Asia equity markets traded with a modest tone amid a very light calendar and mixed US lead, although risk appetite was spurred in US equity futures after the senate voted to adopt the budget resolution which paves the way for a tax overhaul. ASX 200 (+0.2%) pared initial losses amid a recovery in the largest weighted financials sector, while Nikkei 225 (Unch.) failed to benefit from JPY weakness with underperformance seen in Toshiba amid financial-related probes and Nissan after reports it halted some domestic output and that unqualified inspections occurred for the past 2 decades. Elsewhere, Hang Seng (+1.0%) rebounded from its worst performance in 2 months, while Shanghai Comp. (+0.1%) was uninspired despite the PBoC’s largest weekly net injection since January. Finally, 10yr JGBs tracked the downside seen in T-notes as risk appetite was underpinned by the developments in Washington, although losses were stemmed amid the presence of the BoJ in the market for a respectable JPY 990bln in government debt of 1yr-10yr maturities.

PBoC injected CNY 50bln via 7-day reverse repos and CNY 30bln via 14-day reverse repos for a weekly net injection of CNY 560bln vs. last week's net drain of CNY 240bln. (Newswires)

PBoC set CNY mid-point at 6.6092 (Prev. 6.6093)

EUROPE

Catalonia will hold off declaring independence until next week, according to Spanish press reports. (Newswires)

Catalan separatists called for mass cash withdrawals from CaixaBank (CABK SM) and Banco Sabadell (SAB SM) between 0800-0900am local time today. (Newswires)

EU’s Tusk said there will be no discussion of the Catalonia situation at EU summit and that there is not space for the EU to intervene with the matter. (Newswires)

There is a long way to go in talks on forming a new German coalition led by Chancellor Angela Merkel's conservatives, a senior member of the pro-business Free Democrats (FDP) said after meeting the environmentalist Greens yesterday. (Newswires)

UK

BoE's Cunliffe said in his opinion that we are not seeing sustained signs of domestic inflation pressure and that if August forecast comes to pass, interest rates will need to rise but when that starts is a more open question. (Newswires)

UK PM May said she has made an effort on Brexit talks and it is now the EU's turn, while she added EU and UK need to be optimistic and ambitious about what can be achieved in Brexit. (Newswires)

UK Brexit Secretary Davis is said to tell officials to step up planning for a potential no-deal in Brexit discussions and plans to present an upbeat assessment of a no-deal Brexit to the cabinet at month-end. (Newswires)

German Chancellor Merkel said that UK PM May's Brexit stance in insufficient at this point and that PM May's presentation didn't change her stance. However, Merkel also stated that PM May significantly offered more than before and that there is zero indication discussions will not succeed. (Newswires)

FX

In FX markets, the USD dominated price action and was underpinned after the senate voted to adopt the budget resolution which would also shield tax cuts from a democrat filibuster. This pushed USD/JPY above 113.00 and pressured all the greenback’s major counterparts in which GBP/USD retreated to test the 1.3100 level and EUR/USD briefly approached 1.1800 to the downside. NZD/USD woes also persisted overnight after the shock decision by Winston Peters to back the Labour party, with the pair now below the 0.7000 handle.

COMMODITIES

Commodity prices were mixed with WTI crude futures languished and failed to make any significant recovery from yesterday’s slip to below USD 52/bbl. Gold was pressured as the greenback strengthened and a positive risk tone was spurred on reports the US Senate voted to pass the budget resolution, while copper prices continued to rebound amid the aforementioned risk tone.

GEOPOLITICAL

CIA Director Pompeo said North Korea may be months away from having the capability of striking the US with a nuclear weapon. (Yonhap)

US Secretary of State Tillerson called for more action from China on North Korea and trade, while he added that US is becoming increasingly impatient with China. (Newswires)

US

Treasuries yields were lower today amid a risk-off tone, though yields did grind slowly higher over the course of the session, ultimately leaving yields lower by around 1-2bps by settlement. There was little else to shake Treasuries, with no A-list data or speakers on the docket.  Elsewhere, the US Treasury auctioned $5bln in 30-year TIPS, which tailed by 0.3bps. US 10-Year T-Note Futures settled 4 ticks higher at 125-08+. Further support was the seen post settlement on reports that Trump is leaning towards choosing Fed’s Powell for the next Fed Chair, who is seen to have a more neutral stance than other hawkish candidates such as Taylor and Warsh.

US Senate voted to adopt budget resolution tspanough 51-49 vote, which paves the way for a tax overhaul and shields a future tax reform bill from a Democrat filibuster. (Newswires)

There were initial reports that US President Trump is leaning towards Powell for Fed Chair. (Politico) However, it was later reported that US President Trump advisers are said to be leaning towards Taylor or Powell as the next Fed Chair and added that the Fed chair role was down to the aforementioned 2 candidates. (Newswires)

US Senator Hatch said he is hoping to release a Tax Bill in early November. (Newswires)