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Global core bond markets hardly moved today as risk sentiment remained more or less neutral. US Treasuries opened unchanged despite rising tensions with Saudi Arabia over the missing Washington Post journalist. German Bunds opened higher, but remain close to Friday’s closing levels. Asian equity markets opened this week in red, with Japanese indices underperforming. It looked like European stock would follow the way lower, but they bounced back. Some are even gaining ground at the time of writing. Moody’s upgrade of Portugal’s credit rating caused a minor outperformance of Portuguese bonds. Spain’s Socialist government announced it will loosen its deficit targets for next year to 1.8% of GDP, compared to the 1.3% agreed to by the previous government. Spanish Bonds lost ground on the news, continuing their recent trend. US retail sales had no influence on bond trading today. Overall retail sales rose 0.1% in September against a 0.6% expectation. The Retail Sales Control Group, an important proxy for the consumption component of GDP, rose 0.5% which is little higher from economist expectations (0.4%). The US yield curve edged lower with changes ranging from -0.2 bps (2-yr) to -1.5 bps (10-yr). The German yield curve steepens a little with changes from -0.4bps (2-yr) to +0.3 bps (30-yr). The Italian 10-year yield spread over Germany narrows by 4 bps, while the Spanish 10-yr yield spread widens by 3 bps.

The new week started in a context of uncertainty. Comments from US policy makers, including US president Trump and Fin Min Mnuchin during the weekend suggested that trade tensions between the US and China might persist for some time. Aside from the threat of additional trade tariffs, the US still ponders whether it should take action against China for weakening its currency. Political strains between the US and Saudi-Arabia are also a growing source of uncertainty. Investors reacted in a strange manner to this uncertainty. Asian equities closed with substantial losses, but European markets are rather calm. The euro showed resilience like last week while the dollar struggled. US September headline retail sales printed soft, but the good figure for the control group suggests that special factors might have been at work. The dollar lost a few ticks after the publication of the retail sales. EUR/USD again tested the 1.16 area. USD/JPY was little affected by the data or the equity performance. The pair trades in the 111.80 area. Markets are confronted with several events risk in the US, in Europe and in a broader perspective and, at least for now, give slightly more weight to US-linked issues rather than European ones.

Markets tried to assess the impact of failed Brexit negotiations this weekend. Sterling lost modest ground in Asian trading this morning. EUR/GBP soon found a new ‘short-term equilibrium’ in the lower part of the 0.88 big figure. Cable mostly followed the intraday swings of the dollar and regained some ground during the day. The pair trades in the 1.3150 area, little changed from Friday’s close. Investors show some fatigue in reacting to the daily news flow on EU-UK separation process.

News Headlines

The EU has demanded a second backstop in case the UK fails to implement the first backstop to the Irish boarder problem, which is a customs union for the British Isles. The second backstop contains plans to keep Northern Ireland in the single market. Northern-Ireland’s Democratic Unionist Party believes a no-deal Brexit is “probably inevitable”.

US retail sales were mixed with the overall retail sales rising 0.1% m/m in September, less than the median forecast of a 0.6% gain. Purchases at food-services and drinking establishments (-1.8% m/m) were to blame with expenses increasing in 10 of the other 12 major categories. The so-called Retail Sales Control Group, which is a good indicator for personal consumption in US GDP, rose by 0.5% (only 0.4% expected) though.

Spending at bars and restaurants has propelled broader retail sales in recent years, but a retrenchment here in September along with smaller outlays at gas stations weighed on the headline, resulting in a 0.1% pickup.

Auto Sales Helped

Prior to this morning's release we already knew that September was a good month for manufacturer sales of autos to dealers. The annualized pace of wholesale auto sales hit 17.4 million, which tied March for the fastest clip in 2018.

Dealers were able to move inventory in September as well. Motor vehicle and parts sales jumped 0.8%. Perhaps not coincidentally, that too was the best month since March.

Core Spending Intact

Bars and restaurants have been outperforming broader retail sales recently. But after four straight monthly gains, this category saw a 1.8% decline. The softness here combined with a 0.8% dip at gas stations help explain the headline miss.

Excluding volatile categories like auto, gas and building materials, control group retail sales actually came in a little better than expected, up 0.5% in September.

AUDUSD faces price recovery extension as it headed higher during early Monday trading today. Support resides at the 0.7100 level where a breach will aim at the 0.7050 level. Below that level will set the stage for a run at the 0.7000 level with a cut through here targeting further downside pressure towards the 0.6950 level. On the upside, resistance lies at the 1.7150 level. A cut through here will turn attention to the 0.7200 level and then the 0.7250 level where a violation will set the stage for a retarget of the 0.7300 level. Its daily RSI is bearish and pointing higher suggesting further strength. On the whole, AUDUSD faces further upside threats on correction.

