• Asian equity markets began the week with a negative tone following last Friday’s losses on Wall St after US-China trade hopes were tempered by pessimism from NEC’s Kudlow
• UK PM May secured private concessions from Brussels that will keep Britain in a customs union and avoid a hard border, according to reports; later denied
• In FX markets, the DXY was relatively flat and held on to most of Friday’s NFP-inspired rebound with EUR/USD contained below the 1.1400 handle
• Looking ahead, highlights include UK services PMI, US ISM non-mfg PMI, EZ finance ministers to discuss Italy, ECB’s de Guindos, Praet, BoC’s Poloz, US 3yr Note Auction

ASIA

Asian equity markets began the week with a negative tone after last Friday’s losses on Wall St where the Nasdaq underperformed after tech giant Apple dropped nearly 7%, while sentiment was also dampened by soft Chinese Caixin PMI data and after US-China trade hopes were tempered by pessimism from NEC’s Kudlow. ASX 200 (-0.5%) and Nikkei 225 (-1.5%) were both pressured from the open although stocks in Australia briefly recovered in tandem with the price swings in its largest weighted financial sector as participants mulled over Westpac’s flat FY profits, while focus in Japan remained on corporate updates including index heavyweight Fast Retailing which slumped following a 10% decline in same-store sales. Elsewhere, Hang Seng (-2.4%) and Shanghai Comp. (-1.0%) were negative after US administration officials downplayed prospects of an imminent resolution to the US-China trade dispute and with Chinese Caixin Services and Composite PMI at the weakest since September 2017 and June 2016 respectively, while the PBoC Medium-term Lending Facility announcement and President Xi’s pledge to further open up China’s economy only helped plug losses momentarily. Finally, 10yr JGBs were marginally higher as the risk averse tone spurred demand for safety. This helped prices recover from Friday’s declines which coincided with a sell-off in T-notes and a surge in US yields by the most in the month following the NFP-beat.

PBoC skipped open market operations but conducted CNY 403.5bln 1yr Medium-term Lending Facility vs. Prev. CNY 265bln with rates unchanged at 3.30%. (Newswires)
PBoC set CNY mid-point at 6.8976 (Prev. 6.9371)

Chinese Caixin Services PMI (Oct) 50.8 vs. Exp. 52.9 (Prev. 53.1); lowest since September 2017
Chinese Caixin Composite PMI (Oct) 50.5 (Prev. 52.1); lowest since June 2016

Chinese President Xi said China pledges to open market to the world, while he added that countries must pursue open policy and oppose protectionism. Furthermore, President Xi stated that China will stimulate potential for increased imports and are to further reduce import tariffs. (Newswires)

BoJ minutes from September meeting stated that most members shared the view that the year-on-year rate of change in the CPI was likely to increase gradually toward 2% and that it is appropriate to continue easing persistently. Furthermore, the minutes noted that financial conditions are highly accommodative and that most members agreed momentum to target was intact. (Newswires)

BoJ Governor Kuroda said BoJ is aware continued loose policy impacts financial system stability and financial intermediation, while he added the BoJ must carefully watch demerits of easing and that large deflation policy is no longer the most appropriate. Kuroda also commented that when BoJ seeks to exit easy policy, the yield curve will steepen although that alone will not lift financial institutions out of structural problems, while he later reiterated there is no change in stance of reaching 2% target and that BoJ needs to continue easing persistently to the CPI target. (Newswires)

UK/EU

UK PM May secured private concessions from Brussels that will keep Britain in a customs union and avoid a hard border, while reports also noted Britain is on course for a future economic partnership deal with the EU. (Sunday Times) However, some sources noted that Downing Street had dismissed this as speculation. (Twitter) May will host a cabinet meeting on Tuesday and will reportedly tell ministers that failure to support her plans with make dissenters responsible for a no-deal Brexit. (Newswires)

UK Brexit Secretary Raab pressed UK PM May to take a hard line regarding Irish border and urged her to back plan to pull UK out of backstop plan at only 3-months notice. (Telegraph/FT)

