• Asian equity markets eventually traded mostly higher on what was a turbulent session, following the dramatic rebound on Wall St
• FX markets were predominantly uneventful due to a lack of tier-1 data and catalysts which kept the DXY stuck in close proximity to the 96.00 level
• UK PM May is to appear before the 1922 Committee of backbench conservative lawmakers this evening
• Looking ahead, highlights include EZ and US PMIs, Riksbank and BoC rate decisions, DoEs, a slew of central bank speakers and large cap earnings

ASIA

Asian equity markets eventually traded mostly higher on what was a turbulent session, following the dramatic rebound on Wall St where all majors finished negative albeit well off worst levels. ASX 200 (-0.3%) and Nikkei 225 (+0.6%) opened higher on early bargain hunting following their recent declines and as the aggressive recovery stateside reverberated in the region. However, both indices failed to sustain their gains as commodity-related sectors dragged on Australia with energy the underperforner after a near-5% slip in oil prices, while the Japanese benchmark was temperamental and made several attempts on the 22000 level to the downside. Elsewhere, Shanghai Comp. (+1.5%) and Hang Seng (+0.9%) conformed to the volatile tone and swung between gains and losses amid indecisiveness due to on-going trade concerns and further efforts by Chinese authorities including a respectable liquidity injection by the PBoC. Finally, 10yr JGBs were marginally higher as prices benefitted from the overnight volatility and with today’s BoJ Rinban operation heavily focused on the belly. 

PBoC injected CNY 150bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.9357 (Prev. 6.9338)

China NDRC said it is to increase support to stabilize jobs in the region that are most affected by US-China trade dispute, while there were separate reports that some Shenzhen companies received government funds. (Newswires/China Securities Times)

UK/EU

UK PM May reportedly held a cabinet meeting that some noted as ‘impassioned’ while others described it to have been a row, in which several ministers insisted she negotiate a time limit to any Brexit backstop and reports noted increases the pressure to achieve a deal she can sell to her own party. (Guardian)

UK PM May is to appear before the 1922 Committee of backbench conservative lawmakers this evening, reports added she sought to speak to conservative lawmakers herself on Wednesday but was not summoned to attend. (The Sun)

UK Cabinet papers revealed the next phase of Brexit planning in which the transition is to last for years and could be a long-running multi-year transition, while Northern Ireland is to be in a separate VAT area. (Times)

UK was said to be drawing up plans to charter ships to bring in emergency food and medicines in the event of a no-deal Brexit. (FT)

Italian Finance Minister Tria is seeking a way out of budget impasse and sees more prudence from cabinet; adding that he thinks Italy must be ready to respond to markets. (Newswires)

Italy Cabinet Undersecretary Giorgetti says IT/GE spread near 400bps would mean bank recap. (Newswires)

FX

FX markets were predominantly uneventful due to a lack of tier-1 data and catalysts which kept the DXY stuck in close proximity to the 96.00 level, with further criticism from President Trump regarding Fed Chair Powell and rate hikes failing to spur a reaction in the greenback. EUR/USD was contained at the prior day’s tight range and GBP/USD remained below the 1.3000 handle, while antipodeans and USD/JPY also provided very little excitement as price action largely reflected the erratic risk tone.
 

COMMODITIES

Commodities were mostly steady overnight which provided much needed respite for WTI crude futures after prices slipped nearly 5% to briefly below the USD 66.00/bbl during the prior session due to comments from Saudi Energy Minister Al-Falih regarding higher output and after a larger than expected build in headline API crude inventories. Elsewhere, gold prices traded sideways with the precious metal restrained by an uneventful greenback, while copper was underpinned amid a turnaround in risk sentiment and outperformance in its largest consumer China.

US API Weekly Crude Stocks (19 Oct) +9.88mln vs. Exp. +3.7mln (Prev. -2.13mln). (Newswires)
 

GEOPOLITICS

US President Trump said Saudi Arabia have been a good ally to the US and will leave consequences for Saudi Arabia up to congress in consultation with him. Furthermore, US Secretary of State Pompeo said will revoke visas for those identified as responsible for killing journalist Khashoggi and that it would not be the last step but added shared strategic interests with Saudi Arabia remain, while Canadian Foreign Minister Freeland said to stay tuned regarding Canada's arms exports to Saudi Arabia. (Newswires)
 

US

The US Treasury sold $38bln of 2-year notes, stopping through by 0.1bps, and the highest yield at a 2s auction since 2008. Cover was slightly softer than recent averages, but the internals were encouraging, with indirect takedown the highest since December 2016 and above recent averages, and directs taking the lowest since August 2009. Some analysts noted that the strength of the auction might have been partly due to weakness in the equities complex. US T-note futures (Z8) settled 8+ ticks at 118-8+.

US President Trump said the 10% tax cut for the middle class will be revenue neutral and that the tax cut will not impact corporation taxes, while Ways and Means Chair Brady said he will begin work in the coming weeks to develop Trump's 10% middle class tax cut and that the tax cut plan will be advanced if Republicans retain control of the House and Senate in the November midterm elections. (Newswires)

US President Trump reportedly stepped up criticism of Fed Chairman Powell raising rates, while he also said it is too early to tell but that he maybe regrets appointing Powell. (WSJ)

Fed's Bostic (voter, dove) said possible headwinds are not throwing the economy or the Fed off track and that unless data surprises to the downside, the Fed should continue its gradual rate increases a "few" more times. Bostic added he would favour a fourth rate hike this year and that Q3 GDP made him more comfortable for a hike. (Newswires)

Fed's Kaplan (non-voter, dove) reiterated the Fed should gradually raise rates towards neutral which he estimates is in the lower half of 2.5%-3.5%, while he added wage pressures are building but does not see runaway inflation and is mindful of the US dollar's rise as the Fed lifts rates. (Newswires)