US stocks finished a choppy session mostly in the green, while the dollar softened amid US-China frictions - Newsquawk Asia-Pac Market Open

• US stocks finished mostly higher although price action was choppy in which equities bottomed out after Europe left for the day with a trough seen as Tech stocks took a hit, namely NVIDIA (NVDA), seemingly in response to a Reuters article that Anthropic updated its smallest AI model, which is much cheaper than its more expensive models, and performs as well or better. The news revived fears that tech names could be overpaying for AI chips from NVDA when the power needed may not be as much as initially thought - a similar reaction to the Deepseek fears. Nonetheless, stocks then rebounded off lows, while there was also a lot of focus on US/China relations, with Bessent and Greer noting that the recent export controls are a global supply chain power grab and act of economic coercion, although Greer suggested there is room for positive relations with China, and he expects restrictions will not be implemented.
• USD weakened and continued to be weighed on by jitters surrounding US/China relations and a follow-through from the dovish-leaning Powell on Tuesday, while both Treasury Secretary Bessent and USTR Greer spoke heavily on China, with the former noting that if China wants to be an unreliable partner of the world, the US will need to decouple, but echoed that the US does not want to decouple and wants to de-risk. The NY Fed Manufacturing was largely impressive as the headline smashed expectations, with new orders, employment, and six-month ahead indices impressing, although prices did rise. Beige Book noted employment levels were largely stable in recent weeks, and demand for labour was generally muted across Districts and sectors.
• Looking ahead, highlights include Japanese Machinery Orders, Australian Jobs Data, Comments from BoJ's Tamura and RBA Assistant Governor Kent.

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LOOKING AHEAD

• Highlights include Japanese Machinery Orders, Australian Jobs Data, Comments from BoJ's Tamura and RBA Assistant Governor Kent.
• Click for the Newsquawk Week Ahead.

US TRADE

• US stocks finished mostly higher although price action was choppy in which equities bottomed out after Europe left for the day with a trough seen as Tech stocks took a hit, namely NVIDIA (NVDA), seemingly in response to a Reuters article that Anthropic updated its smallest AI model, which is much cheaper than its more expensive models, and performs as well or better. The news revived fears that tech names could be overpaying for AI chips from NVDA when the power needed may not be as much as initially thought - a similar reaction to the Deepseek fears. Nonetheless, stocks then rebounded off lows, while there was also a lot of focus on US/China relations, with Bessent and Greer noting that the recent export controls are a global supply chain power grab and act of economic coercion, although Greer suggested there is room for positive relations with China, and he expects restrictions will not be implemented.
• SPX +0.41% at 6,672, NDX +0.68% at 24,745, DJI -0.04% at 46,253, RUT +0.89% at 2,518.
• Click here for a detailed summary.

TARIFFS/TRADE

• US Treasury Secretary Bessent said they want to help China, not hurt it and that China's economy will be hurt the most by its economic coercion. Bessent said magnets were flowing quite well following the prior China agreements and that there will be a series of meetings this week on China's restrictions. Furthermore, he said if China wants to be an unreliable partner of the world, they will need to decouple, and reiterated the US does not want to decouple, but wants to de-risk. It was separately reported that US Treasury Secretary Bessent urged the World Bank to end support for China.
• US Treasury Secretary Bessent said China is trying to backfill the narrative on the rare earth minerals deal, while he said the Chinese were planning to erect new measures. Furthermore, he said this is China vs. the world and that the US has levers that are more powerful than the rare earths export controls.
• USTR Greer said China's export restrictions are a global supply chain power grab, and that China is exercising economic coercion. Greer said that China's restrictions are drafted but not implemented and he is expecting restrictions not to be implemented and that they go back to the prior agreement. Furthermore, he said there is room for a positive relationship with China, and he wants this to be the last time they talk about rare earths with China.
• Chinese Foreign Ministry spokesperson Lin said the US and China should engage in talks.
• EU’s trade chief is to meet China’s Commerce Minister next week.
• Indian Trade Secretary said India and EU trade talks are progressing well and are likely to conclude by year-end, while the Trade Secretary also commented that there is scope to increase energy imports from the US.
• Mexican President Sheinbaum said trade talks with the US are very advanced and expect more trade advantages for Mexico.