Daily Pivots: (S1) 111.91; (P) 112.20; (R1) 112.53; More..

USD/JPY's fall from 114.54 resumes after brief consolidation and intraday bias is back on the downside. Such decline is seen as correcting whole rise from 104.62. Deeper fall would be seen to 38.2% retracement of 104.62 to 114.54 at 110.75. We'll look for bottoming signal above 109.76 key support. On the upside, though, above 112.52 minor resistance will indicate completion of the pull back and bring retest of 114.54 high.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Daily Pivots: (S1) 0.9888; (P) 0.9910; (R1) 0.9937; More...

No change in USD/CHF's outlook as consolidation from 0.9954 is extending. Deeper fall could be seen but downside should be contained by 38.2% retracement of 0.9541 to 0.9954 at 0.9796 to bring rise resumption. On the upside, break of 0.9954 will resume the rise from 0.9541 and target 1.0067 resistance next.

In the bigger picture, the pullback from 1.0067 has completed at 0.9541 already. And rise from 0.9186 is likely resuming. Firm break of 1.0067 will pave the way to retest 1.0342 key resistance. We'd be cautious on strong resistance from there to limit upside to bring another medium term fall to extend long term range trading.

Daily Pivots: (S1) 1.3113; (P) 1.3185; (R1) 1.3225; More...

We're holding on to the view that rebound from 1.2921 has completed at 1.3257 already. Deeper fall is in favor to 1.2921 support first. Break there will resume the fall from 1.3297 and target 1.2661/2784 support zone. On the upside, in case of another rally, we'd continue to expect strong resistance at 1.3316 key fibonacci level to bring down trend resumption eventually.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Daily Pivots: (S1) 1.1526; (P) 1.1569; (R1) 1.1602; More.....

EUR/USD rebounds notably after drawing support from 1.1534 minor support. But it's staying below 1.1610 temporary top. Intraday bias remains neutral first. ON the upside, break of 1.1610 will extend the rebound from 1.1431 towards 1.1814 resistance. But we'd expect upside to be limited by 1.1779/1814 resistance zone to bring down trend resumption eventually. On the downside, break of 1.1534 will indicate completion of rebound from 1.1431. Intraday bias will be turned back to the downside for 1.1431 and then 1.1300 low.

In the bigger picture, corrective pattern from 1.1300 could have completed at 1.1814 after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 will delay the bearish case and extend the correction from 1.1300 with another rise before completion.

Dollar is trading as the weakest one for today after it's rally attempt failed. Additional pressure i seen in early US session after retail sales miss. Tension between the US and Saudi Arabia and the risks of sanctions are seen as a factor weighing down the greenback. Meanwhile, Sterling gapped lower at weekly open after weekend's Brexit negotiations failure. But the Pound gradually regained footing even though there is basically no positive Brexit news. For now, there are still hope that the UK and the EU might agree to something after this week's EU summit. Staying in the currency markets, Canadian Dollar follow the US as second weakest. Swiss Franc, New Zealand Dollar and Japanese Yen are the stronger ones.

In other markets, European stocks recover mildly today after initial selloff. At the time of writing, DAX is up 0.54%, CAC up 0.04%, FTSE up 0.21%. German 10 year bund yield is trading down -0.0022 at 0.497. Italian yield, though, is also down -0.0212 at 3.554. Earlier in Asia, Nikkei closed down -1.87%, Singapore Strait Times down -0.76%, Hong Kong HSI down -1.38% and China Shanghai SSE down -1.49%. Japan 10 year JGB yields dropped -0.0051 to 0.145. Gold extends recent rebound and breaks 1230 handle.

Technically, firstly, EUR/USD's rebound from 1.1534 minor support suggests that rise from 1.1431 is not finished. Further rally is now in favor to above 1.1610. USD/JPY took out 111.82 to extend fall from 114.54. USD/CHF is also extending the corrective fall from 0.9954. More downside is mildly in favor for the Dollar in the latter part of the day.

US retail sales miss, Empire state manufacturing index improved

Released from the US, headline retail sales rose 0.1% in September versus expectation of 0.7% rise. Ex-auto sales even contracted -0.1% versus expectation of 0.5% rise. On the other hand, Empire state manufacturing index rose to 21.1, up from 19.0 and beat expectation of 20.4.

