• APAC stocks traded with losses across the board following the downside seen on Wall Street on Friday; Foxconn shares fell amid a Chinese probe.
• Oil futures, spot gold, and the Swiss Franc unwound some geopolitical risk premium overnight amid no major escalation in the Middle East over the weekend.
• An Israeli official said there will be 'no ceasefire' in Gaza, according to CNN. The US is pressing Israel to delay the Gaza invasion to win hostage releases.
• Israeli PM Netanyahu said if Hezbollah goes to war with Israel, it would bring unimaginable devastation upon it and Lebanon.
• European equity futures are uneventful with the Euro Stoxx 50 future +0.1% after cash markets closed -1.6% on Friday.
• BoJ officials are reportedly mulling tweaking the settings of YCC "because domestic long-term interest rates are also rising as US interest rates rise", according to Nikkei sources.
• Looking ahead, highlights include EZ Consumer Confidence Flash and Australian Flash PMIs. Earnings from Philips, UniCredit, Sandvik

US TRADE

EQUITIES

• US stocks were sold on Friday with the Nasdaq leading the losses among the major US indices. The indices did find a bounce alongside broader haven asset unwinds in the NY afternoon amid Hamas releasing two US hostages, although selling picked up again and new lows were made going into the close.
• SPX -1.35% at 4,376, NDX -2.19% at 14,816, DJIA -1.08% at 34,099, RUT -1.27% at 1,846.
• Click here for the Newsquawk US Market Wrap.

NOTABLE HEADLINES

• Fed's Mester (2024 voter, hawkish) said the Fed is at or near the peak of the rate hike cycle, and reiterated her outlook aligns with the Fed forecast in eyeing one more rate hike. She added Fed rate decisions will be driven by incoming economic data, and if sustained, higher bond yields will help moderate economic activity. She noted the balance sheet drawdown should happen regardless of interest rate moves and the Fed still has perhaps a couple more years of balance sheet cuts.
• Fed Financial Stability Report: Persistent inflation, monetary tightening, and potential losses in CRE are the most cited near-term risks to financial stability. Risks posed by economic weakness in China is increasingly cited as near-term risk. Russia-Ukraine war is seen as a diminishing risk, ranked no. 11 in the latest report, vs no. 1 in the Spring 2022 report. Corporate bond performance remains solid, and signs of deterioration have been emerging since May. Banks reporting lending standards are now on the tighter end of historical ranges for all loan categories.

APAC TRADE

EQUITIES

• APAC stocks traded with losses across the board following the downside seen on Wall Street on Friday, with participants citing mixed earnings and geopolitical angst.
• ASX 200 fell at the open with the losses led by the Metals and mining sector as the sector caught up to the price action across base metals.
• Nikkei 225 was also weaker with the downside led by the Energy and Material names, while the index managed to stay afloat above 31k.
• Hang Seng was closed due to a public holiday while Shanghai Comp conformed to regional losses. In Taiwan, Apple-supplier Foxconn tumbled over 3% after Global Times sources suggested Chinese mainland tax and natural resource authorities have conducted inspections on key enterprises of Foxconn.
• US equity futures resumed trade with a mild upside bias but price action is capped ahead of a busy week of earnings alongside US GDP and PCE.
• European equity futures are uneventful with the Euro Stoxx 50 future +0.1% after cash markets closed -1.6% on Friday.

FX

• DXY was contained to the upper end of a tight 106.17-32 range as the risk tone remains cautious in APAC hours.
• EUR/USD meandered under 1.0600 and within Friday’s 1.0563-1.0603 parameters while GBP/USD remained above 1.2150 but with upside capped overnight amid light newsflow and as EUR/GBP found overnight support just above 0.8700.
• USD/JPY was quoted above 150.00 in early APAC trade but traded under the level throughout most of the session and within Friday’s 149.72-150.03 band, with little initial reaction seen to Nikkei sources suggesting the BoJ will discuss YCC tweaks at the upcoming meeting.
• Antipodeans traded flat amid the non-committal risk tone, while the CHF underperformed as it unwinds some geopolitical risk premium alongside gold and oil.
• Indonesian Central Bank continues to intervene in the FX market, according to an official cited by Reuters.

FIXED INCOME

• 10-year UST futures saw a modest gap lower after Friday’s rally into the weekend.
• Bund futures held a slight negative bias and have receded further under 128.00 while they remain within Friday’s 127.48-128.13 confines.
• 10-year JGB futures were relatively flat with little reaction seen to weekend source reports via Nikkei that BoJ officials are reportedly mulling tweaking the settings of YCC "because domestic long-term interest rates are also rising as US rates rise.”

