• Major European indices are mixed (Eurostoxx 50 -0.2%) after starting the session in positive territory, financials outperform while consumer discretionary names la
• The dollar index is holding relatively firm above the 96.000 handle within a fairly confined range awaiting the Fed, while GBPUSD is choppy amid conflicting Brexit reports
• Looking ahead, highlights include US weekly jobs, FOMC rate decision, ECB’s Coeure, Draghi and Nowotny

ASIA

Asian stocks were mostly higher as they took impetus from the post-election rally seen on Wall St where all majors gained at least 2% and the DJIA notched more than a 500-point gain as investors ploughed back into stocks after the US mid-terms results conformed to the broad consensus. ASX 200 (+0.5%) and Nikkei 225 (+1.9%) were both firmer from the get-go with tech the outperformer in Australia after a similar strong showing of the sector in US, while the Japanese benchmark ignored the largest drop on record for Machine Orders and was boosted by a weaker currency. Shanghai Comp. (-0.2%) and Hang Seng (+0.3%) initially benefitted from the heightened global risk appetite with the latter underpinned by a decline in money market rates after the PBoC’s bill sale in Hong Kong the prior day, while participants also digested the latest trade data from China in which Trade Balance slightly missed but Exports and Imports both topped estimates. Finally, 10yr JGBs initially tracked the downside in USTs as the rampant tone in equities weighed on safe-havens but with losses stemmed following firmer demand at today’s enhanced liquidity auction for 2yr-20yr JGBs.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9163 (Prev. 6.9065)

Chinese Trade Balance (CNY)(Oct) 233.6B vs. Exp. 237B (Prev. 213B). (Newswires)
Chinese Exports (CNY)(Oct) Y/Y 20.1% vs. Exp. 14.2% (Prev. 17.0%)
Chinese Imports (CNY)(Oct) Y/Y 26.3% vs. Exp. 17.7% (Prev. 17.4%)

BoJ Summary of Opinions from the October meeting stated that although it will take time to reach price goal, it is necessary to persistently continue with power monetary easing as momentum to the price target is maintained. The BoJ also noted that Japan's economy has continued its moderate expansion but momentum towards economic expansion recently weakened somewhat due to natural disasters and US-China trade conflict, while it added It is important to patiently wait for a rise in inflation by continuing with the current monetary easing policy. (Newswires)

Senior Chinese diplomat says US-China trade disputes should and can be appropriately resolved via talks. (Newswires)

Chinese Premier Li says China are to adopt more significant tax cuts. (Newswires)

UK/EU

UK Cabinet ministers have informed PM May that her Brexit deal must not mean that Britain remains in the single market “by the backdoor” by signing up to last-minute concessions to the EU. (Times)

UK PM May has asked Brussels for more time to cut a Brexit deal. (The Sun). There were further reports in Austrian press, citing European Commission sources, reported that a Brexit deal could be reached within the next few days and presented on Monday. (Der Standard)

UK government source stated that it is unlikely that a British cabinet meeting on Brexit will take place ahead of next week. (Newswires) It was previously touted that a meeting could happen either on Friday or during the weekend.

BBC Political Correspondent Iain Watson tweets that government sources suggest legal advice on the Brexit backstop won't be published, but it is still not clear if guidance to ministers from the Attorney General will be in summary or full. (Newswires)

EU Commission see Italian budget measures leading to a deficit/GDP ratio of 2.9% vs. the Italian government's view of 2.4%, according to sources. (Repubblica) The European Commission’s Economic downgraded Italy’s 2018 GDP and inflation forecast. Furthermore, EU sees mounting Italy risks and expected the 2020 deficit to breach 3%. (Newswires)

Italian Deputy PM Di Maio is meeting on Thursday in regard to statute of limitations measures; adds that a lack of agreement on statue measures would lead to a government coalition deal collapse. Furthermore, Italian League lawmaker states that the ruling coalition parties have struck an agreement over statute of limitations, Italian Deputy PM Salvini confirmed this. (Newswires)

EU sees the Italian deficit widening through 2020. (Il Sole) Furthermore, EU does not forecast a 2019 reduction in Italian debt. (La Stampa). EU's Moscovici states that rising yields on Italian bonds will have a larger impact on Italian budget spending than predicted by Rome. (Newswires)

