• Asian equity markets were mostly lower following a resumption of the tech-led losses on Wall St
• In FX markets, the greenback remained firm in which the DXY eyed the 96.00 level to the upside as it sustained the post-FOMC minutes support
• EU Commission told Italy in a letter that its 2019 budget is a serious and particularly non-compliant proposal with EU rules
• Looking ahead, highlights include Canadian CPI, US Existing Home Sales, Baker Hughes Rig Count, BoE’s Carney, Fed’s Bostic and Kaplan

ASIA

Asian equity markets were mostly lower following a resumption of the tech-led losses on Wall St where the dampened risk-tone was attributed to various ongoing concerns including higher US interest rates, Italy’s budget deficit, Saudi foul play and the US-China trade dispute. ASX 200 (-0.2%) and Nikkei 225 (-1.0%) both declined although losses in Australia were stemmed by resilience in gold miners and in the largest weighted financials sector, while Japanese exporters took the brunt of the recent safe-haven flows into JPY. Elsewhere, Hang Seng (-0.3%) and Shanghai Comp. (Unch.) were both initially negative as the mainland index extended on the prior day’s near-3% drop and as participants digested a slew of tier-1 data in which GDP Y/Y and Industrial Production missed estimates, although losses in the mainland were gradually pared as there were also various announcements from Chinese officials on supporting domestic companies. Finally, 10yr JGBs were uneventful with only minimal support seen from the risk averse tone and paltry BoJ Rinban announcement for JPY 255bln in JGBs.

Chinese GDP (Q3) Y/Y 6.5% vs. Exp. 6.6% (Prev. 6.7%) (Newswires)

Chinese GDP (Q3) Q/Q 1.6% vs. Exp. 1.6% (Prev. 1.8%)
Chinese Industrial Production (Sep) Y/Y 5.8% vs. Exp. 6.0% (Prev. 6.1%)
Chinese Retail Sales (Sep) Y/Y 9.2% vs. Exp. 9.0% (Prev. 9.0%)

PBoC injected CNY 30bln via 7-day reverse repos for a weekly injection of CNY 30bln vs. Prev. CNY 160bln net drain. (Newswires)
PBoC set CNY mid-point at 6.9387 (Prev. 6.9275)

PBoC Governor Yi Gang said will maintain prudent and neutral monetary policy, while he added PBoC will use monetary policy tools including Medium-term Lending Facility to bolster lending to private firms. (Newswires)

CSRC said it will support SME's issuance of high-yield bonds and other debt products, while it will also support share repurchases by qualified listed firms and will encourage M&A by listed firms. Furthermore, the CSRC also stated it will encourage various types of funds to aid companies facing margin call pressures. (Newswires)

Japanese National CPI (Sep) Y/Y 1.2% vs. Exp. 1.3% (Prev. 1.3%). (Newswires)
Japanese National CPI Ex. Fresh Food (Sep) Y/Y 1.0% vs. Exp. 1.0% (Prev. 0.9%)

UK/EU

UK PM May is reportedly isolated with the party said to be turning against the chaotic Brexit plan and with EU leaders giving her the cold shoulder. (Telegraph)

EU leaders are making preparations to support UK PM May in building a “coalition of the reasonable” in UK Parliament in an attempt to avert a no-deal Brexit. (Guardian)

EU Commission told Italy in a letter that its 2019 budget is a serious and particularly non-compliant proposal with EU rules. The EU Commission stated Italy's government spending growth planned for next year is 2.7% and max allowed under rules is 0.1%, while it added Italy's structural deficit in 2019 would deepen by 0.8% of GDP and EU ministers had asked for it to be cut by 0.6% of GDP. The EU Commission asked Italy to respond to its concerns by October 22nd. (Newswires)

EU Commissioner Moscovici said Italy's hike of 2019 deficit to 2.4% of GDP is a cause of concern for commission and several EU member states, while European Commission VP Dombrovskis said Italy's fiscal trajectory is not appropriate. (Newswires)

Italian PM Conte said that leaders showed an "appreciation" on the Italian budget and that Italy's deviation from fiscal targets is not large, while he added he expects EU letter to express serious concern and that the Italian government are to meet on Saturday to discuss budget and tax issues. (Newswires)

Italy's Deputy PM Di Maio said spreads are rising because markets think the government is not united and that "political clarification" is needed with League after tax amnesty dispute. (Newswires)
 

FX

In FX markets, the greenback remained firm in which the DXY eyed the 96.00 level to the upside as it sustained the post-FOMC minutes support, while its major counterparts EUR/USD and GBP/USD were stuck near the prior day’s lows at the 1.1400 and 1.3000 handles respectively. Elsewhere, USD/JPY and JPY-crosses nursed some of their recent losses in which the former continued its rebound from support around 112.00 amidst the backdrop of softer than expected headline CPI data. Antipodeans also gained with outperformance in NZD on cross-related strength, while upside in AUD was capped after weaker fix by the PBoC and disappointing Chinese economic growth data.

COMMODITIES

Commodities were mostly flat overnight with WTI crude futures capped by resistance at USD 69.00/bbl and on course for losses of over 4% on the week, with an overnight report from OPEC also suggesting a bearish near-term outlook. Elsewhere, price action in gold was limited by the opposing effects of a firmer greenback and the risk averse sentiment, while copper prices were lacklustre following the China data miss and amid early pressure seen in Shanghai commodity prices.

OPEC internal report noted that it sees bearish factors for oil in approaching weeks and that prices could decline on increasing US output. (WSJ)
 

GEOPOLITICS

Saudi Arabia is considering blaming a top official close to Crown Prince MBS for Khashoggi's death. (NYT)

US President Trump said he is waiting for results of investigation on Khashoggi who certainly looks likely to be dead and that consequences will have to be very severe, while there were also comments from US Treasury Secretary Mnuchin that he will not be attending the Saudi investment conference. (Newswires)

US

Treasuries were higher and benefitted from safe-haven in-flows originating from a mix of market-negative catalysts including Italy’s budget and Brexit talks. The yield curve saw some modest steepening in US trade though most of the buying actions was concentrated in the belly of the curve were yields were lower by c.2bps at settlement. 2s5s and 2s10s were narrower by c.2bps whilst 5s30s and 10s30s were wider y c,2bps. The US Treasury sold USD 5bln in 30yr TIPS tailing by 1.6bps. Demand was soft as indicated by bid-to-cover which stood at 2.32, below recent averages. The breakdown also showed the auction was weak overall as directs took the smallest in a year, directs took less than 1% whilst dealers were left with the largest share since February 2017. US T-note futures (Z8) settled 3 ticks higher at 118-04+

Fed's Quarles (Voter, Neutral) said the Fed can gradually raise rates without being restrictive and that he sees continued gradual rate hikes, while he also commented he expects more gradual rate hike path than most of his colleagues and is optimistic on US outlook. (Newswires)

US submitted requests for dispute panel over retaliatory tariffs from China, EU, Canada and Mexico according to a source, while reports noted that Canada, Mexico and China are planning to seek dispute resolution from WTO related to US metal tariffs. (Newswires)

White House Economic Advisor Kudlow said China has not responded positively to any of our asks in trade talks. (Newswires)