• European equities mostly higher (Eurostoxx 50 +0.9%) despite the mass sell-off experienced overnight in Asia
• European markets await updates from the ECB and how they currently judge risks to the Eurozone economy
• Looking ahead, highlights include ECB, and CBRT rate decisions, US durable goods, weekly jobs, a slew of central bank speakers and large cap earnings

ASIA

Asia-Pac bourses saw hefty selling as the stock market bloodbath rolled over from US where the S&P 500 and DJIA turned negative YTD, while the Nasdaq posted its worst performance since 2011 and slipped into correction territory amid an aggressive sell-off in tech. As such, ASX 200 (-2.8%) and Nikkei 225 (-3.7%) slumped from the open amid heavy pressure in tech and with losses in Japan magnified by a firmer currency, while corporate updates failed to provide any reprieve as Sharp shares slumped following a cut in its revenue forecasts. Shanghai Comp. (Unch) closed little changed and Hang Seng (-1.2%) saw firm losses with Cathay Pacific shares descending on reports of a data breach that could affect around 9.4mln passengers, although losses in the mainland were to a somewhat lesser extent amid further liquidity efforts by the PBoC and continued supportive rhetoric by Chinese agencies. Finally, 10yr JGBs were higher as they tracked upside in T-notes and with demand underpinned as the stock sell-off spurred a flight to quality.

PBoC injected CNY 100bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.9409 (Prev. 6.9357)

Chinese President Xi said China is seeking ways to support small companies, while CBIRC said it will support insurers' investment in listed companies. Furthermore, banks in multiple Chinese cities have lowered mortgage rates in what was the first coordinated move since last year, with the rates said to be mostly for first-time buyers. (Newswires)

BoJ Deputy Governor Wakatabe says taking strong steps to burst bubble could push economy into a serious recession, adds there are still discussions on feasibility of tightening policy as a pre-emptive measure against rise in asset prices. (Newswires)

UK

UK PM May is to instigate a full-scale no-deal Brexit planning in 3 weeks with a raft of legislation to prepare the UK for a potentially chaotic departure. In Parliament, routine business will be essentially suspended and replaced with a rolling programme of no-deal Brexit legislation. (The Times)

UK PM May's Brexit deal with the EU will be almost impossible to get out of, the Attorney General has warned amid mounting Cabinet opposition. Geoffrey Cox has reportedly made clear that ministers will not be able to change the customs backstop once the UK is signed up to it. (Telegraph)

UK Brexit Secretary Raab said the risk of a no-deal is real if the EU engages in an intransigent approach. He added that planning and preparations are in place to mitigate and deal with the risks of a no deal while stating good progress has been made and are close to a deal. Raab also said that a second referendum would erode the public's trust in democracy. (Newswires)

Irish PM Varadkar said Ireland could accept within a couple of weeks an extension over the government deal until 2020. The Irish PM went on to say that a UK proposal is not an alternative to the Irish backstop, but it may be part of the solution and added the UK proposal would have to be on the basis of a level playing field with a single market. (Newswires)

EU

Italian Deputy PM Salvini stated that the government has not sought aid from Russia to purchase debt. (Newswires) This comes after reports on Tuesday that Italian PM Conte was pressed the League to ask Russia to purchase Italian debt. Salvini went on to say that the government is prepared to offer any assistance to companies or banks that need support. (Newswires)

Italy's Deputy PM Di Maio says he is confident the IT/GE bond yield spread will fall in the next few weeks and said The Italian governments talks with the EU on the budget is to help calm markets. Di Maio added that he does not think the government’s 2019 deficit target of 2.4% of GDP should be changed

Italian President Mattarella stopped Finance Minister Tria from quitting. (Messaggero)

US

US President Trump reportedly warned China and Russia regarding eavesdropping on his cell phone calls. (Newswires)

GEOPOLITICS

Canadian PM Trudeau and German Chancellor Merkel reportedly agreed on need for accountability related to killing of journalist Khashoggi.

EQUITIES

European equities mostly higher despite the mass sell-off experienced overnight in Asia after the soured sentiment from US spilled over onto the region. Eurostoxx 50 (+0.9%) resurfaced after opening in the red while the SMI (-0.4%) failed to take advantage of the rebound as the index is pressured by shares in ABB (-3.0%) and Lonza (-1.7%) amid weak earnings. On the flip side, CAC (+1.4%) is buoyed as 75% of the index is in the green (with the top gainers fuelled by earnings), and Spain’s IBEX (+1.3%) is lifted by banking names after Bankinter (+1.5%) reported inspiring earnings. In terms of sectors, telecom names lag along with healthcare while consumer discretionary and materials outperform. Moving onto individual movers, WPP (-18.0%) rests at the foot of the Stoxx 600 after cutting guidance, dragging Publicis (-5.0%) shares lower in sympathy, while AB InBev (-9.0%) shares are also trading with hefty losses amid disappointing earnings across all metrics.

FX

FX markets have begun the session on a relatively tentative footing with most majors relatively unchanged thus far alongside a broadly flat DXY which remains contained by its recent 96.00 to 96.50 range.

