European equities are mixed as the region failed to benefit from a slew of earnings

Dollar index has failed to extend recovery gains beyond near term technical resistance around 95.790 and has drifted back towards 95.500

Looking ahead, highlights include, Philly Fed, Fed’s Bullard, Fed’s Quarles, EU leaders’ summit

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)

EU/UK/US

EU leaders are prepared to meet again when chief negotiator Barnier reports that there has been decisive progress, according to sources. (Newswires)

UK PM May's spokeswoman said that alongside extending the transition period, they are considering other ideas, while a senior UK Government Official said the extension of Brexit's implementation phase is an option; key point is that we do not expect to use the extension. (Newswires)

UK Brexit Secretary Raab said UK PM May has the support of her top team of ministers on her Brexit plan. (Newswires)

French Presidential Source said the extension to Brexit transition period is feasible, however it should be short. (Newswires)

UK Retail Sales MM Sep -0.8% vs. Exp. -0.4% (Prev. 0.3%, Rev. 0.4%)

UK Retail Sales YY Sep 3.0% vs. Exp. 3.6% (Prev. 3.3%, Rev. 3.4%)

ECB's Rehn said he sees the 1st hike in Q4 of 2019 if the current economic outlook holds. (Newswires)

EU Parliament Head Tajani said he is against the new Italian budget. (Newswires)

Italian PM Conte said he expects criticism from commission on budget, while Italy's Finance Minister Tria said growth estimates in the budget are conservative. (Newswires)

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 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)

EQUITIES

European equities are mixed as the region failed to benefit from a slew of earnings. Spain’s IBEX (-0.8%) underperforms with banks plumbing the depths as traders cite a ruling by Spain's supreme court as a potential catalyst, while Eurostoxx 50 (-0.7%) is pressured by heavyweights SAP (-2.3%) and Unilever (-1.3%) after Q3 numbers, and the Stoxx 600 (+0.2%) is kept afloat with post-earnings gainers dominating the top of the benchmark. In terms of sectors, healthcare names outperform on the back pharma-giants Novartis (+1.8%) and Roche (+1.7%) with the former raising FY guidance. Meanwhile, while the IT sector pulled back from the prior day’s gains and currently underperforms. Elsewhere, on the back of earnings, Carrefour (+7.6%) leads the gains in the CAC, closely followed by Publicis (+6.4%) which in turn is lifting WPP (+2.5%) in sympathy. 

FX

DXY - The Dollar gleaned additional momentum from latest Fed minutes that kept a December rate hike firmly on the agenda, as FOMC members noted some data pointing to stronger than anticipated growth and also maintained the view that policy could become restrictive. However, the index has failed to extend recovery gains beyond near term technical resistance around 95.790 and has drifted back towards 95.500.

AUD - In contrast, the Aud has rebounded relatively impressively from near 0.7100 lows vs the Usd and just extended post-Aussie jobs data gains towards 0.7150 having lost traction in wake of the rather mixed report overnight (headline employment change missed, but full time offset a drop in temps and the unemployment rate fell, albeit due to lower participation).

NZD - The Kiwi has largely tracked its antipodean counterpart, but lagging, as the cross climbs further from recent lows and back into a 1.0850-1.0900 range, and Nzd/Usd continues to hit offers ahead of 0.6600.

EUR/CHF - Both around 0.2% firmer vs the Greenback and also clawing back losses, with the single currency reclaiming 1.1500+ status and Franc off 0.9950+ lows. However, Eur/Usd remains weak chart-wise after losing several key supports at 1.1546, 1.1258 and 1.1505, and fundamentally as Italy’s budget remains a bone of EU contention, while option expiries at 1.1500 and 1.1550 (1.2 bn and 1.3 bn) may also factor into the NY cut.

JPY/GBP/CAD - Al narrowly mixed vs the Usd, with the Jpy finding some support just ahead of a 112.75 Fib and grinding back to circa 112.50 and Cable largely shrugging off weak UK retail sales data to retest support around 1.3013 amidst more Brexit transition extension talk (PM May and others seemingly eyeing a period of months rather than 1 year that had been ventured). However, the Loonie has been less resistant to another marked retreat in oil prices and retreats further through 1.3000 lows within a 1.3020-55 range.

EM - The Try continues to outperform and after brief consolidation, the Lira has carved out fresh multi-month peaks vs the Usd near 5.5200. Conversely, the Yuan is back under pressure after a weaker PBoC fix on counter-cyclical factors, and perhaps with tacit permission from the US Treasury after China evaded being labelled as a currency manipulator.

COMMODITIES

Gold has stayed firm within a USD 5/oz range, tracking USD post-FOMC minutes reinforcing market expectations of slightly tighter US monetary policy. Copper is down nearly 1% amidst a stronger dollar and concerns from Chinese Premier Li that the US trade war is creating additional downward pressure on China’s economy. Elsewhere, iron ore has reached a 7-month high due to Chinese inventories dropping to their lowest level since December 2017.

In the energy complex, WTI and Brent are in the red, down by over 0.5% following a larger than expected build in DoE crude inventories, trading below USD 70/bbl and USD 80/bbl. Although this drop may have been somewhat offset by continued tension arising from the missing Saudi Arabia journalist.

FIXED INCOME

Flogged anew ahead of the UK data, Gilts and by association Bunds, have gleaned very little traction from a much bigger decline in retail sales, as the 10 year EU benchmarks remain circa ¼ point below par and the latter not far from a fresh Eurex low of 158.82 (-34 ticks on the day and just below near term chart support that held during the opening and early downside price action). Of course, consumer spending figures always come with a fair degree of caution in terms of forecast accuracy, and this is highlighted by the almost inevitable if not customary back month revisions, which in this case were higher. Elsewhere, US Treasuries remain soft and the curve steeper, albeit off overnight lows/wides ahead of weekly claims, Philly Fed and LEI.