• In FX, the USD remained firm against its major counterparts. RBA kept rates unchanged as expected and highlighted the firmer currency
• Asian equities traded mostly higher with the Hang Seng outperforming in a catch-up play from yesterday’s holiday
• Looking ahead, highlights include UK construction PMI, US vehicle sales and APIs

ASIA

Asia equity markets were mostly higher with Hang Seng (+1.5%) the outperformer as it played catch up on return from holiday and took its first opportunity to digest news of the PBoC’s targeted RRR cut. Nikkei 225 (+0.9%) was also positive with sentiment underpinned amid upside in USD/JPY and after the fresh intraday records set by all the major US indices on Wall St. Conversely, Shanghai Comp and KOSPI are shut for the entire week, while ASX 200 (-0.6%) underperformed with weakness in energy names after oil slipped over 2% yesterday and with financials dampened after QBE raised it catastrophe claims allowance due to the recent hurricanes. Finally, 10yr JGBs were lower with demand subdued amid strength in stocks and after a mixed 10yr auction, in which the b/c rose from prior but accepted prices weakened.

EUROPE/UK

Italian Treasury to conduct a bond swap on Wednesday; to offer Nov 2026 BTP in exchange for 5 lines. (Newswires)

Bundesbank's Dombret said wants an agreement on output floor by year-end and that banks need to plan for a hard Brexit. (Newswires)

FX

The greenback maintained the strength seen from Monday’s strong ISM data to the detriment of all its major counterparts, in which EUR/USD and GBP/USD broke tspanough yesterday’s lows while USD/JPY reclaimed the 113.00 handle to the upside. Elsewhere, antipodeans were also subdued with NZD pressured after New Zealand NZIER Confidence fell to an 18-month low and AUD/USD slipped below the 0.7800 handle after the RBA rate decision where it kept rates at 1.50% as expected and continued to highlight the negative impact from a firmer currency.

RBA maintained the Cash Rate at 1.50% as expected and reiterated that it judged steady policy is consistent with growth and inflation targets. RBA stated that a strengthening AUD would slow economy and restrain price pressures, while it also commented that slow growth in wages and high household debt is likely to restrict economic growth and spending. (Newswires)

COMMODITIES

Commodity prices were lacklustre in which WTI crude futures languished following yesterday’s over 2% drop which some attributed to a survey which suggested OPEC production rose last month. Elsewhere, gold marginally extended on its lowest levels in around 7 weeks and copper was also pressured overnight amid a firmer greenback.

US

Treasuries finished just off best levels, in a low volume US afternoon. High yield issuance was noted today, although the more noted activity came from Mexico, Abu Dhabi and Jordan, with all 3 nations issuing USD denominated 30-year paper. US Dec’17 10y T-note futures settled at 125.08, down 2 ticks, with CME Fed Fund futures now pricing a circa 75% chance of a 25bps FOMC hike by year end.

Fed's Kaplan (Voter, Soft Hawk) said Fed has got room to raise rates but not as much as people might think and are going to have to look hard if we should raise rates in December, while he added the Fed can afford to be patient in removing accommodation. (Newswires)