EQUITIES

Major European indices are mixed (Eurostoxx 50 -0.2%) after beginning the session in the green, the SMI (+0.3%) is leading the gains, while Italy’s FTSE MIB (-0.6%) lags its peers. Similarly, after starting the session in the green major sectors are now somewhat mixed. underperformance is being seen in the consumer discretionary sector while financial names are outperforming as the sector is buoyed by SocGen (+3.0%) and Commerzbank (+3.5%) post-earnings. In terms of individual movers, Prosiebensat (-12.0%) are at the bottom of the Stoxx 600 after a miss on their earnings, while UniCredit (-4.0%) are also lower following pessimistic earnings due to write-downs for Turkey not being factored into estimates.

FX

DXY - The index is holding relatively firm above the 96.000 handle within a fairly confined range awaiting the Fed and confirmation that it remains on course to deliver a 4th and final 25 bp hike in December. However, the Dollar is not ahead across the board vs G10 counterparts as it continues to struggle in wake of the mid-term/midweek wobble, and certain currency rivals glean support from independent factors.

SEK/NOK/AUD/CAD - All outperforming, albeit to varying degrees and not necessarily for obvious or intuitive reasons. The Scandi crowns have hawkish Central Bank vibes and mainly strong economic/fiscal fundamentals, as Eur/Sek tests 10.2600 bids/support having breached a key tech level above 10.3000 and Eur/Nok revisits 9.5000 with added fuel from a rebound in oil prices, albeit from fairly deep lows. Meanwhile, the drew some encouragement from upbeat Chinese imports and exports overnight to edge a fraction closer to 0.7300 and the Loonie heads into Canadian housing data around 1.3100, also with the aid of recovering crude.

GBP/CHF/EUR/NZD - Yet more conflicting Brexit reports for the Pound to contend with and keeping Cable choppy within 1.3090-1.3150 parameters, but Eur/Gbp softer around 0.8700 in wake of news that UK PM May is heading back to Brussels for more talks and suggestions via the Austrian press citing EC sources that a deal could be reached as early as Monday. The Franc is back below parity and single currency also whippy amidst latest EU-Italian divergence on Rome’s 2019 budget projections and assumptions about deficit developments – Eur/Usd between 1.1410-45, and also eyeing decent option expiry related interest from 1.1415-25 (1.3 BN). Meanwhile, the Kiwi has lost some momentum post-RBNZ, as the modest shift in rate guidance (hike now seen in Q2 2020 vs Q3 before the latest policy meeting) was compensated by an interim cut option again. Nzd/Usd capped just ahead of 0.6800 where a big expiry resides (1 bn).

COMMODITIES

WTI (+0.1%) and Brent (+0.1%) are both higher following yesterday’s sell-off as China’s October crude imports reached a record high of 9.61mln BPD, a 32% Y/Y increase, hence watering down concerns that a slowdown in their economy may lead to a glut in the oil market. Upside in oil prices are capped amid yesterday’s EIA data which showed a record production level of 11.6mln barrels of US crude.

Gold (-0.3%) prices have eased as the dollar rebounded from post-midterms lows ahead of the FOMC meeting later today. Elsewhere, Chinese aluminium exports fell 3.6% from September’s level, as sliding domestic production meant there was less available metal for overseas markets. Furthermore, copper underperforms today after China’s imports of the red metal falling by 18.7%, signalling lower demand.

FIXED INCOME

The pre-FOMC tone remains cautious overall, but Bunds have lead recovery gains in the mainstream, or rather been more responsive as usual to weakness in Italian debt. Indeed, the 10-year German benchmark almost erased all its losses at 159.46 vs Wednesday’s 159.50 Eurex close as its BTP counterpart collapsed to 121.84 (-73 ticks) from 122.52 at one stage. Meanwhile, Gilts only got as far as 121.36 (-13 ticks) in wake of the EC forecasts that highlighted Italian and EU disparities that extend to the impact of yield spread divergence, as US Treasuries tread carefully into the FOMC following quite a midweek bull-flattening move, with weekly initial claims forming the pre-Fed data focus.