• European equities are kicking off the week on the front-foot, despite the downbeat tone in Asia, Eurostoxx up 1.0%
• EURUSD has been whippy between 1.1360-1.1415 trading parameters amidst reports that German Chancellor Merkel will not stand for re-election as CDU head after serving out the current term
• Looking ahead, highlights include US Core PCE and UK Chancellor Hammond to deliver the Autumn budget statement. Note: UK clocks moved back an hour on Sunday 28th October.

ASIA

Asian equity markets began the week mixed as the region’s attempts to pick itself up following last week’s stock rout, waned heading into this week’s key earnings releases and month-end. ASX 200 (+1.5%) and Nikkei 225 (-0.2%) were both initially positive in which the healthcare sector led the broad upside in Australia, while the Japanese benchmark was less decisive as earnings dominated news flow. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (-2.2%) were subdued with the mainland worst hit following softer Industrial Profit growth and a net liquidity drain by the PBoC, while this week’s key earnings including China’s big 4 banks further added to the tentativeness. Finally, 10yr JGBs were choppy as prices reflected the indecisiveness across stocks and eventually edged higher as the risk tone in Japan deteriorated.

PBoC skipped open market operations for a net daily drain of CNY 120bln. (Newswires)
PBoC set CNY mid-point at 6.9377 (Prev. 6.9510)

Chinese Industrial Profits (Sep) Y/Y 4.1% (Prev. 9.2%). (Newswires)

Chinese regulators are said to propose a 50% cut to car purchase tax. (Newswires)

UK

UK Chancellor Hammond said UK will require new tax and spending plans, as well as an extension of austerity policies in the event of a no deal Brexit, while he added BoE may also need to act by adjusting interest rates. (Sky News)

UK Health Minister Hancock says that he is confident we will get a good Brexit deal (Newswires)

EU's Moscovici says that a Brexit deal is the most likely outcome. (Newswires)

Fitch affirmed United Kingdom at AA; Outlook Negative,

EU

German Chancellor Merkel wants to give up the leadership of the CDU but wants to remain as Germany's Chancellor. (DPA) German politician Friedrich Merz is said to be ready to run for the CDU head position. (Bild) German Chancellor Merkel has ruled out running for a Senior EU role, CDU sources say. (Newswires)

German Chancellor Merkel’s governing coalition suffered heavy losses in the Hesse elections with the CDU (27.9% vs. Prev. 38.3%) and SPD (19.9% vs. Prev. 30.7%) each down around 10% compared to the previous election, while the Green party rose to 19.5% from 11.1% and AfD secured 12%. (BBC) German Chancellor Merkel says that she may not stand for re-election as head of the CPU party, according to the Spiegel editor. (Der Spiegel). Additionally, the DPA has said that German Chancellor Merkel wants to stay in her position. (DPA)

Italian PM Conte asked for bank aid options if spreads worsen. (Corriere)

S&P affirmed Italy at BBB; outlook cut to negative from stable and affirmed Germany at AAA; outlook stable. (Newswires)

Fitch affirmed the Netherlands at AAA; Outlook Stable and affirmed Latvia at A-; Outlook Stable. (Newswires)

CENTRAL BANKS

Norges bank state that on balance financial stability outlook is largely unchanged from a year ago. Adding that banks have become more resilient; the financial system is vulnerable to high household debt, high house prices and commercial property. Commenting that bank stress tests suggest a larger portion of the buffer requirement should vary over time. (Newswires)

EQUITIES

European equities are kicking off the week on the front-foot, despite the downbeat tone in Asia. As such, Eurostoxx 50 (+1.0%) is supported mostly by the financial sector following optimistic earnings from HSBC (+5.0%), which saw the likes of Intesa Sanpaolo (+3.7%), Deutsche Bank (+1.4%) and RBS (+3.0%) higher in tandem. Elsewhere, Europe’s auto stocks index (+3.7%) rose sharply following reports that Chinese regulators are said to propose a 50% cut to car purchase tax. Subsequently, DAX 30 outperforms as the index is buoyed by shares in Daimler (+4.6%), BMW (+4.3%) and Volkswagen (+5.7%). Finally, Euronext is experiencing problems in which the CAC and AEX remain halted until the technical glitches are resolved.

