• Asian equity markets begin the week in the green with the region bolstered by Chinese data
• Risk on tone sees outflows in JPY
• Looking ahead, highlights include US NY Fed Manufacturing.

ASIA

Asia equity markets began the week on the front-foot after another record setting session last Friday on Wall St, where softer than expected US CPI figures caused some to rethink the Fed’s hiking trajectory, while the region also digested encouraging Chinese lending and inflation data. ASX 200 (+0.6%) was underpinned by strength in commodity related stocks after crude approached USD 52/bbl and iron ore gained over 4%, while Nikkei 225 (+0.7%) extended on its best levels in over 2 decades. Elsewhere, Hang Seng (+0.9%) outperformed and posted its highest since December 2007 following stronger than expected Chinese Aggregate Financing, New Yuan Loans and PPI data, although the Shanghai Comp. (-0.1%) lagged after the PBoC kept its liquidity operations at a minimal. Finally, 10yr JGBs were initially mildly higher to track recent upside in T-notes and amid the BoJ’s presence in the market for an amount just shy of JPY 1tln in JGBs ranging from 1yr-10yr maturities, but then failed to sustain gains amid the positive risk tone.

Chinese New Yuan Loans (CNY)(Sep) 1270.0B vs. Exp. 1100.0B (Prev. 1090.0B). (Newswires)

Chinese Aggregate Financing (CNY)(Sep) 1820.0B vs. Exp. 1572.7B (Prev. 1480.0B)

Chinese Money Supply M2 (Sep) Y/Y 9.2% vs. Exp. 8.9% (Prev. 8.9%)

Chinese CPI YY (Sep) 1.6% vs. Exp. 1.6% (Prev. 1.8%). (Newswires)

Chinese PPI YY (Sep) 6.9% vs. Exp. 6.4% (Prev. 6.3%)

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.5839 (Prev. 6.5866)

PBoC Governor Zhou stated that total debt leverage in China is too high and that there is no clear fiscal discipline to restrict local governments. PBoC Governor Zhou also stated that China's economic growth is to hit 7% in H2. (Newswires)

BoJ Governor Kuroda stated that real interest rates are expected to decline further as inflation expectations increase, which will further enhance impact of BoJ’s monetary easing. (Newswires)

EUROPE

ECB's Draghi said the euro area’s economic expansion is supported by monetary policy measures and continues to be firm and broad-based, although underlying inflation measures have yet to show convincing signs of a sustained upward trend. (Newswires)

Some ECB policymakers are said to identify a EUR 2.5tln QE limit based on current rules, according to sources. (Newswires)

Fitch affirmed Luxembourg at 'AAA'; Outlook Stable. (Newswires)

Austria is set for a right leaning coalition after elections over the weekend showed the conservative Austrian People’s party finished first with 31.7% of votes which will make its 31-year-old leader Kurz, the youngest head of a government in the EU. (Politico)

UK

UK Rightmove House Prices (Oct) M/M 1.1% (Prev. -1.2%). (Newswires)

UK Rightmove House Prices (Oct) Y/Y 1.4% (Prev. 1.1%)

BoE Governor Carney repeated on Friday that a hike may be appropriate in upcoming months. (Newswires)

UK PM May is to make a trip to Brussels for meetings with EU’s Barnier and Juncker related to Brexit discussions. (Newswires)

FX

In FX markets, the broad positive risk tone spurred outflows from safe-haven JPY which underpinned USD/JPY to reclaim the 112.00 handle, while JPY crosses also rebounded from early losses. Elsewhere, the greenback continued to nurse its post-CPI weakness in which EUR/USD tested a breakdown of 1.1800 and with GBP/USD at a sub-1.3300 level, while commodity linked currencies were also pressured but with losses somewhat stemmed after the continued gains in oil and iron ore.

New Zealand PM English said that outstanding issues remain and further discussions are required before a government can be formed, while he added that a formation of government could take until end of the week. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude prices extended on gains and approached within a whisker of the USD 52/bbl level, while copper was also underpinned amid a mostly positive risk tone in the region and continued strength in iron prices. Conversely, gold prices were subdued but remained above USD 1300/oz with a mild pull back seen in the precious metal as the USD recovered from post-CPI losses and amid the heightened risk appetite.

US Baker Hugohes Rig Count (Total) 928 (Prev. 936)

OPEC Secretary General Barkindo stated that OPEC and shale companies share responsibility to rebalance market, while there were also comments from Kuwait that producers need another month before deciding on deal extension and decision may be made in November. (Newswires)

GEOPOLITICAL

South Korea military officials were reportedly preparing for another North Korea missile launch amid South Korea-US joint military drills which begin today. (Newswires)

US Secretary of State Tillerson said that diplomatic efforts on North Korea will continue up until the first bomb drops, while he also stated that President Trump has made it clear that he wants a diplomatic solution and is not seeking to go to war. In other news, US President Trump will not be visiting the demilitarized zone during his trip to South Korea. (Newswires)

Iran’s President Rouhani said on Friday that Iran will double its efforts to build weapons for deterrence and expand its missile programme, while he added Iran respects the nuclear deal and will continue to cooperate so long as it serves its interests. (Newswires)

US

Treasury yields fell in wake of US inflation data, with the 10-year yield falling around 5bps to 2.28%; overall, the curve bull-flattened, with many of the spreads between major tenors also narrowing on the session – some, like 2s30s, moving towards cycle lows. However, the implied probability of another Fed hike in 2017 was little changed on the day at 82%, according to the CME Fedwatch tool, and generally, the December-hike narrative remains in-tact. US 10-Year T-Note futures settled 10 ticks higher at 125-22+.

Fed Chair Yellen (Dove) stated that new normal will be lower interest rates than seen historically and that inflation has been largest surprise for the US economy this year. Yellen added that gradual hikes in fed funds rate are likely to be appropriate during next few years and that she will be paying attention to inflation data in the upcoming months, although she guesses that the soft reading will not persist. (Newswires)

Fed's Kaplan (Voter. Soft Hawk) said debate at the Fed is on the pace of raising interest rates, but there's consensus it should be gradual. Kaplan also commented that patience on rate hikes makes sense and that Fed has some time. (Newswires)

Fed's Evans (Voter, Soft Dove) reiterated that decline in inflation expectations make him "nervous". (Newswires)

Fed's Rosengren (Non-Voter, Soft Hawk) stated 3 to 4 rate hikes next year will probably be appropriate and that the Fed may need to overshoot on rates if unemployment is below 4% while inflation reaches target. (Newswires)