• Asia-Pac equity markets were higher across the board as the region got a tailwind from the earnings-fuelled momentum in the US
• The FX space was quiet overnight amid a lack of tier-1 data and as currency markets consolidated from the prior day’s price action
• EU is open to extending Brexit transition by another year if UK PM May accepts a ‘two-tier’ backstop to avert a border in Northern Ireland
• Looking ahead, highlights include UK and EZ inflation, US building permits and housing starts, DoEs, FOMC minutes, BoE’s Cunliffe, ECB’s Praet, Fed’s Brainard, BoE’s Broadbent, EU Leaders Summit and a slew of large cap earnings

ASIA

Asia-Pac equity markets were higher across the board as the region got a tailwind from the earnings-fuelled momentum in the US, where all majors gained over 2% and the tech sector led the advances after strong earnings including Netflix which beat on EPS and subscriber additions. ASX 200 (+1.1%) gained from the open with the tech sector mimicking the outperformance of its counterpart stateside, although miners underperformed as BHP suffered from weak quarterly output figures. Elsewhere, Nikkei 225 (+1.2%) benefitted from the broad optimism and edged closer towards the 23k level, while Hang Seng was closed for holiday and Shanghai Comp. (+0.1%) was higher amid some quasi-measures including a relaxation of FX related regulations to promote trade and facilitate investment. Finally, 10yr JGBs were flat as focus centred on riskier assets but with downside also stemmed amid the BoJ’s presence in the market for a respectable JPY 1.2tln of JGBs.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9103 (Prev. 6.9119)
 

UK/EU

EU Brexit Negotiator Barnier is said to see December as the 'ultimate deadline' for a Brexit deal. (Newswires)

EU is open to extending Brexit transition by another year if UK PM May accepts a ‘two-tier’ backstop to avert a border in Northern Ireland. (FT) In addition, there were separate reports that the European Commission is said to have offered UK to remain in the Customs Union beyond December 2020. (FAZ)

French President Macron is said to be ready to support a compromise related to Irish border to secure a Brexit agreement. However, diplomats suggest that such an agreement is unlikely to come in time for today’s summit. (Times)

UK Chancellor Hammond is said to warn MPs that Britain will still have to pay the GBP 36bln bill if it fails to reach a trade agreement with EU. (Telegraph)

UK Trade Secretary Liam Fox said will need longer transition to make a free trade deal with EU and suggested that UK may end up remaining in transition past end-December 2020. (Times)

UK Cabinet was told by the Chief Whip the Brexit backstop does not have enough votes and will not pass Parliament. (Newswires)
 

FX

The FX space was quiet overnight amid a lack of tier-1 data and as currency markets consolidated from the prior day’s price action. As such, the DXY was flat and remains in close proximity to the 95.00 level, while EUR/USD kept to within a tight range and GBP/USD also stabilized from yesterday’s swings which were triggered by ongoing Brexit uncertainty. Elsewhere, USD/JPY held on to the risk-inspired gains and antipodeans were mixed as AUD/USD slightly underperformed amid cross-related flows as well as a softer CNY.
 

COMMODITIES

Commodities were lacklustre overnight with WTI crude futures flat around the USD 72.00/bbl level after having pared most the gains seen from the surprise drawdown in API crude inventories. Elsewhere, gold was subdued due to its safe-haven status, while copper was uneventful and proceeded sideways through the session.

US API Weekly Crude Stocks (8 Oct) -2.13mln vs. Exp. +2.2mln (Prev. +9.75mln). (Newswires)

Iran has seen a 'significant decrease' in oil exports since the US pulled out the nuclear deal and began imposing sanctions, according to a senior administration official. (Newswires)

US President Trump said he spoke with the Crown Prince of Saudi Arabia who totally denied any knowledge of what took place in the Turkish consulate regarding journalist Jamal Khashoggi. Elsewhere, it was reported that suspects in journalist Khashoggi case had ties to the Saudi crown prince. (Newswires/NYT)

Talks between the Saudis and Kuwait to restart two shared oil fields have reportedly broken down. (Platts)
 

US

Treasuries were mixed, with only modest movement in yields within tight ranges. There was a bias towards curve flattening, though major spreads were only modestly narrower, with some analysts suggesting flatteners were being put on in pre-FOMC minutes trade (Weds, see below for preview). The lack meaningful moves helped contribute to a firmer risk tone after the release of a solid JOLTs survey for August, falling equity volatility, as well as generally upbeat earnings reports. JPMorgan's latest client Treasury survey found active clients cutting longs to below the four-week average, while shorts were also pared back, and consequently, neutrals rose, taking net positioning to the top of its monthly range. US T-note futures (Z8) settled 2 ticks higher at 118-07.

US President Trump said his biggest threat is the Fed because it is hiking rates too fast and said he is not so happy with people he appointed to the Fed other than Fed Chairman Powell. In other news, US President Trump said former lawyer Cohen lied under oath when he testified that Trump directed him to break the law, while Trump also named Pat Cipollone to serve as his next White House Counsel. (Fox/Newswires)

Fed Chair Powell said he is concerned about the spillover effects from a hard Brexit, while there were also comments from US Treasury's Malpass that a hard Brexit without transition would be a risk. (Newswires)

Fed's Daly (Voter) said inflation is effectively at 2% target and that labor market has surpassed full employment, while she also commented that growth is robust. (Newswires)

US Trade Representative Lighthizer is to open trade talks with the EU, UK and Japan. (Newswires)