European markets await updates from the ECB with EUR/USD contained by offers around 1.1420-25 with analysts also flagging 1.1bln in option expiries for the pair between 1.1420-30. Focus for the ECB release today will likely centre around the Bank’s view on risks to the Eurozone’s economic outlook and whether risks will continue to be viewed as ‘balanced’ or ‘tilted to the downside’; expectations for any material adjustments to the ECB’s forward guidance are relatively low.

Elsewhere, GBP has seen little in the way of material price action as GBP/USD straddles the 1.2900 handle (note, 627mln expiry Friday) as political jitters keep any potential moves to the upside contained for now with Lloyds touting the possibility that daily momentum suggest the pair could extend recent losses towards 1.2800. May appears to have survived any potential catastrophic fallout from yesterday’s 1922 Committee meeting but intra-party tensions remain a threat to the Brexit process.

Focus during Asia-Pac trade continues to focus on the seemingly one-way moves in USD/CNY with CNY posting its weakest close vs. USD since Jan 3rd 2017. Commentary continuing to speculate over what action (if any the PBoC) will take against defending the 7.00 barrier with this week’s measures taken by policymakers unable to reassure markets against the threat of trade conflict from the US. Elsewhere for Asia-Pac currencies, USD/JPY managed to reclaim 112.00 to the upside overnight with some suggestions of selling fatigue, that said, the current stock market rout could lead any optimism to be relatively short-lived; UBS recommends selling rallies between 112.25-35. Notable option expiries for USD/JPY includes 1.3bln at 112.00-10, 815mln at 111.75-85 and 1.7bln at 112.50-60.

Today’s first central bank meeting saw the Norges bank stick to the script laid out in September and continue to view Q1 2019 as their next opportunity to lift rates with the Bank’s economic assessment broadly unchanged from the prior release. NOK gained some modest ground against the EUR with the NB looking through growth concerns; EUR/NOK is now back towards 9.50.

Norges Bank left the key policy rate unchaged at 0.75% as expected. The decision was unanimous, the central bank added the outlook and balance of risks do not appear to have changed much from the September report and imply a gradual increase in the key policy rate, repeating plans to lift rates in Q1 2019.

New Zealand Trade Balance Sep -1560M vs. Exp. -1365M (Prev. -1484.0M, Rev. -1470M) (Newswires)
New Zealand Annual Trade Balance Sep -5.19B vs. Exp. -5.02B (Prev. -4.81B, Rev. -4.79B)

COMMODITIES

Gold is trading flat just above USD 1230/oz, following the overnight equity sell off in Asia, where the yellow metal rose to session highs of as investor sought a safe haven, but has since come off highs. Copper prices have again fallen for the third day in a row, reaching a two-week low as the red metal tracked overnight sentiment.

Over in the oil complex, WTI (+0.1%) and Brent (+0.4%) are both in the green, with prices eyeing USD 67.00/bbl and USD 76.50/bbl to the upside respectively, with traders mindful of increases in US crude stocks as countries are importing less from Iran and storing most of what they import ahead of Iranian sanctions coming into effect at the start of November. Additionally, Saudi Arabia and Russia have agreed to extend their agreement to preserve oil market stability. Elsewhere, Sinopec and CNPC have not placed a November oil order from Iran due to concerns over how the sanctions will impact their global operation.

Iraq Oil Minister Ghadhban said Iraq will help maintain a fair price for producers and consumers, adding that Iraq will cooperate with OPEC members to stabilize oil market. (Newswires)

Saudi Arabia and Russia have agreed to extend their agreement to preserve the oil markets stability; according to Saudi Energy Minister Al Falih. (Newswires)

FIXED INCOME

Bunds currently trade in a 35 tick range thus far and sit just above 160.00 despite having reached levels not seen since September (160.35) earlier in the session. The rebound in equities led to a brief move back below 160.00 but was short-lived (low print 159.98) as markets await any further direction from the ECB; high print stands at 160.35 around Sep highs. Asides from looking for any greater clarity on how the Bank views economic risks to the Eurozone, FI markets will be awaiting any prospective announcements on reinvestment adjustments after Draghi revealed that the matter would be discussed at one of the meetings before the end of the year. Speculation over the past few months has touted the idea of a Fed-esque ‘operation twist’ adjustment. However, HSBC are “of the view that any formal announcement in that direction is unlikely” with the ECB more inclined to adopt a more flexible approach to bond purchases. In the periphery, BTPs are faring better with IT/GE spread tighter by around 10bps with policymakers in Italy remaining optimistic that the spread will continue to narrow as the markets accepts its plan despite the populist government refusing to giver ground to the EU. Elsewhere, USTs trade little changed after prices met resistance at 118.27+ overnight, of note, some commentators highlighted overnight treasury option flow which was indicative of purchases potentially looking for a break through YTD highs in the US 10yr yield. Finally, Gilts also little changed with UK paper more likely to take direction from any Brexit-related commentary which is currently tying the hands of the MPC ahead of next week’s QIR.