Released elsewhere, Swiss PPI dropped -0.2% mom, rose 2.6% yoy in September, versus expectation of 0.1% mom, 3.0% yoy. Japan industrial production was finalized at 0.2% mom in August. UK Rightmove house price rose 1.0% mom in October.

UK PM May to publish statement on Brexit, EU intensifying no-deal preparations

Brexit negotiation is the main theme today after the Irish border deadlock came up unresolved after the meeting between UK and EU in Brussels over the weekend. EU chief Brexit negotiator Michel Barnier tweeted after meeting UK Brexit secretary Dominic Raab in Brussels that "Despite intense efforts, some key issues are still open, including the backstop for IE/NI (Ireland/Northern Ireland) to avoid a hard border."

UK Prime Minister Theresa May's spokesman insisted that "there are a number of means of achieving what we want to achieve," referring to the Irish border issue. May is expected to publish a statement to the parliament later today regarding the failure of the weekend talks.

European Commission spokesman Margaritis Schinas said in a regular new conference that "while we are working hard for a deal, our preparedness and contingency work is continuing and intensifying." German government spokesman Steffen Seibert also said the cabinet will committee on Brexit will discuss the country's preparedness for a no-deal scenario.

DUP Wilson: No-deal Brexit inevitable as EU is cornering Theresa May

Sammy Wilson, the DUP spokesperson on Brexit, told Belfast newsletter that a no-deal Brexit was "probably inevitable." He said that "Given the way in which the EU has behaved and the corner they've put Theresa May into, there's no deal which I can see at present which will command a majority in the House of Commons."

He added that "anybody looking at it objectively would say that what is on offer from the EU is a far worse deal than a no deal, and therefore she'd be mad to be railroaded into accepting it." In his view, UK Prime Minister Theresa May will not get what EU are demanding through the House of Commons.

Though, he also said, "No deal doesn't mean there will be nothing agreed". And, "it probably means there will be a lot of mini agreements on things which are essential, to keep planes flying, lorries moving, that sort of thing." "There will be no overall deal but that doesn't mean there will be nothing agreed at all because certain essential things are required, both on the EU side and on our side."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1526; (P) 1.1569; (R1) 1.1602; More.....

EUR/USD rebounds notably after drawing support from 1.1534 minor support. But it's staying below 1.1610 temporary top. Intraday bias remains neutral first. ON the upside, break of 1.1610 will extend the rebound from 1.1431 towards 1.1814 resistance. But we'd expect upside to be limited by 1.1779/1814 resistance zone to bring down trend resumption eventually. On the downside, break of 1.1534 will indicate completion of rebound from 1.1431. Intraday bias will be turned back to the downside for 1.1431 and then 1.1300 low.

In the bigger picture, corrective pattern from 1.1300 could have completed at 1.1814 after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 will delay the bearish case and extend the correction from 1.1300 with another rise before completion.

Economic Indicators Update

Dollar weakens notably against European majors in early US session after mixed economic data releases. Headline retail sales rose 0.1% in September versus expectation of 0.7% rise. Ex-auto sales even contracted -0.1% versus expectation of 0.5% rise.

On the other hand, Empire state manufacturing index rose to 21.1, up from 19.0 and beat expectation of 20.4.

Here are the latest developments in global markets:

• FOREX: After starting the day with a gap down at 1.3082, pound/dollar managed to turn positive during the early European session, rallying to 1.3170 (+0.12%) mainly due to a weaker dollar. Brexit uncertainties continued to linger in the background as the talks between Brexit negotiators failed to break the Irish deadlock on Sunday, though some officials showed optimism that a deal could be agreed in coming weeks. The yen attracted further demand in the face of rising geopolitical tensions between US and Saudi Arabia, sending dollar/yen to a one-month low of 111.61 (-0.38%). Euro/dollar regained ground to trade slightly below the 1.1600 handle (+0.24%) despite headlines stating that the Italian government budget approval could shift to Tuesday. Euro/pound climbed by 0.13% and is set to record the third green day. In the antipodean sphere, aussie/dollar jumped by 0.21% and kiwi/dollar traded higher by 0.40%. Dollar/loonie was flat around 1.3016. Dollar/Turkish lira was the worst performing pair today, losing 1.35% in the day.
• STOCKS: European shares were mixed at 1130 GMT. The pan-European STOXX 600 declined by 0.15%, while the blue-chip Euro STOXX 50 climbed by an equivalent percentage as telecommunications soared (+1.63%). The Spanish IBEX 35 fell by 0.08%, while the German DAX 30 and the Italian FTSE MIB gained by 0.33%. The British FTSE 100 and the French CAC 40 were weaker by 0.04% and 0.06% respectively. In Asia, the majority of stocks closed strongly negative, while futures tracking US indices such the S&P 500, Dow Jones and Nasdaq 100 reduced their overnight losses but still pointed to a negative open.
• COMMODITIES: Oil prices started the day on the upside following news that the US is ready to punish Saudi Arabia with sanctions if the country proves responsible for the disappearance of a Saudi journalist that resided in the US. The Saudi government threatened to take counter-actions as well.  WTI crude was up by 0.83% at $71.93 and Brent was higher by almost 1.00% at $81.27. In precious metals, gold hit 3-month highs at $1233.26/ounce before it slipped back to $1229.

