• All major European indices are drowning in a sea of red as the soured sentiment continues from Asia
• JPY outperforms on safe-haven grounds, with USD/JPY retreating towards 112.25
• Looking ahead, highlights include Richmond Fed, Fed Discount Minutes, APIs, 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 (-1.05%) was dragged lower by weakness across the large industries including financials, energy and resources, while Nikkei 225 (-2.67%) slumped as Japanese exporters suffered the ill-effects of a firmer currency. Hang Seng (-3.08%) and Shanghai Comp. (-2.26%) 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)

PBoC is said to plan CNY 10bln funding for China bond guarantor. (Newswires)

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

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)

EU

Italy are ready to adjust measures in 2019 budget if markets react negatively to plans. Sources state that the plan "B" would involve redefining retirement measures and basic income if markets react negatively. (Newswires)

Italy government budget plans to include measures to make banks and companies spread over 10 years the tax credits coming from M&A deals, with expected revenue at EUR 1.2bln in 2019; according to a government source. (Newswires)

Italy is hopeful that the ECB would purchase their securities if necessary. (La Stampa) Note: Two weeks ago it was reported via sources that the ECB won't come to Italy's rescue if government and banks run out of cash unless EU bailout in place.

Italian President Mattarella has signed a decree on taxation measures. (Newswires)

ECB has raised monitoring of Italian banks' liquidity; according to sources. (Newswires)

ESM's Regling the ESM are worried about Italy because of their fiscal plans. (Newswires)

US

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)

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)

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)

GEOPOLITICS

Turkish President Erdogan said the information and evidence shows journalist Khashoggi was murdered savagely and was part of a planned operation, he added the Saudi King acknowledged the murder in a phone call. (Newswires)

EQUITIES

All major European indices are drowning in a sea of red as sentiment continues from Asia amid trade woes and growing concerns surrounding Saudi and the West; Germany's DAX (-2.1%) is lagging its peers, largely due to downside in Bayer (-8.0%) after a US judge affirmed a verdict in regards the weed-killer which was linked to cancer.

Key sectors are broadly in the red, with IT (-3.8%) the lagging index, significantly weighed on by Atos (-22.4%) following a cut to their financial year growth guidance. Meanwhile, AMS (-27.0%) slumped amid earnings, with the likes of STMicroelectronics (-4.8%), Infeneon (-5.0%) and Wirecard (-5.8%) dragged lower in sympathy.

FX

JPY - The standout G10 outperformer on safe-haven grounds, with Usd/Jpy retreating further from Monday’s near 112.90 highs towards 112.25 where stops are anticipated down to 112.20 and Jpy crosses also trending lower again as big figure levels give way (like 129.00 vs the Eur and 80.00 vs the Aud).

GBP - A sterling effort to avoid another leg-down and loss of a round number, as Cable rebounds firmly from sub-1.2950 lows to retest 1.3000 with the aid of reported model buying around 1.2985. However, the Pound remains precarious and prone to further Brexit-related pressure, as Eur/Gbp hovers above 0.8800 having broken above a couple of Mas yesterday.

NZD - The Kiwi is also relatively resilient to broad risk aversion and hovering around 0.6650 vs its US counterpart, albeit partly on favourable cross-flows again as AUD/Nzd remains capped around 1.0800 and the Aud loses 0.7100 support alongside ongoing weakness in the Yuan.

CAD/EUR - Both pretty flat vs the Greenback, as the Loonie clings to 1.3100 ahead of Wednesday’s BoC policy meeting and an almost unanimously expected 25 bp hike, while the single currency saw dip-buying interest around 1.1440, ahead of a cluster of downside technical levels (1.1422-33 encompasses a double bottom and Fib) to trade back over 1.1450 awaiting the EU’s official ruling on Italy’s 2019 fiscal plan.

EM - The Lira has lost more of its recent recovery momentum on a mixture of factors including a move from the CBRT ahead of Thursday’s rate meeting to raise the RRR on Usd, renewed political uncertainty following the national party announcing that it will not continue its AK party allowance and a further deterioration in consumer confidence. Usd/Try just off near 5.8700 highs, but still significantly above lows circa 5.6670.

COMMODITIES

WTI and Brent are both in the red with prices currently hovering under USD 68.50/bbl and USD 78.50/bbl respectively, this price dip comes as Saudi Arabia pledges to be responsible in energy markets removing some of the market’s risk sentiment ahead of the step-up in Iranian sanctions. Saudi Energy Minister Al-Falih later said supply and demand have uncertainties but the oil market is in a good position now and they will continue to monitor it. Traders will be keeping an eye on the latest release of the weekly API crude inventories due later today. Of interest, Saudi Arabia are planning to sign deals worth more than USD 50bln in oil, gas, industries and infrastructure sectors during today’s Riyadh investment conference.

Gold is trading with gains in excess of 1% amid safe haven flows due to political tensions between Saudi Arabia and Western countries. Elsewhere, China’s alumina exports for September have increased by over 5 times to 165.8k tonnes compared to August. Separately, world refined copper market showed a 47k tonnes deficit in July vs. June’s deficit of 38k tonnes.

Saudi Energy Minister Al Falih said the oil market is in a good place now and will continue to monitor the oil market, but supply and demand have their uncertainties. Al-Falih sees a lot of output decline in many regions and does not rule out that Saudi output is going to be 1-2mln BPD higher. He said that the nation will be able to produce 12mln bpd of oil in less than three months. (Newswires)

Saudi Arabia plans to sign deals worth more than USD 50bln in oil, gas, industries and infrastructures sectors on Tuesday during the investment conference in Riyadh. The companies include: Trafigura, Total, Hyundai, Norinco, Schlumberger, Haliburton and Baker Hughes; according to sources. (Newswires)

Iran said they are not concerned about maintaining oil production. Iranian Oil Minister said the country's oil exports cannot be stopped and sanctions on Iran will keep the market volatile (Newswires)

FIXED INCOME

Not much additional movement or price action in EU bonds, but Bunds and Gilts did slip to fresh lows on Eurex and Liffe, at 159.43 and 121.63 (+9 and +7 ticks vs +29 and +32 ticks at the earlier intraday peaks), as BTPs extended their topside to 121.62 (+77 ticks vs -68 ticks at one stage). However, the latter have subsequently drifted back towards 121.00 awaiting the EU verdict and core 10 year benchmarks have ticked back up in response. Conversely, US Treasuries have rallied quite sharply to post new overnight session peaks and the curve has flattened considerably amidst the downturn in global stocks and risk sentiment, with perhaps an element of pre-2 year issuance positioning also impacting.