COMMODITIES

• Crude futures were subdued following the losses seen on Friday after the hostage releases by Hamas eased some of the Israel angst heading into the weekend.
• Spot gold was also unwinding some geopolitical risk premium after reaching a high of USD 1,997.65/oz on Friday.
• Copper futures are subdued in tandem with the APAC risk tone, while Dalian iron ore futures fell over 3% in early trade.
• Baker Hughes US Rig Count (w/e Oct 20th): Oil +1 at 502, Nat Gas +1 at 118, Total +2 at 624.
• Russia is considering an extra gas tax to finance subsidies for oil refiners, according to Bloomberg.
• Russia's Gazprom is to supply an extra 600mln cubic meters of gas to China this year, exceeding its contractual obligations, according to Tass.
• Russia's Gazprom is to supply extra volumes of gas to Hungary this winter, according to Tass.
• The EU is reportedly mulling extending the emergency gas price cap introduced in February amid fears the Middle Eastern tensions and the sabotage of the Baltic pipeline could push gas prices higher this winter, according to the FT.

CRYPTO

• Bitcoin prices reclaimed a USD 30k handle overnight after trading on either side of the level over the weekend.

NOTABLE ASIA-PAC HEADLINES

• The Chinese Commerce Minister said China seeks to encourage joint industrial collaboration with Gulf nations and wants to deepen the oil and gas cooperation model. The Commerce Minister added that China wants to promote the stability and smoothness of the industrial and supply chains, and seeks cooperation on potential new energy vehicles industries such as power batteries and smart charging, according to Reuters.
• PBoC Governor Gongsheng said prudent monetary policy will be more precise and forceful, and added that they will steer countercyclical and cross-cyclical adjustments and maintain appropriate money supply and credit with a steady pace. Gongsheng added that they will enhance the stability of financial support for the real economy, and effectively support the expansion of domestic demand. He added they will guide financial institutions to cut real lending rates and reduce the financing costs for enterprises and individuals. Gongsheng added they will implement policy measures to activate the capital market and boost investor confidence. He added the PBoC will prudently resolve the default risk of bonds and of large real estate firms while strengthening the monitoring, warning and prevention of Local Government Financing Vehicle (LGFV) bond risks. Gongsheng added they will prevent the risk of contagion in stock, bond and FX markets and ensure stable operation of financial markets, according to Reuters.
• PBoC injected CNY 808bln via 7-day reverse repos with the rate at 1.80% for a CNY 702bln net daily injection
• PBoC set USD/CNY mid-point at 7.1792 vs exp. 7.3109 (prev. 7.1793)
• Chinese mainland tax and natural resource authorities have conducted inspections on key enterprises of Apple-supplier (AAPL) Foxconn (2317 TT) in some cities in accordance with the law, according to Global Times "Experts said that while Taiwan-funded enterprises share the benefits of growth and achieve significant development in the mainland, they should also bear corresponding social responsibilities and play an active role in promoting the peaceful development of cross-Straits ties". Sources close to Foxconn (2317 TT) suggest reports on China's probe are unusual and believe Foxconn is possible singled out for political reasons, according to Reuters
• China reportedly plans to hold a twice-a-decade financial work conference on October 30-31st to focus on resolving risks, according to Bloomberg sources.
• Chinese Agricultural Ministry says China's pig supply is still growing and they are not expecting a sharp rise in Q4; says hog market could see even larger losses after the Chinese New Year, according to Reuters.
• BoJ officials are reportedly mulling tweaking the settings of YCC "because domestic long-term interest rates are also rising as US interest rates rise, and are approaching the de facto upper limit of 1% set in the July revision." The topic will be discussed at the next two-day meeting that ends on October 31st, "but there are differences of opinion within the Bank of Japan. Many say they want to carefully monitor trends in wage increases", according to Nikkei sources. Any decision to change its YCC will largely depend on how markets move leading up the Oct. 30-31 policy meeting, according to Reuters sources; there is currently no consensus within the BoJ on whether an immediate change to YCC is necessary. Among ideas that could be discussed would be to raise the ceiling for the 10-year JGB yield beyond 1.0%, sources added.
• Japan's Fair Trade Commission is to inspect Google (GOOG) for possible breach of anti-monopoly law, according to Nikkei.