Day Ahead: Geopolitics & Brexit eyed; US retail sales, New Zealand & Chinese CPI next in focus

Appetite for riskier assets remained loose on Monday as geopolitical tensions and Brexit uncertainties took the centre stage, while economic differences between Italy and the Eurozone will likely keep investors busy today as well.

In geopolitics, the US President threated to act with “very powerful” consequences against Saudi Arabia as the kingdom has been unable to provide a convincing explanation so far about the disappearance of the Washington Post columnist Jamal Khashoggi who is believed to have been murdered on October 2 inside Saudi Arabia’s consulate in Turkey. Trump warned that if the nation proves responsible of the incident he will move forward with sanctions, causing a similar reaction from the Saudi government on Sunday which warned to take greater actions in case the US implements economic sanctions. Should tensions intensify in coming sessions, oil prices could advance even further amid fears oil supply in the Saudi region could be limited in the face of economic restrictions.

Brexit fears resurfaced during the weekend too after the UK Brexit Secretary Dominic Raab failed to resolve differences related to the Irish backstop at his meeting with the EU Brexit negotiator, Michel Barnier in Brussels. While markets were positive that Sunday’s meeting between the sides could bring progress before EU leaders gather on Wednesday, some key issues involving mainly the Irish border remained open, with the spokesman of the junior coalition party of PM May’s government admitting that a no-deal Brexit is “probably inevitable”. The UK Prime Minister will attend the summit on Thursday.

Meanwhile in the EU, the Italian government faces a deadline to submit its budget draft to the European Commission today and investors will be eagerly waiting to see whether Rome will stick to its initial fiscal demands which aim for a deficit of 2.4% of GDP in 2019 compared to a previous commitment of 0.8%. The cabinet is expected to hold a meeting at 1500 GMT later today. Should the EU disagree with the budget, Italy would need to revise it and submit it before EU finance ministers express their opinions on December 3. In the meantime, any headlines supporting that Italy might not get away with its proposals could weigh heavily on the euro.

Turning to data releases, US retail sales will feature the calendar at 1230 GMT, giving some evidence on consumers’ buying appetite. According to analysts, retail sales are forecasted to have grown by 0.6% month-on-month (m/m) in September after increasing by 0.1% in August. In the absence of volatile automobiles, the core equivalent is expected to gain 0.1 percentage points and pick up to 0.4%. If the numbers rise higher than projected, marking the seventh consecutive positive month, the dollar may recoup earlier losses amid increasing confidence that the Fed will deliver another rate hike in December.

Separately, September’s retail control and the New York Fed Manufacturing index for the month of October will come into light at the same time, while at 1400 GMT, US business inventories for the month of August may attract some interest as well.

Elsewhere, New Zealand will see the release of CPI figures at 2145 GMT, probably helping the battered kiwi to gain some strength in case the figures surprise to the upside, even if the RBNZ is not considering any rate hike until 2020. Consensus is for the headline CPI to come closer to the central bank’s 2.0% midpoint target, inching up to 1.7% y/y in the third quarter from 1.5% in Q2. Quarter-on-quarter, inflation is seen higher as well, at 0.7% compared to 0.4% seen previously.

Staying in the Tasman sea, the Reserve Bank of Australia will be publishing minutes of its October policy meeting at 0030 GMT on Wednesday. Although the central bank messaged that the next move in rates is up rather than down, it also said that the it will remain patient until 2020 as inflation is anticipated to reach the 2.0% target only gradually due to the slow wage growth progress. RBA policymakers have cited US-Sino trade conflicts as another risk to Australia’s economic growth.

In Asia, Chinese CPI and PPI data will be closely watched at 0130 GMT, with the aussie expected to react negatively if Chinese inflation dissapoints and vice versa. Expectations are for the headline CPI to rise by 2.5% y/y in September, faster than in August when it stood at 2.3%. In contrast, PPI is said to drop by 0.6 points to 3.5% y/y.