• European equities are higher across the board (Eurostoxx 50 +1.3%) as the region took impetus from the gains experienced in Asia and on Wall Street
• USD will likely garner a bulk of the focus in the FX space today with month-end flows and SOMA redemption which will have a net USD -22.9bln impact on liquidity
• Looking ahead, highlights include US ADP, Canadian GDP, Chicago PMI, DoEs, a slew of central bank speakers and large cap earnings

ASIA

Asian equity markets traded positive as the region sustained the momentum from Wall St where all majors finished with firms gains and in which both S&P 500 and DJIA moved back into profit for the year. ASX 200 (+0.4%) and Nikkei 225 (+2.2%) were higher from the open with financials the early outperformer in Australia after ANZ Bank earnings and with CBA to offload its funds unit for over AUD 4.1bln, while Japanese stocks were underpinned by a weaker currency and with focus on a slew of earnings releases. Hang Seng (+1.6%) and Shanghai Comp. (+1.4%) conformed to the overall risk appetite as investors digested earnings including big 4 lenders ICBC and Agricultural Bank of China, but with early indecision seen following uninspiring Chinese PMI data in which both Official Manufacturing PMI and Non-Manufacturing PMI fell short of estimates. Finally, 10yr JGBs were lower with demand subdued by the strong performance in Japanese stocks and following an unsurprising BoJ policy announcement in which the central bank maintained all policy settings.

PBoC skipped open market operations for a net daily drain of CNY 150bln, while it announced to sell CNY 10bln in 3-month and CNY 10bln in 1yr CNY-denominated bills in Hong Kong on November 7th. (Newswires)
PBoC set CNY mid-point at 6.9646 (Prev. 6.9574)

Chinese Manufacturing PMI (Oct) 50.2 vs. Exp. 50.6 (Prev. 50.8). (Newswires)
Chinese Non-Manufacturing PMI (Oct) 53.9 vs. Exp. 54.9 (Prev. 54.9)
Chinese Composite PMI (Oct) 53.1 (Prev. 54.1)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, while it also maintained pledge to buy JGBs in a flexible manner so holdings increase at annual pace of around JPY 80tln and reiterated forward guidance to keep rates at extremely low level for an extended period. Furthermore, the decision on YCC was made by 7-2 vote with Kataoka and Harada the dissenters again, while the BoJ cut Core CPI forecasts in its Outlook Report and stated that risks to economic outlook and prices are skewed to the downside. (Newswires)

BoJ Governor Kuroda said JGB yields are starting to respond more to moves in yields overseas, adding that inflation expectations are largely flat but upward price momentum remains. Furthermore, he stated that the BoJ’s monetary easing is not targeting FX markets and will take steps on JGB market functioning if needed; lowering rates, expanding monetary base and increasing asset purchases are amongst the bank’s options. (Newswires)
 

UK/EU

EU envoy have agreed on a draft schedule of tariff rate quotas that EU will apply post-Brexit. (Newswires)

ECB's Hansson (Hawk) said will not draw big conclusions from the prelim release of Eurozone Q3 GDP. (Newswires)

Italy may argue that the effective deficit is to be nearer to 2.0%. (Il Sole)

EU HICP Flash YY Oct 2.2% vs. Exp. 2.2% (Prev. 2.1%) (Newswires)
EU HICP-X F&E Flash YY Oct 1.3% vs. Exp. 1.2% (Prev. 1.1%)
EU HICP-X F, E, A, T Flash MM (Oct) 1.1% vs. Exp. 1.0% (Prev. 0.40%)

EQUITIES

European equities are higher across the board (Eurostoxx 50 +1.3%) as the region took impetus from the gains experienced in Asia and on Wall Street. France’s CAC 40 (+1.9%) outperforms its peers with the index fuelled by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. In terms of sectors, energy names lead the gains as the complex retraces yesterday’s losses, while utility names underperform. Elsewhere, Dialog Semiconductor (+10.0%) rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

FX

After breaching 97.00 to the upside overnight to hit its highest level since June 2017, the DXY initially paused for breath to sit on a 96.00 handle before extending gains back above 97.00 thereafter. USD will likely garner a bulk of the focus in the FX space today with month-end flows (as according to Barclays, Citi, Nordea and Credit Ag) said to be positive for the greenback. Furthermore, Nordea highlight that today is SOMA redemption day for the USD which will have a net USD -22.9bln impact on liquidity; Nordea explains that “On the ten SOMA days since the end of February, EUR/USD has always been lower at CET17:15 vs CET08:00, by an average of 0.25%”.