Senior EU officials stated that UK PM May's chances of reaching an Irish border deal are '50-50' and that competing red lines between UK and EU continue to be incompatible in important areas. (Guardian)

Brexit negotiators are still attempting to overcome differences over customs, goods trade and Northern Ireland but financial services issues are all but settled, according to EU diplomats. (FT)

ECB's Rehn (Non-Voter, Dovish) said 1.6%-1.8% inflation is "to my mind" not yet below but close to 2% and suggested that a more symmetric assessment should be adopted. (Newswires)

Sources said no decision will be made on the ECB TLTRO at the December policy meeting and one source said the TLTRO would help banks to avoid a 'cliff edge' in 2020. Furthermore, another source said TLTRO only needed if policy transmission mechanism was hampered. (Newswires)

FX

In FX markets, the DXY was relatively flat and held on to most of Friday’s NFP-inspired rebound. This contained EUR/USD below the 1.1400 handle, while GBP/USD gapped higher on news UK PM May secured private concessions from Brussels that will keep Britain in a customs union and avoid a hard border, although the pair has retreated from its highs to back below the 1.3000 handle as other reports suggested this was speculation. Elsewhere, USD/JPY traded flat and was unfazed by the negative risk tone, while antipodeans were lacklustre following the disappointing Chinese trade data and with NZD also subdued by some downbeat comments regarding business confidence and potential risk to the growth outlook.
 

New Zealand Treasury monthly economic indicators stated that business confidence eased further in the September quarter but seems to have stabilized, while it added that weak confidence is a risk to 2018-2019 GDP growth expectations and global growth prospects eased amid trade frictions. (Newswires)

COMMODITIES

Commodities were mostly uneventful in which WTI crude futures languished below the USD 63.00/bbl despite the US sanctions on Iranian being re-imposed overnight, as the US had also announced to provide exemptions to 8 countries, while natgas futures gapped higher by around 5% at the open on expectations of severe weather conditions with arctic air set to hit central US this week. Elsewhere, gold prices were subdued as the greenback held on to most its post-NFP gains, while copper prices pulled back on profit taking in the red metal and amid the risk averse tone.

Baker Hughes Rig Count (02/Nov): Oil rigs down 1 at 874, gas rigs unchanged at 193, total rigs down 1 at 1067. (Newswires)

US President Trump confirmed that sanctions on Iran including energy, shipping and banking will take effect on November 5th. In related news, Iraqi officials said the US is to grant Baghdad a waiver over some Iran sanctions. (Newswires)
 

GEOPOLITICS

North Korea reportedly warned to resume its nuclear program if US sanctions continue, according to reports which cited the Foreign Ministry’s Institute for American Studies Director Kwon Jong Gun. (KCNA) Elsewhere, South Korea and US are reported to resume military drills ahead of nuclear discussions. (SCMP)

US

USTs sold off on Friday as yields surged by the most in the month and which saw the 30yr touch its highest since mid-2014. This followed the better than expected NFP jobs data which supported expectations for further rate hikes from the Fed and in turn saw US T-note futures (Z8) settle 17 ticks lower at 118-01+.

US President Trump said on Friday that the US is much closer to doing something on trade with China and that he will make a very good deal with China, while he added he will have dinner with Xi at the G20 summit and that if the US can open up China and make it fair, he is willing to do it. (Newswires)

White House NEC director Kudlow said he wants to keep expectations low on US - China talks and that he doesn't expect detailed trade deal from talks between Trump and Xi. Kudlow also commented that more tariffs on China are possible and Trump has not asked the cabinet to make a China trade plan, while he confirmed he hasn't seen any new proposals from China and is not as optimistic as before that a trade deal will be reached but added If talks improve then tariffs could be removed. (Newswires)

Press reports speculated that any agreement reached between President Trump and Chinese President Xi is likely to be a temporary truce instead of a significant step forward. (Newswires)