• Asian equity markets were downbeat following a lacklustre lead from Wall St where momentum in US stocks stalled as markets focused on mixed earnings and the FOMC minutes
• USD remained firmer overnight after the FOMC minutes stated that further gradual rate hikes would be consistent with a sustained economic expansion
• UK PM May said we have solved most issues but the Northern Ireland backstop remains a problem. Reports suggest May is considering extending the Brexit period
• Looking ahead, highlights include UK retail sales, Philly Fed, ECB’s Nowotny, Fed’s Bullard, Fed’s Quarles, EU leaders summit, supply from Spain and France and a slew of large cap earnings

FOMC MINUTES

FOMC September Meeting Minutes stated that all policy makers expressed the view of raising rates by 25bps and that almost all members considered it appropriate to remove reference in statement to monetary policy being accommodative

Policy makers mainly anticipated that further gradual rate hikes would be consistent with a sustained economic expansion, strong labor market and near-target inflation, while the minutes also noted economic, policy divergence with other countries a downside risk as it could further strengthen the USD

Furthermore, almost all policy makers saw little change in economic outlook, while a few had said that data pointed to stronger growth than they had expected earlier this year

In a delayed reaction ES futures (Z8) backed off sessions highs and the USD strengthened while the T-Note futures (z8) printed a fresh LOD, though moves were modest and fleeting
 

ASIA

Asian equity markets were downbeat following a lacklustre lead from Wall St where momentum in US stocks stalled as markets focused on mixed earnings and the FOMC minutes. ASX 200 (Unch) and Nikkei 225 (-0.8%) were subdued with Australia led lower for most the session by the energy sector after a slip in oil prices due to the larger than expected build in DoE crude inventories, while the Japanese benchmark was dampened by trade data in which exports missed estimates and contracted for the first time in almost 2 years. Shanghai Comp. (-2.0%) underperformed amid trade-related concerns as Trump plans to drop out of a 192-country treaty which provides Chinese firms discounted shipping rates for small packages bound for US, while losses in the Hang Seng (-0.2%) were cushioned as participants also took into account the prior day’s stock advances on return from the holiday closure. Finally, 10yr JGBs were softer as prices failed to benefit from the risk-averse tone and despite the firmer demand seen at today’s 20yr auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9275 (Prev. 6.9103)

Japanese Trade Balance (JPY)(Sep) 139.6B vs. Exp. -50.0B (Prev. -444.6B, Rev. -438.4B). (Newswires)
Japanese Exports (Sep) Y/Y -1.2% vs. Exp. 1.9% (Prev. 6.6%)
Japanese Imports (Sep) Y/Y 7.0% vs. Exp. 13.7% (Prev. 15.4%, Rev. 15.3%)

Bank of Korea kept 7-day repo rate unchanged at 1.5% as expected with the decision not unanimous as board members Lee Il-Houng and Koh Seung-Beom dissented. The BoK stated growth may hover below previous projections and investment will slow but added that exports will sustain growth momentum and that they are to watch foreign monetary policies as well as EM economies. (Newswires)

UK/EU

EU source said not enough progress on Brexit and that EU27 is not planning to organise an extraordinary summit on Brexit in November, although the source added that EU leaders are prepared to meet again when chief negotiator Barnier reports that there has been decisive progress. (Newswires)

European Parliament head Tajani said it is in favour of extending post-Brexit transition period to three years and that there was nothing new in content from PM May, while he added PM May highlighted the importance of UK single market but we are defending the integrity of our single market. (Newswires)

UK PM May said we have solved most issues but that Northern Ireland backstop remains a problem. Furthermore, PM May said she remains confident regarding a good outcome and was reportedly considering extending the Brexit period; something that was strongly opposed by Brexiteers. (Newswires) However, Sky's Political Editor Faisal Islam said UK PM May did not ask for an extra year’s Brexit transition in which he cited a senior EU27 member who noted that it came up in an indirect manner but it certainly was not asked. (Twitter)

UK Brexit Minister Raab said anything other than straightforward approval of a Brexit deal by meaningful vote in parliament will bring huge uncertainty for businesses, while there were separate reports that the UK government is considering dropping the February Parliamentary recess to allow sufficient time to pass through any Brexit negotiations. (Newswires)

EU's Commissioner Moscovici said the EU Commission has a lot of questions on Italy's budget, while there were also comments from ECB's Weidmann that the EU is right to be critical of Italy's budget proposals and policy normalisation will place a big burden on highly indebted countries. (ANSA/Newswires)

EU's Trade Commissioner Malmstrom said she does not expect an EU-US trade deal in 2018. (Newswires)
 

FX

In FX markets, the USD remained firmer overnight after the FOMC minutes. This kept the greenback’s major counterparts subdued in which EUR/USD struggled to stay afloat of the 1.1500 handle and with GBP/USD below 1.3100 following yesterday’s double whammy of softer than expected inflation and lack of Brexit progress. Elsewhere, AUD/USD saw cautious gains after mixed jobs data in which Employment Change missed estimates but the Unemployment Rate unexpectedly fell to 5.0% from 5.3% amid a reduction in the Participation Rate, while CNY softened to levels last seen in January 2017 following a weaker fix by the PBoC and after the US Treasury refrained from labelling China as a currency manipulator.

US Treasury said no major trading partner met legislative standards for currency manipulation and estimated that PBoC currency intervention to be limited this year but added that a lack of China currency transparency is a concern. Furthermore, it kept the 6 countries in its watch list unchanged which were Japan, China, Germany, India, South Korea and Switzerland. (Newswires)

Australian Employment Change (Sep) 5.6k vs. Exp. 15.0k (Prev. 44.0k, Rev. 44.6k). (Newswires)
Australian Unemployment Rate (Sep) 5.0% vs. Exp. 5.3% (Prev. 5.3%)
Australian Participation Rate (Sep) 65.4% vs. Exp. 65.7% (Prev. 65.7%)

COMMODITIES

Commodities were mixed with price action rangebound overnight in which WTI crude futures failed to nurse yesterday’s declines and remained below USD 70/bbl in the aftermath of the larger than expected in build in DoE crude inventories. Elsewhere, price action in gold was contained as a firmer greenback was counterbalanced by the precious metal’s safe-haven properties, while copper underperformed alongside a stock sell-off in its largest consumer China.
 

US

There was limited reaction to the FOMC Minutes though the complex was trading at day’s lows ahead of the event. Disappointing housing starts and building permits only gave a temporary lift to the complex. Most of the action contracted in belly of the curve were yields were higher by c.2bps at settlement. US T-note futures (Z8) settled 5+ ticks lower at 118-01+.

US President Trump plans to drop out of a 192-countries treaty that provides Chinese firms discounted shipping rates for small packages bound for US. (Newswires)

US Senate Majority Leader McConnel said tariffs are having a negative impact and urged quick action on trade disputes, while McConnell also stated Republicans could renew effort to repeal Obamacare depending on congressional election results. (Newswires)

Mexican Economy Minister Guajardo said he has discussed Canada steel tariffs with Canadian officials and will be arguing that Mexican steel industry should be exempted. (Newswires)