GEOPOLITICS

ISRAEL-HAMAS

• Hamas spokesperson on Friday said they have released two US hostages for humanitarian reasons in response to Qatari efforts, according to Reuters. Israel confirmed the release of two hostages, according to Israel's Channel 13 news. Hamas' release of two hostages is a "first step", there are discussions ongoing for more releases, according to Reuters sources.
• The US is pressing Israel to delay the Gaza invasion to win hostage release, according to Bloomberg reports on Friday, which added that after initially resisting, Israel agreed under US pressure to hold off, according to the sources.
• A second convoy of 17 aid trucks entered the Egyptian side of the Rafah crossing towards Gaza, according to security and humanitarian sources cited by Reuters. It was also reported that 14 trucks carrying aid for Gaza entered the region, according to Reuters.
• Blasts and sounds of ambulances were reportedly heard near the Rafah crossing between Egypt and Gaza, according to Reuters witnesses.
• The Israeli army told Gazans to move south or risk being seen as "terrorist organisation partners" if they stay put, according to Reuters citing Gaza residents.
• US Secretary of State Blinken said the US sees potential for escalation of the war in the Middle East due to actions of Iran's proxies and the US does not want escalation, according to NBC News. He added the US sees a prospect of a significant escalation of attacks on US troops and people throughout the region.
• US Defense Secretary Austin placed additional forces on prepare-to-deploy orders without offering a number. US Pentagon said the US is deploying THAAD batteries and additional battalions to the Middle East in response to the escalations in the region, according to Reuters.
• The Israeli Military said they have killed the Deputy Chief of Hamas with rocket force, according to Reuters.
• An Israeli raid was reported on the outskirts of the town of Aitaroun in southern Lebanon, according to Sky News Arabia citing National News Agency. Israeli army said they have targeted Hezbollah military infrastructure in southern Lebanon, according to Al Arabiya.
• Israeli PM Netanyahu said if Hezbollah goes to war with Israel, it would bring unimaginable devastation upon it and Lebanon and added that he cannot yet say if Hezbollah will decide to fully enter the war, according to Reuters citing a statement from the PM's office.
• The Israeli President told Sky News that Hamas terrorists who broke into Israel were carrying instructions on how to make chemical weapons, according to Sky News.
• Israel gave Al-Quds Hospital in Gaza one hour to evacuate, according to Al Arabiya. Israel airstrikes targeted the surroundings of Al Shifa and Al Quds hospitals in Gaza, according to Palestinian press Wafa cited by Reuters.
• Israeli official said there will be 'no ceasefire' in Gaza, according to CNN and The Spectator Index.
• Israeli Defence Forces said an IDF tank accidentally fired and hit an Egyptian post adjacent to the border in the area of Kerem Shalom. The IDF said it expressed sorrow regarding the incident, according to a statement via Telegram. An Egyptian army spokesperson said border watchmen sustained minor injuries after being hit by fragments of a shell from an Israeli tank, according to a statement cited by Reuters.
• Israeli strikes reportedly hit and damaged both Damascus and Aleppo airports in Syria, according to AFP citing Syrian state media.
• A statement from the Department of National Defence and the Canadian armed forces on the recent strikes at Al-Ahli Hospital in Gaza on the 17th of October suggested the strikes were more likely caused by an errant rocket fired from Gaza, according to Reuters.
• Leaders of the US, Canada, France, Germany, Italy and the UK have reiterated support for Israel and its right to defend itself; joint statement calls for adherence to humanitarian law and protection of civilians, according to Reuters. Leaders committed to working with partners of the region to prevent the conflict from spreading.
• Israeli PM Netanyahu said French President Macron and Dutch PM Rutte are to visit Israel on Monday and Tuesday, according to Reuters.
• China's Middle East envoy, on the Israel-Hamas war, said China is willing to do whatever is conducive to the promotion of dialogue, ceasefire, and restoration of peace and promote implementation of the two-state solution; via Chinese state media.
• Palestinian Hamas leader and Iranian Foreign Minister discussed the Israeli "brutal crimes" in Gaza in a phone call, according to Reuters.

OTHER

• The White House said it is assessing the China graphite curbs and their potential effects, and said the actions underscore the need to diversify supply chains, according to Reuters.
• A US official confirmed that the US is mulling measures to restrict China's access to US cloud and computing services, according to Nikkei.
• Clashes have reportedly erupted between the Iraqi army and Kurdish Peshmerga forces in Northern, with two fatalities, according to security sources cited by Reuters.
• Russian Foreign Minister Lavrov is to visit Iran on October 23rd, according to Ria.
• Rocket attacks have reportedly targeted Iraq's Ain Al-Asad airbase housing US forces; at least one blast was heard inside the army base, according to army sources cited by Reuters.
• The Philippines has accused China's coast guard of colliding with a Filipino supply boat in the South China Sea, according to the BBC. China said the Philippines "deliberately stirred up trouble". Philippines National Security Council said continued blocking by Chinese vessels may lead to disastrous results; concerned by escalation and provocations by Chinese vessels, according to Reuters.
• Six people have been killed and at least 14 injured in a Russian missile attack that hit a postal distribution centre in Kharkiv Ukraine, according to Ukrainian officials cited by Sky News.
• EU-US Summit Joint Statement: We have made progress toward a targeted critical minerals agreement for the purpose of expanding access to sustainable, secure, and diversified high-standard critical mineral and battery supply chains. We have made substantial progress in identifying the sources of non-market excess capacity of steel, according to the Commission statement.

EU/UK

NOTABLE HEADLINES

• S&P said most European countries will see a sustained correction in nominal house prices as Eurozone growth softens considerably into next year, and expects European housing market prices to remain under pressure until 2025, according to Reuters.
• S&P affirmed the United Kingdom's 'AA/A-1+' rating; outlook stable.
• S&P raised Greece to BBB- from BB+, taking it to investment grade.
• S&P affirmed Italy's 'BBB/A-2' rating; outlook stable.

GLOBAL

• Swiss Federal Election: The right-wing Swiss People's Party (SVP) increased its share of the vote to 29%, 3.4ppts higher than the last election in 2019, according to the final projection by Swiss broadcaster SRF.
• Argentina Presidential Election: With most ballots now counted, no candidate has received more than 45% of votes - the threshold to be elected - Javier Milei and Sergio Massa head for run-off vote next month, according to the BBC.