In terms of where the majors stand vs. the USD, EUR/USD was unable to hold onto initial gains after Friday’s low at 1.1336 eventually gave way. As such, a test of 1.1300 to the downside could now well be on the cards. Option expiry activity for the pair could be a guiding force later on with 871mln due 1.1275-85, 2.2bln between 1.1300-25 and a further 1.47bln between 1.1340-50. EUR relatively unreactive to EZ inflation prints with headline Y/Y CPI in-line with Exp. at 2.2%, core and super-core metrics both slightly firmer than forecast.

Elsewhere, GBP has been granted some mild reprieve after briefly breaching 1.2700 to the downside yesterday with GBP/USD high print for the session at 1.2752. Brexit-related commentary has been relatively light for the session thus far with attention potentially due to fall on events at the BoE tomorrow. Markets will brace themselves for how the MPC balance the opposing forces of recent data vs. the ongoing uncertainty posed by Brexit; The Times Shadow MPC have voted in favour of lifting rates. A overtly cautious BoE could spark the next wave of GBP selling with yearly lows of 1.2660 carefully watched.

AUD remains softer vs. the USD in the wake of domestic inflation metrics whereby all figures either missed or printed in-line with estimates and which was below the RBA’s 2%-3% target range. The data sent AUD/USD back below 0.7100 with Chinese PMI readings thereafter guiding the pair to session lows of 0.7073 before staging a mild recovery back towards the 0.71 handle. Elsewhere for the region, USD/JPY trades relatively unchanged as the risk environment outweighs mild USD softness; prices trade in close proximity to the 113.00 handle and just below 1.3bln in expiries at 113.10-20.0

Finally, focus during the Asia-Pac session also fell on the INR which faced some selling pressure amid a widening rift between the RBI and government with reports noting that Governor Patel may consider resigning; reports briefly pushed USD/INR above the 74.00 level.

Turkish Central Bank Governor reiterates that the central bank will maintain a tight monetary policy decisively and further tightening will be delivered if needed with the use of all available instruments. (Newswires)

Turkish Central Bank revised food price inflation forecast to 29.5% (Prev. 13.0%) for 2018 and 15.0% (Prev. 10.0%) for 2019. (Newswires)

COMMODITIES

WTI (+0.4%) and Brent (+0.8%) are both in the green amid a positive risk tone. This comes alongside markets preparing for Iranian sanctions coming into effect next week. Last night’s APIs showed a larger-than-expected crude stock build, although this was almost half of last week’s figure. Trader’s will be keeping an on US oil production numbers released later today with the weekly DoEs.

Gold is trading in the red, albeit off lows amid safe haven outflows as equity markets continue to trade positively following the momentum from Asia. In related news, the London Bullion Market Association predicts that gold is to reach USD 1532/oz by October of next year. Separately, disappointing Chinese manufacturing PMI has resulted in a fall in the price of both zinc and copper, as well as affecting the outlook for China metals demand.

Iraq should lift oil output capacity, according to Iraqi Oil Minister, while adding that current oil prices are “fair”. (Newswires)

US API Weekly Crude Stocks (26 Oct) +5.69mln vs. Exp. +3.7mln (Prev. +9.88mln)
US API Cushing Stocks (26 Oct) +1.4mln vs. Exp. +2.39mln (Prev. +0.971mln) (CORRECTED)
US API Weekly Gasoline Stocks (26 Oct) -3.5mln vs. Exp. -2.3mln (Prev. -2.8mln)
US API Weekly Distillate Stocks (26 Oct) -3.1mln vs. Exp. -1.8mln (Prev. -2.4mln)

FIXED INCOME

In the fixed income space, Bunds started the session off on the backfoot given the current risk environment with losses for the German 10yr eventually halted by support at the 161.00 level. In terms of the rate outlook for the EZ economy, inflation metrics today revealed slightly firmer than anticipated underlying inflation which would be indicative of the narrative painted at the ECB. On the growth front, ECB-hawk Hansson warned markets not to read too much into the prelim reading of Q3 EZ GDP. Elsewhere across the continent, BTPs are faring better than their core peers with gains of over 50 ticks thus far with analysts at IFR attributing the move to short-covering after supply-inspired declines yesterday. Furthermore, markets might also be comforted by reports in Italian press suggesting the government might make some aspects of their budget conditional on economic performance; a move which could appease some in Brussels. UK paper is following the broader trend seen across core markets with the UK 10yr currently lower by 28 ticks and positing a low print of 122.37. Despite following the broader tone today, UK paper could lead proceedings tomorrow as the BoE reveals their latest rate decision, minutes and QIR. Finally, USTs trade with losses of 8 ticks and in-fitting with the tone across the FI space with traders awaiting today’s quarterly refunding announcement for details of the US’s spending with Barclays expecting the 3y issue size to be increased by USD 1bln, to USD 37bln, and the 10y and 30y new issue sizes by USD 1bln each, to USD 27bln and USD 19bln, respectively.