FX

USD - Nordea have highlighted three USD supportive factors heading into the month end: Month-end re-balancing, SOMA day & Tax reform prompting US firms to repatriate T-2 days before the end of the calendar month.

NZD/AUD/CAD - All performing well vs their US counterpart to varying degrees, with the Kiwi outpacing and bouncing firmly from overnight lows to 0.6555 vs circa 0.6500 amidst a broad upturn in risk sentiment, while Aud/Usd struggles around 0.7100 and the Loonie pivots 1.3100.

GBP/EUR - Both choppy, but the Pound relatively rangebound ahead of the UK budget and following mixed data, as Cable hovers above 1.2800 within a tight 1.2805-40 range. However, the single currency has been whippy between 1.1360-1.1415 trading parameters amidst reports that German Chancellor Merkel will not stand for re-election as CDU head after serving out the current term, but would like to remain as Chancellor in wake of another chastening regional result for the coalition. However, Eur/Usd has bounced firmly ahead of hefty option expiry interest at the 1.1350 strike (1.5 bn) and a sharp rally in EU auto stocks on China’s cut in purchase tax to 5% from 10%.

CHF/JPY - Victims of the improvement in risk appetite, with the Franc just off parity-plus lows and Jpy retreating from circa 111.80 to 112.25 amidst similar reversals in cross pairings.

SEK/NOK - Conversely, the Scandi crowns are registering decent gains vs the Eur amidst the upturn in risk sentiment and following last week’s Riksbank and Norges Bank policy meetings that keeps them well on track to normalise rates ahead of the ECB.

EM- Broad gains in regional currencies vs the Usd, but with the Mxn a notable underperformer on disappointment that Mexico will not pursue plans to build a new airport. The Brl reacted to Bolsonaro’s resounding 2nd round win by opening higher around a percent vs a flattish close on Friday.

Brazilian Presidential Candidate Bolsonaro has won Brazil’s presidential election according to official results, receiving 56% of the vote in exit polls. Bolsonaro’s top economic advisor has said they will negotiate with more countries, and that the priority is not Mercosur. (Newswires)

COMMODITIES

WTI and Brent are both down by around 0.3% amid concerns that global growth is slowing, particularly in China, and that ongoing market uncertainties are leading to a downward pressure on prices. Of note with the Iranian sanctions, it is imminent is that India, China and Turkey, three of Iran’s top five customers, are resisting pressure to completely end purchases; citing a lack of worldwide supply for this.

Over in the metals market, gold is down by 0.2% as the yellow metal moves inversely to the USD, although still in a relatively tight USD 5/oz range as market concerns still remain over upcoming US earnings, trade tensions and a slowdown in global economic growth. Elsewhere, the head of the Japanese steel industry group stated that he is worried about the weakening Chinese economy. Copper’s gains have been cut after a slowdown in industrial profits indicate that China’s economy is losing steam, affecting demand for the metal.

Nigerian Oil Minister says OPEC has the ability cover some gaps in 2019; adding that they are overestimating the supply drop. He does not see any dramatic change at the next OPEC meeting on Nov 11th. (Newswires)

FIXED INCOME

Bunds continue to underperform after a brief rebound on the initial Merkel reports, and aside from the drag related to Italian BTPs, which have now been up to 122.63 (+131 ticks), the 10 year German bond is also feeling the weight of a firmer rebound in the Dax and other stock markets with some technical selling also in the mix. Indeed, after breaching a 50% Fib around 160.56 and then 160.50, last Friday’s 160.22 low has also been eclipsed through an interim support area between 160.35-33 to a base of 160.10 (-73 ticks), and bears will now be targeting 160.00.  Meanwhile, Gilts have fallen in sympathy to 122.69 (-40 ticks) and even hitherto resilient US Treasuries are just off fresh overnight session lows and in negative territory, albeit mildly.