• Major European bourses are mixed with Germany’s DAX underperforming; European auto sector lower is by over a percent
• Softer than forecast UK CPI has undermined Sterling in the run up to Wednesday’s EU summit on Brexit and pre-dinner speech by PM May
• Looking ahead, highlights include 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 (+1.2%) 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 (+1.3%) benefitted from the broad optimism and edged closer towards the 23k level, while Hang Seng was closed for holiday and Shanghai Comp. (+0.6%) 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)

EU/UK

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 Finance Minister Le Maire, said that we are not far from a Brexit deal. (Newswires)

Guardian journalist Jessica Elgot tweeted that a Downing Street source said "[there has been] "no change" to UK's position on transition period and they are not calling for an extension, set to be proposed by Barnier", while  BBC's Laura Kuenssberg tweeted "No 10 source 'we are not calling for an extension to the implementation period'". (Newswires)

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)

EU Commissioner Malmstrom said EU is happy to continue the discussions with the US on a new trade deal, but negotiations have not yet begun. (Newswires)

Italian Government Official Buffagni said a credit rating downgrade cannot be ruled out and the country must be prepared; and added the premise for EU rejection of budget exists but the PM will explain to the EU the reasoning for budget choices. Note: Moody's will decide by the end of October, S&P due October 26th.

ECB's Praet says our forward guidance on rates and reinvestment policy offers an effective combination of instruments, which will support a robust return of inflation to just below 2%. (Newswires)

UK Chancellor Hammond is said to warned 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)

EU HICP Final YY Sep 2.1% vs. Exp. 2.1% (Prev. 2.1%)

EU HICP Final MM Sep 0.5% vs. Exp. 0.5% (Prev. 0.2%)

UK CPI YY Sep 2.4% vs. Exp. 2.6% (Prev. 2.7%)

UK CPI MM Sep 0.1% vs. Exp. 0.2% (Prev. 0.7%)
UK Core CPI YY Sep 1.9% vs. Exp. 2.0% (Prev. 2.1%)

UK Core CPI MM Sep 0.0% vs. Exp. 0.2% (Prev. 0.8%)

US

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'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)

EQUITIES

Major European bourses are mixed with Germany’s DAX underperforming as the index is weighed on by Fresenius Medical (-15.0%) amid a profit warning, while auto names are also pressure the benchmark following downbeat new car registrations, subsequently pushing the European auto sector lower by over a percent, with some attributing the weakness to Goldman’s downbeat view on Q3 Stoxx 600. On the flip side, the tech sector outperforms following optimistic earnings from ASML (+4.0%) which in turn lifted the likes of STMicroelectionics (+3.0%) and Infineon (+1.0%) in sympathy. Elsewhere, Fresenius SE (-11.9%)  rests at near the foot of the DAX after the company cut guidance, while Crest Nicholson (-4.7%) is firmly in the red amid a profit warning.

FX

GBP - Having been boosted by above average earnings yesterday, softer than forecast UK CPI has undermined Sterling in the run up to Wednesday’s EU summit on Brexit and pre-dinner speech by PM May. Cable is now down around one full point from 1.3200+ peaks as a result, while Eur/Gbp is retesting 0.8800. Note, bids are said to be waiting at 1.3100 and 1.3080 if the low so far circa 1.3130 is breached.

CAD/CHF/EUR - All moderately weaker vs the Usd, but relatively rangebound as the DXY remains top-heavy above 95.000, with the Loonie still pivoting 1.2950, the Franc holding just below 0.9900 and single currency not deviating far from 1.1550 within 1.1500-1.1600 parameters more broadly. Technically, 1.1624 is a 50% Fib and on the flip-side a close below daily support at 1.1546 could be deemed bearish for Eur/Usd in the short term.   

AUD/JPY/NZD - Marginal outperformance against the Greenback, but again very confined ahead of FOMC minutes, with the Aud benefiting from a short squeeze overnight and climbing above 0.7150, but now drifting back down and perhaps wary about a hefty 1.1 bn option expiry at the 0.7125 strike. Meanwhile, the Jpy has recovered from 112.40 lows as heavy supply up to 112.50 continues to provide support and the Kiwi has retested 0.6600, but remains capped near the big figure.

SEK - Extending gains on bullish Swedish impulses via strong inflation data and Riksbank policy implications, as Eur/Sek breaches 10.3000 support and opens up the next downside chart target at 10.2855 (close to 200 DMA).

COMMODITIES

Oil trades in the red and in close proximity to recent lows with WTI approaching USD 71.50/bbl to the downside while Brent edges further below USD 82.00/bbl following a surprise draw on yesterday’s API crude data. OPEC Secretary General Barkindo emerged stating that OPEC+ have decided to sustain market balance and are cautiously optimistic the oil market will remain well supplied, while Saudi are to ensure there is no shortage in the oil market. Traders will be eying the weekly DoE crude inventory data release along with any developments surrounding journalist Khashogghi who went missing at the Saudi Consulate in Istanbul. Elsewhere, metals are mixed with gold mirroring dollar action while copper came off lows. Separately, mining giant BHP has reported a 8% increase in Q1 iron ore production on the back of strong Chinese demand.

OPEC Secretary General Barking said Saudi has assured it is "committed , capable and willing" to ensure there is no shortage in the oil market, while he added OPEC+ have decided to sustain market balance and are cautiously optimistic the oil market will remain well supplied. (Newswires)

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

FIXED INCOME

Still not quite enough momentum to reach 121.00, but the 10 year UK benchmark extended its pre-UK inflation data Liffe peak by 3 ticks at 120.96 before topping out again, while Short Sterling futures are now a more uniform 1-2 ticks above parity and the curve less flat as a result. In truth, the headline CPI miss will not materially alter the BoE policy outlook from a Brexit vigil and wait-and-see stance, while PPI metrics were firmer than expected. Elsewhere, Bunds also advanced further from early Eurex highs to touch 159.00, but failed to breach that level and expose the next chart resistance circa 159.15, but Italian BTPs have lost more ground after their near ¾ point advance from 121.00 as a government official acknowledges the prospect of EU budget disapproval and negative credit rating potential. Meanwhile, US Treasuries remain a tad softer around the middle of relatively tight overnight session ranges ahead of housing data and FOMC minutes.