicted that the candidates would be tied, according to the BBC.

FX

FX markets were choppy with the dollar marginally firmer after initially fluctuating between gains and losses. EUR/USD and GBP/USD trade flat, above the 1.1500 and 1.3100 levels respectively, while MXN acted as a proxy to the BRL during the Brazilian Election exit polls where “market friendly” Bolsorano won the first round but failed to get an outright win, hence there will be a runoff election between himself and Haddad on October 28th.  Elsewhere, JPY continues to weaken with the currency eyeing 114.00 to the upside against the greenback.

COMMODITIES

Commodities were lower across the board with WTI and Brent below USD 74.00/bbl and USD 83.50/bbl respectively as oil markets unwind some risk premium following reports last week that the White House was mulling whether to waive some sanctions on countries’ imports of Iranian oil. Elsewhere, gold dipped below USD 1200/oz as the USD gained some traction, while copper was also in the red amid a strengthening greenback and soured risk sentiment.

Saudi Arabia's Crown Prince Salman said he sees a deal with Kuwait to restart oil fields soon and added the nation has 1.3mln bbl/day of spare capacity ready to be used if market needs it. He said Saudi Arabia is now pumping about 10.7mln bpd and can add a further 1.3mln "if the market needs that". He also noted that higher price seen in the last month is not due to Iran but mostly because of things happening in Canada, Mexico, Libya, Venezuela and other countries. (Newswires)

Russian Energy Minister Novak discussed ways to enhance crude oil extraction in Libya with NOC's Sanallah; according to a NOC statement. (Newswires)

NHC said Tropical Storm Michael is stronger, heavy rains expected over Western Cuba tonight and Monday, threat to the North-eastern US Gulf Coast is increasing. Note: Michael is located in the Atlantic. (Newswires)

Baker Hughes rig count (5 Oct): Oil rigs -2 at 861, gas rigs unchanged at 189, total rigs -2 at 1052. (Newswires)

GEOPOLITICS

An official who is part of US Secretary of State Pompeo’s delegation said the US-North Korea deal is to be a “long haul”, while he added the trip has been better than the last one. North Korean Leader Kim Jung Un said he is satisfied with the talk with US Secretary of State Pompeo and has offered to stop ICBMs in return for war ending. (Newswires)

US Secretary of State Pompeo said US and North Korea are close to an agreement on logistics for a second summit and added that the North Korean leader said he is ready to allow international inspectors to a nuclear site and a missile engine test site. (Newswires)

There were reports that North Korean leader Kim Jung Un is to visit Russia soon. Furthermore, Chinese President Xi is to visit North Korea. (Newswires)

US

It was another day of higher yields across the Treasury curve, which bear-steepened once again, though yields were off their highs by settlement. Selling was seen following a decent labour market report which showed wages ticking up in September. Many parts of the curves hit fresh multi-year highs. FOMC voter John Williams said the yield curve flattening did not portend a recession, and sees inflation rising further, which helped yields crawl higher. Major curve spreads were wider at settlement by between 1-3bps. NOTE: US fixed income markets will be closed on Monday for Columbus Day. * US T-note futures (Z8) settles 9 ticks lower at 117-21+.

Fed's Bostic (Voter, Dovish) said incoming data has been stronger this year than he anticipated; and added he might have underestimated momentum of aggregate demand, if so that would require higher paths of rates. (Newswires)

Fed's Bullard (Non-voter, Dove) reiterated he does not see much inflationary pressure in the US economy, and added that wage growth is where it should be, while he said in his opinion, the Fed is close to the neutral level. Bullard also said there is plenty of prospects for trade talk going forward with China and he does not see recessions in the horizon right now. (Newswires)

Fed's Kaplan (Non-voter, Neutral) said he would be comfortable with a December hike and he can see three additional rate hikes by June 2019. (Newswires)

Nominee for the Supreme Court Kavanaugh has been sworn in, the Senate backed his nomination by 50 votes to 48. (BBC)