• Equities in the red as initial European upside dissipates amid the soured risk tone and further yield upside
• USD unable to benefit from the above for much of the morning, but has most recently inched into the green as the US 10yr yield surpasses 5.0%
• JPY shrugs off the latest sources piece around BoJ YCC and resides just shy of 150.00
• Core fixed income benchmarks all reside at session lows with BTPs the outlier and firmer after S&P action
• Commodities under pressure on the above while metals have been unable to benefit from initial USD weakness
• Looking ahead, highlights include EZ Consumer Confidence Flash and Australian Flash PMIs. Earnings from UniCredit.

EUROPEAN TRADE

EQUITIES

• European bourses are in the red, Euro Stoxx 50 -0.7%, despite fleeting gains at the cash open with the negative APAC handover and broader market sentiment, geopolitical concerns and ongoing yield upside weighing on the space.
• Sectors are almost all in the red with Basic Resources lagging on the risk tone and benchmark pricing while Real Estate suffers from marked yield upside despite favourable broker action in the sector.
• Stateside, futures are in the red, ES -0.7%, throughout much of the European morning the magnitude of losses had been more limited than those seen in Europe.
• However, as yields continue to rise and the US 10yr eclipse 5.0% performance has deteriorated to be in-line with Europe ahead of a particularly quiet US schedule today before a very busy week.
• Chevron (CVX) is to purchase Hess (HES) in a deal valued at USD 53bln or USD 171 per share. In pre-market trade, Hess (HES) +1.6% with Chevron (CVX) -2.9%.
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FX

• Dollar and fellow safe havens lose some geopolitical risk premium, DXY drifts down from 106.330 to 106.040. However, having spent much of the morning in the red and nearer to the low, the USD is now managing to derive some incremental upside from the risk tone and yield action.
• Franc retreats from 0.8915 vs Buck to sub-0.8950 and Gold hovers within USD 1982-64/oz range after peaking within USD 3 of 2k on Friday.
• Euro and Pound initially firmer as the Greenback slips with EUR/USD probing 1.0600 and Cable above 1.2150; though, both GBP and EUR have retreated back through the levels as the USD firms up a touch.
• Yen only just afloat of 150.00 as yields rebound firmly and USD/JPY shrugs aside sources suggesting the BoJ may tweak YCC again.
• Indonesian Central Bank continues to intervene in the FX market, according to an official cited by Reuters.
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FIXED INCOME

• Bond bears pounce as safety premium is unwound and curves steepen further.
• Bunds, Gilts and T-note all nearer the bottom of ranges spanning 127.33-83, 90.99-91.50 and 104-14/28 respectively.
• BTPs holding up a bit better between 108.18-77 parameters on technical grounds and relief that S&P maintained Italy's rating with a stable outlook irrespective of an expansive 2024 budget.
• Indian government is cautious amid the spike in yields, according to Reuters sources; could take "remedial action" if yields unexpectedly increase. Oil at USD 90/bbl is not a concern for the budget unless excise duty is tweaked.
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COMMODITIES

• Oil under pressure amid the broader tone in APAC hours and as Israel seemingly agrees to delay its ground invasion to allow for hostage negotiations.
• Currently, WTI & Brent Dec’23 are holding just shy of the USD 88.00/bbl and USD 92.00/bbl marks respectively, within USD 86.83-88.29/bbl and USD 91.08-92.45/bbl bounds.
• Spot gold is not really benefiting from the risk tone or USD weakness, with the yellow metal in a narrow range and yet to re-approach last week's USD 1997/oz peak.
• Base metals pressured by the risk tone and also unable to benefit from the softer USD, LME Copper pressured and down to the USD 7.9k/T mark and circa. USD 50/T down from Friday’s close.
• 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.
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EUROPEAN HEADLINES

• 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.

NOTABLE HEADLINES

• 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.
• 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 a run-off vote next month, according to the BBC.

GEOPOLITICS

ISRAEL-HAMAS

• US and allies hold discussions on concerns that the Israel-Hamas war will spread, via Bloomberg.
• 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. The 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

• 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.
• Several buildings have been evacuated following a bomb threat at German public broadcaster ZDF, via Bild.

CRYPTO

• Bitcoin is firmer on the session but has slipped off of USD 38.98k best as the crypto failed to breach the USD 31k mark; nonetheless, it holds onto upside of circa. 3.0% and remains comfortably above last week's peak.

APAC TRADE

• 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.

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 possibly 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 to the Oct. 30-31st 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.