European stocks taking the lead from US and Asia with significant losses; Stoxx 600 at lowest in 20 months

Mixed reports on an all-UK agreed backstop, with sources suggesting PM May is to ask her cabinet for approval today

Looking ahead, highlights include, US CPI, US weekly jobs and DoEs

ASIA

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 (-2.7%) was dragged lower by the tech sector, closely followed by the energy names, while Nikkei 225 (-3.9%) plumbed the depths amid weakness in mining and energy names alongside currency effects. Elsewhere, Hang Seng (-3.5%) and Shanghai Comp. (-5.2%) 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

China's Commerce Ministry says China has not and will not engage in economic invasion (Newswires)

EU/UK/US

ECB’s Hansson says wouldn’t want to be any more precise with guidance for rates and is happy with the forward guidance. (Newswires)

Italian Deputy PM Salvini said will not take even a cent off of the budget measure. Italian Pension Chief said government plan to lower the retirement age would further increase 2021 pension spending by 1% of GDP. He added that it is not too late to show that public finances are on a credible path

EU's Katainen said the commissions interest is to convince the Italian government to take responsibility on the budget. (Newswires)

EU's Moscovici said has not rejected the Italian budget yet. (Newswires)

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). Irish Foreign Minister says that there is not an agreement on a way forward on a Brexit deal yet, and it is too soon to claim there is an agreement yet

UK PM May's spokesman said there have been a series of meetings recently when ministers receive negotiation updates, such as today. Adds, Northern Ireland backstop is an issue to be resolved but there are others. (Newswires)

Swedish CPI MM Sep 0.5% vs. Exp. 0.3% (Prev. -0.2%)

Swedish CPI YY Sep 2.3% vs. Exp. 2.2% (Prev. 2.0%)

Riskbank's Skingsley says bank will likely exit negative interest rate policies in 2019. (Newswires)

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)

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 Bullard (Non-Voter, Dove) says that despite the surprise on GDP size, the Fed hasn't sped up rate hikes; adding that the Fed has normalized policy quite a bit, and says that we have hit the point where policy rates are at a good position

EQUITIES

Major European indices are all in the red due to the global market turmoil which began on Wednesday in U.S markets (Euro Stoxx 50: -1.3%), the cause has been quoted as a multitude of factors not limited to; US-China trade tensions, the current yield environment, the Italian political situation and suggestions that the markets were overdue a correction. However, it is yet to be seen whether this is part of a broader economic downturn as we enter into U.S earning season with a relatively solid U.S economic backdrop.

All sectors are down with energy firms down by over 2% in fitting with price action in the complex. Healthcare and consumer staples are the best performing sectors as more defensive investments are sought in the risk-off environment, but are both in the red by just under 1%

Dialog Semiconductor is vastly outperforming, up over 23%, following a EUR 600mln deal with Apple, which has led to the company updating their revenue outlook for the next 4 years. Ingenico are also up over 12% after confirmation that Natixis (-4.5%) are in the early stages of take over discussions. Hays Plc are at the bottom of the Stoxx 600, down by 12% after reporting a slower quarterly growth rate.

FX

SEK - Hot on the heels of its Scandi peer, the Sek has seized pole position on the G10 grid and extended gains on the back of relatively hawkish Riksbank rhetoric, as Swedish CPI and CPIF readings also topped market expectations. In response, December rate hike odds have narrowed to better than evens, while Eur/Sek is testing psychological support circa 10.4000 ahead of the nearest downside tech level around 10.3725 (early October low).

NZD/AUD - The next best majors and beneficiaries of the latest Usd downturn (DXY capped below 95.500 within a 95.173-431 range), with the Kiwi extending its recovery from Wednesday’s lows towards 0.6500 and Aud retesting 0.7100. Some additional impetus for the former via less deflationary NZ food prices overnight, while the latter has not really been derailed by RBA’s Lowe advocating higher US interest rates and a stronger Greenback.

EUR - Firmly back above 1.1500 vs the Usd and pivoting 1.1550 within a higher range flanked by hefty option expiry interest (1.8 bn at the 1.1500 strike and 2.3 bn from 1.1600-20), while also facing chart resistance in the 1.1572-91 region that houses a daily top, 55 DMA and Fib. Fundamentally, not much to glean from latest ECB comments, but the minutes may provide something to trade off.

CHF/CAD/GBP/JPY - All moderately firmer vs the Buck, as the Franc cleared resistance at 0.9900, but could not breach 0.9850, and interestingly also retreated from sub-1.1400 levels against the Eur amid suspicions of official intervention. The Loonie is rangebound around 1.3050 ahead of more Canadian housing data, while Cable climbed towards 1.3250 at one stage, but lost momentum and is now back just below 1.3200 where offers have been touted. The Jpy retains an underlying safe-haven bid, but also failed to sustain gains through a big figure, at 112.00, and now eyeing a 50% Fib (112.16) from a tech perspective alongside upcoming US inflation data and related moves in Treasury yields.

EM - The Lira stands out amidst broad rebounds vs the Dollar across the region as Usd/Try crosses the 6.0000 handle to the downside on a combination of more concerted efforts to get runaway Turkish inflation back down towards target and a wider than forecast current account surplus. Elsewhere, the Rand and Real also have data to digest in the form of SA manufacturing production and Brazilian retail sales that might deflect some attention away from domestic politics, for a while at least.

COMMODITIES

Both WTI and Brent are down by 2% at just under USD 72/bbl and USD 82/bbl respectively with prices hampered by the risk-off environment as investors are concerned following global growth uncertainty and ongoing trade disputes. This comes alongside API’s reporting a larger than expected headline build of +9.75mln offering pressure on the fossil fuel. Supply concerns from Hurricane Michael are also easing as oil assets were likely spared significant damage from the storm.

US API weekly Crude Stocks (1 Oct, w/e) +9.75M vs. Exp. +2.62M (Prev. +0.907M)

US API Weekly Gasoline Stocks (28 Sep) +3.4mln (Exp. +1.300mln, Prev. -1.703mln)

US API Weekly Distillate Stocks (28 Sep) -3.5mln (Exp. -1.300mln, Prev. -1.197mln)

US API Cushing Number (28 Sep) +2.3mln (Exp. +1.7mln, Prev. +2.018mln)

Gold is up 0.3% as investors seek safe havens from the current global dip, gold has subsequently breached USD 1200/oz to the upside. Base metals also fell again amidst the broader global risk sentiment with underperformance seen in copper.

FIXED INCOME

Some divergence in core bonds beneath or within the overall asset reallocation from equities bid, as Bunds reversed a little further from early Eurex highs to post a fresh intraday low at 158.26 (+38 ticks) in contrast to Gilts that have ground out a new 120.11 Liffe best (+52 ticks), albeit still lagging somewhat as the core Eurozone debt future rebounds over 158.50 again. Meanwhile, yet more choppy price action in BTPs between 120.48 and 119.44 ahead of Italian supply that was not taken down well, or easily, but appears to have been given the benefit of doubt and enough concession to prevent further fall-out, for now. Elsewhere, US Treasuries are also off overnight safe-haven highs and the curve has unwound a degree of its re-flattening in preparation for long bond issuance that follows CPI and initial claims.