• Asian equity markets were lower across the board following the uninspiring performance on Wall St where most major indices finished in the red
• UK PM May said she is not committed to extending the transition period but added it may be preferable to a backstop
• In FX markets, the DXY was relatively unchanged and just about held onto the 96.00 level following the recent safe-haven flows and further deterioration in its major counterparts
• Looking ahead, highlights include Richmond Fed, Fed Discount Minutes, APIs, BoE’s Haldane, BoE’s Carney, Fed’s Kashkari, Bostic, Kaplan and Evans

ASIA

Asian equity markets were lower across the board following the uninspiring performance on Wall St where most major indices finished in the red amid underperformance in financials and in which the S&P 500 posted a 4th consecutive loss. ASX 200 (-0.9%) was dragged lower by weakness across the large industries including financials, energy and resources, while Nikkei 225 (-2.4%) slumped as Japanese exporters suffered the ill-effects of a firmer currency. Hang Seng (-2.0%) and Shanghai Comp. (-1.4%) conformed to the downbeat tone as buying in the mainland eased following the prior day’s over 4% rally, while US equity futures declined alongside their Asian peers with pressure exacerbated as the E-mini S&P broke below US session lows around the 2750.00 level. Finally, 10yr JGBs were quiet and only marginally benefitted from the downbeat risk tone, while the enhanced-liquidity auction for 10yr, 20yr and 30yr JGBs failed to spur any meaningful demand with the b/c unchanged from the prior.

PBoC injected CNY 120bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.9338 (Prev. 6.9236)

China government official Zhang Qingli said China never wants a trade war with anybody, not to mention the US who has been a long-term strategic partner but added that China also does not fear such a war. (CNBC)
 

UK/EU

UK PM May said she is not committed to extending the transition period but added it may be preferable to a backstop, while PM May also said she wants to avoid a hard Irish border even in the event of a 'no-deal’ Brexit. (Newswires) The Times followed up May’s appearance in Parliament by stating that the PM has been granted some reprieve from internal opposition after categorically rejecting the EU’s insistence that Northern Ireland remains subject to its customs and regulations until a Brexit deal is reached. (Times)

Brussels is offering to remove references to Northern Ireland staying within the bloc’s “customs territory” in a bid to break the deadlock in negotiations with London. (FT)

In November, the government will begin issuing direct instructions to UK-based companies on the plans they need to make in the event of a no-deal Brexit, irrespective of how withdrawal negotiations with the EU progress in Brussels. (FT)

Of the more than 800 changes to legislation needed before Brexit only 71 have been put before parliament, a report has found. (Times)

UK Chancellor Hammond said the government is on track for a GBP 13bln annual windfall in budget. (FT)
 

FX

In FX markets, the DXY was relatively unchanged and just about held onto the 96.00 level following the recent safe-haven flows and further deterioration in its major counterparts with EUR/USD below 1.1500, while GBP/USD languished near the prior day’s lows at a sub-1.3000 handle amid the ongoing Brexit-related qualms. Elsewhere, USD/JPY and JPY-crosses were pressured by the safe-haven flows, while high-beta currencies were mixed with antipodeans subdued by the risk-averse environment and with CAD resilient ahead of a widely anticipated BoC rate hike this week which markets are pricing in a 97% probability of occurring.

COMMODITIES

Commodities lacked any major catalysts overnight which was evident in prices with WTI crude futures subdued and in proximity to retest the 69.00/bbl level to the downside. Furthermore, yesterday saw the expiry of the November contract, while focus shifts to this week’s inventory releases beginning with the API report in US after-market. Elsewhere, attempts by gold to nurse losses were restricted as the greenback held on to recent gains and copper prices reflected the subdued risk sentiment in the region.

GEOPOLITICS

US President Trump said he is not satisfied with what he has heard from Saudi Arabia but does not want to lose investment, while he later commented that there are many possible penalties for Saudi Arabia. (Newswires/USA Today)
 

US

The Treasury complex was confined to a narrow range on Monday, ahead of this week’s supply of 2s, 5s, 7s and a 2yr FRN. Highs were hit in the European day as political concerns in Europe dominated news flow (Italy, UK), but drifted sideways after the US entered, while the major spreads were mixed. US T-note futures (Z8) settled 1+ ticks higher at 118-00.

US President Trump said his administration will be doing a resolution for a 10% tax cut for middle income earners, while US President Trump later said that drug prices will soon plunge. (Newswires)

Canada’s Foreign Minister Freeland said US steel and aluminium tariffs are ‘unjustified and illegal’, while Mexican Deputy Economy Minister said he is confident a deal can be struck with the US and Canada on steel tariffs soon. Furthermore, the Mexican Deputy Economy Minister said Mexico hasn't ruled out all possible actions against Canada vis-a-vis steel tariffs including going to the WTO. (Newswires)