• UK politics continues to dominate with reports of preparations for a potential Brexit no-deal and further Tory in-fighting
• Asian equities traded mostly higher with China returning to market for the first time in over a week. Japanese participants away from market
• Looking ahead, highlights include ECB’s Mersch and Lautenschlaeger

ASIA

Asia equity markets traded mostly higher as China reopened for the 1st time in over a week, although market closures in Japan, South Korea and Taiwan kept trade relatively quiet. ASX 200 (+0.6%) was lifted by broad strength aside from energy names which underperformed after oil prices fell 3% on Friday and Shanghai Comp. (+1.2%) surged on return from holiday as it played catch up and took its first opportunity to react to the PBoC’s targeted RRR reduction. However, some gains were later pared after a 21-month low Caixin Services PMI release, while Hang Seng (-0.3%) lagged as the mainland stole the limelight and with weakness seen in gambling and energy names.

Chinese Caixin Services PMI (Sep) 50.6 vs. Exp. 53.1 (Prev. 52.7); 21-month low. (Newswires)

Chinese Caixin Composite PMI (Sep) 51.4 (Prev. 52.4)

PBoC skipped open market operations for a net daily drain of CNY 180bln, but gauged demand for MLF loans which are expected to be issued on Friday. (Newswires)

PBoC set CNY mid-point at 6.6493 (Prev. 6.6369)

EUROPE

German Chancellor Merkel’s CDU/CSU agreed on refugee cap issue which clears a major hurdle in pursuing coalition discussions. (Newswires)

S&P affirmed France 'at AA/A-1+'; Outlook Stable. (Newswires) Moody’s affirmed Italy at Baa2; Outlook negative. (Newswires)

A senior figure in the Catalan admin has asked for dialogue with Spain, warning of the potential economic damage that could be caused by a standoff with the Madrid government. (Newswires)

UK

Reports stated that the UK is said to be searching and hoping for the best, but is also continuing making preparations in case it should end up with no deal in Brexit talks. (Telegraph) Further to this, PM May is set to warn EU leaders today that Britain will make no more concessions on Brexit until they compromise on opening trade and transition talks. (Times)

UK PM May reportedly suggested over the weekend that she is prepared to demote Foreign Secretary Boris Johnson as part of a cabinet rejig. (Sky News) However, separate reports suggest that if May was to fire him, he will simply say ‘no’, according to his allies. (Telegraph)

Germany and France reportedly dashed UK hopes of fast-track talks on transition deal and said that a divorce bill must be resolved first. (Newswires)

EU was reported on Friday to significantly step up backroom Brexit talks with Labour Party over concerns PM May’s government will fall. (Telegraph)

Pressure on the BoE to raise interest rates may be building more rapidly than first thought after a mistake by the ONS led to domestic inflation being understated with companies’ employment costs rising faster than previously expected. (Times)

FX

FX markets traded indecisive amid holiday-thinned conditions and a scarce calendar, which kept the USD-index subdued. GBP/USD initially tripped tspanough stops at the 1.3100 level to the upside but then proceeded in a choppy fashion as UK PM May faces some ongoing mutiny, while NZD/USD was dampened by political uncertainty ahead of this week’s announcement by New Zealand First Party head and kingmaker Winston Peters on which party they will back to form the next government. Elsewhere, TRY underperformed and weakened about 6% after a deterioration of diplomatic ties between US and Turkey, in which both sides suspended non-immigrant visa services to the citizens of the other.

COMMODITIES

Gold gained overnight in which the precious metal caught a bid on re-open of Shanghai metals trade from a week long closure, to extend on the safe-haven flows seen in Friday’s US session where there were Russian-based reports that North Korea is ready to test a missile capable of reaching the US West Coast. Elsewhere, copper and WTI crude were uneventful and traded flat, with the latter languishing after Friday’s 3% drop.

US Baker Hughes Rig Count (Total) 936 (Prev. 940). (Newswires)

BSEE stated on Saturday that 92% of current Gulf of Mexico production was shut in due to Hurricane Nate, but on Sunday reported that there was no damage to offshore oil facilities. (Newswires)

OPEC Secretary General Barkindo stated consultations are underway for extension of OPEC cuts past March 30th and that extraordinary steps may be needed in 2018 for stability. (Newswires)

Saudi energy minister Al-Falih said OPEC and NON-OPEC will be talking about what to do beyond March 2018 at the meeting in Vienna at the end of November and that he hopes to discuss with Russian energy minister Novak on what to do regarding oil markets prior to the meeting. (Newswires)

GEOPOLITICAL

US suspended all non-immigrant visa services at all US diplomatic facilities to Turkey, while Turkey also suspended non-immigrant visa services for US citizens. (Newswires)

Former US President Carter is reportedly pushing to meet with North Korea's leader Kim in North Korea. (Twitter/JoongAng)

US

US 10-Year T-Note futures settled 4 ticks lower at 125-01 on Friday, and the implied probability of a Fed hike by the end of the year rose to over 90% in wake of September’s Employment Report; the data showed 33k nonfarm payrolls were shed from the US economy, though the reading is likely to have been heavily distorted by Hurricanes Harvey, Irma and Maria. Underneath the bonnet, however, there were reasons for optimism, with wage growth showing a healthy rise, while participation also was up.

Fed’s Kaplan (Voter, Soft Hawk) repeated that he wants to see more on inflation before deciding on his December vote and wants to take his time in making his decision. Kaplan also reiterated the likely temporary nature of Hurricane impacts and said not to over react to the September payrolls figure. (Newswires)

Fed's Dudley (Voter, Soft Dove) repeated support for gradual US rate hikes and that he expects rate hike path to continue to be shallow. (Newswires)

Fed’s Rosengren (Non-Voter, Soft Hawk) said that the Fed must respond to very tight labor markets or may damage the economy and that prudent risk management would argue for the continued gradual removal of accommodation to minimize risk that could shorten the economic recovery. (Newswires)

Fed's Bullard (Non-Voter, Soft Dove) said that the negative jobs number is 'startling' even given hurricane effect and that he is increasingly concerned Fed will make a policy mistake if it continues hiking rates without more proof inflation is rising. (Newswires)

US House Speaker Ryan stated that tax reform is on track for implementation by January 2018. (Newswires)