Asian stocks drowned in a sea of red following the battered lead from Wall St. after the Dow and S&P notched their biggest one-day drop since early February

Traders cited concerns over prospective earnings (luxury stocks hit yesterday), ongoing trade worries, higher yield environment, whilst some (including Trump and Mnuchin) suggested a mild correction was overdue

UK and EU have reportedly reached an agreement in principle on an all-UK backstop plan, according to sources

Looking ahead, highlights include Swedish and US CPI, US weekly jobs, DoEs and BoE’s Vlieghe

ASIA-PAC

Asian stocks drowned in a sea of red following the battered lead from Wall St. amid a sell-off in tech stocks where the sector posted its worst day since 2011. Dow and S&P notched their biggest one-day drop since early February, while Nasdaq fell below its 200 DMA to experience its largest single-day decline since June 2016. There was said to be no one individual catalyst for the sell-off but traders cited concerns over prospective earnings (luxury stocks hit yesterday), ongoing trade concerns, higher yield environment whilst some (including Trump and Mnuchin) suggested a mild correction was overdue. ASX 200 (-2.5%) was dragged lower by the tech sector, closely followed by the energy names, while Nikkei 225 (-4.0%) plumbed the depths amid weakness in mining and energy names alongside currency effects. Elsewhere, Hang Seng (-3.7%) and Shanghai Comp. (-4.3%) dived deeper into bear-market territory in a continuation of the tech sell-off, with the former hitting lows last seen in February while the latter tumbled to 4-year lows.

PBoC sets CNY mid-point at 6.9098 (Prev. 6.9072) (Newswires)
PBoC skips open market operations for a net neutral daily position

US President Trump does not think Dow declined due to US-China trade war, the market sell-off is correction they have been waiting for, for a long time. Trump said there are more tariffs he can impose on China, but he wants to get a deal. (Fox)

US Treasury Secretary Mnuchin said US is concerned with yuan depreciation; while he added nothing "specifically happened today" for markets to react. He also met with PBoC Governor Yi Gang to discuss important economic issues. (Newswires)

IMF Chief Lagarde says the global economy is probably not strong enough; she supported China's move towards currency flexibility

US Trade Representative Lighthizer said to be preparing to negotiate four possible free trade agreements, (Newswires)

UK

UK and EU are said to have agreed in principle on an all-UK backstop plan. UK PM May will on Thursday ask her Brexit Cabinet to agree a backstop plan that would keep Britain in a customs union with Brussels until a permanent trade deal can be agreed. Meanwhile, the Sun's political editor tweeted that he was told by a government source that any deal with the EU is "still some way off". (Telegraph/Twitter)

Germany's Chancellor Merkel said Brexit negotiations in decisive stage and reiterated the desire for a close relationship with the UK, while Netherlands' PM Rutte hopes for a Brexit deal by the EU summit next week. (Newswires)

EU

Italy's PM Conte said that state-controlled companies are ready to invest EUR 15bln additionally in the next five year if the government reforms are implemented. (Newswires)

FX

In FX Markets, the greenback traded on the backfoot following the retreat to sub-95.50 levels to print fresh intra-day lows just under 95.20. Subsequently, EUR/USD found a firmer footing above 1.1550, while GBP/USD reclaimed the 1.3200 handle and approached 1.3250. Elsewhere, USD/JPY tested 112.00 to the downside amid safe haven flows. In terms of antipodeans, NZD outperforms the AUD with the help of an improvement in the Food Price Index, while the AUD/NZD cross fell below 1.0950.

New Zealand Food Price Index Sep -0.1% (Prev. -0.5%) (Newswires)

Brazil election poll: Bolsorano with 58% and Haddad with 42%; first poll looking at run-off ballot. (Datafolha)

US Secretary of State Pompeo said the release of Pastor Brunson at the next court hearing on October 12th would be an important step, while Turkish President Erdogan said he has to abide by the court decision on the Pastor. (Newswires)

CENTRAL BANKS

Fed's Bostic (Voter, Dovish) said US unemployment rate of 3.7% is "very very low"; he adds that on many the economy is acting as desired and he sees strong US economy for the rest of the year. (Newswires)

Fed's Evans (Non-voter, Dovish) said Fed could raise rates until they are lightly restrictive and then pause, the support for further hikes are dependent on economic growth and inflation. He also said it's unusual for the president to comment on monetary policy but asking why rates need to rise is a fair question, while adding the economy is doing quite well on employment and inflation. (Newswires)

RBA's Assistant Governor Ellis said policy needs to be expansionary and monetary policy cannot increase economy's speed limit and productivity. (Newswires)

BoJ's MPC member Sakurai reiterated the central bank needs to continue with easing persistently for the time being, while he reiterates that it is important to continuously check for side effects and added continuing easing under sound macroeconomic environment could cause imbalances to pile up. He also noted the impact from trade protectionism could become larger on a global trade and supply chains. (Newswires)

COMMODITIES

WTI and Brent continued to sell off with the former losing the USD 72.00/bbl handle while the latter tested USD 81.50/bbl to the downside. The US weekly APIs printed a larger-than-expected build in crude stocks, although, the initial reaction was muted. NHC reported that Hurricane Michael has weakened to a tropical storm over South-Central Georgia, storm flooding gradually decreasing along the Gulf Coast. Some traders cite the decline in oil to the EIA stating that US production is to grow faster than expected, while others simply note a correction. Nonetheless, the risk-off tone of the market is also weighing on prices. Elsewhere, metals are on the backfoot, with the exception of gold as the yellow metal mirrored USD movement, while copper underperformed amid the risk-averse mood.

US estimated Gulf of Mexico producers cut roughly 42% of oil output due to Hurricane Michael, according to BSEE. (Newswires)

EIA cut forecasts for 2018 world demand growth by 60k BPD and sees 1.52mln BPD and raised forecasts for 2019 oil demand growth by 20k BPD sees 1.49mln BPD. (Newswires)

US API Weekly Crude Stocks (1 Oct) +9.75M vs. Exp. +2.62M (Prev. +0.907M) (Newswires)

US

US Treasuries ended Wednesday session undecided as, despite the general risk-off tone, the heavy supply this week may have limited upside action. Most of the selling action was seen at the long-end of the curve were yields were higher by c.2bps whilst buying action was in the short end sending yields lower by c.2bps. There was little if any movement after PPI data. The complex was taking its cue from the wider risk environment (risk-off) as stocks sold-off, VIX rose, and oil ran into sellers. The US Treasury sold USD 36bln of 3-year notes tailing by 0.2bps at a high yield of 2.989, the highest since May 2007. Demand was weak as indicated by the bid-to-cover which was the lowest since July. Directs took the smallest share since July whilst indirects the biggest portion since June leaving dealers with a share well within recent averages. The US Treasury also sold  USD 23bln 10-year bonds, tailing by 0.3bps; demand was scarce and cover was below the 6-week average. Indirects were awarded the biggest portion since July, directs took the smallest share since February and dealers took the largest share since April. * US T-note futures (Z8) settle 2 ticks lower at 117-24.

US President Trump says he thinks the Federal Reserve has “gone crazy” and reiterated that the Fed is making a mistake and rate hikes are ridiculous. (Newswires)