NOTABLE HEADLINES

• Fed’s Miran (voter) said there is more downside risk than a week ago, and with the change in the balance of risk, it is more urgent to get to a more neutral policy quickly, and the economy is more vulnerable to shocks because policy is restrictive. Miran said the difference in his view and that of the rest of the FOMC is the speed of the trip to neutral, while he added that two more rate cuts this year sounds realistic, as well as stated that data is backward looking and policy should be based on where the Fed thinks prices will be in a year’s time, according to CNBC.
• Fed’s Miran (voter) said AI investment could lead to a higher neutral interest rate and that recent policy changes, including immigration, have produced fast changes in the neutral rate. Furthermore, he said Fed policy is more restrictive than people think because the neutral rate has fallen, while he puts less weight on the value of changing policy gradually and does not think moving by more than 50bps cuts is necessary.
• Fed’s Waller said AI is moving so fast that they will see job losses before they see new jobs, while it may be a couple more years before they see new jobs from AI replacing the old jobs.
• Fed Beige Book stated that employment levels were largely stable in recent weeks, and demand for labour was generally muted across Districts and sectors. It also stated that economic activity changed little on balance since the previous report, with three Districts reporting slight to modest growth in activity, five reporting no change, and four noting a slight softening. Overall consumer spending, particularly on retail goods, inched down in recent weeks, although auto sales were boosted in some Districts by strong demand for electric vehicles ahead of the expiration of a federal tax credit at the end of September.
• US Treasury Secretary Bessent said the US investment boom is sustainable and just getting started, while he stated there is pent-up demand and America is open for business, according to CNBC. Bessent said the only thing slowing the US and President Trump down is the government shutdown, and he has seen numbers that the shutdown is hurting the economy by up to USD 15bln a day. Furthermore, he is not advocating that the Fed shrink its balance sheet or move away from an ample reserves system and said the Fed should use QE sparingly, like antibiotics, while he added that QE reform is an important consideration for the next Fed Chair choice.
• US Treasury Secretary Bessent called on moderate democrats to be heroes and reopen the government.
• US Senate is set to leave for the week tomorrow and is nowhere near ending the shutdown, according to a former Politico journalist.
• US Republican Leaders are trying a new shutdown strategy in hopes of creating some movement amid the standoff, while Thune teed up a Thursday procedural vote on the House passed defence spending bill, according to Politico, while it was reported that House Republicans were trying to expedite a House conference on the three-bill package the Senate passed in August.
• US Budget Director Vought said they are definitely talking about thousands of people for government layoffs and could be more than 10k.
• US judge blocked the Trump administration from laying off workers at more than 30 agencies amid the government shutdown.
• US NEC Director Hassett said a "clever and generous" bailout for farmers is coming as soon as the government reopens, according to Axios.
• US regulators are poised to offer capital relief to community banks, according to Bloomberg.

DATA RECAP

• US NY Fed Manufacturing (Oct) 10.7 vs. Exp. -1.4 (Prev. -8.7)

FX

• USD weakened and continued to be weighed on by jitters surrounding US/China relations and a follow-through from the dovish-leaning Powell on Tuesday, while both Treasury Secretary Bessent and USTR Greer spoke heavily on China, with the former noting that if China wants to be an unreliable partner of the world, the US will need to decouple, but echoed that the US does not want to decouple and wants to de-risk. The NY Fed Manufacturing was largely impressive as the headline smashed expectations, with new orders, employment, and six-month ahead indices impressing, although prices did rise. Beige Book noted employment levels were largely stable in recent weeks, and demand for labour was generally muted across Districts and sectors.
• EUR benefited from the weaker dollar and with EU Industrial Production surpassing estimates.
• GBP outperformed and briefly returned to the 1.3400 handle ahead of monthly GDP and output data, while it was reported that Chancellor Reeves said higher taxes on the wealthy "will be part of the story".
• JPY strengthened amid the softer buck and choppy mood in stocks, while on the political front, Japanese LDP leader Takaichi asked Innovation Party leaders for their support in a premiership vote and coalition, with talks to start from Thursday.

FIXED INCOME

• T-notes saw two-way trade in which the upside overnight and into the morning faded during the US session as participants digested data and commentary from the government and Fed officials.

COMMODITIES

• Oil prices were ultimately flat with demand constrained amid US/China tensions, oversupply of oil concerns and easing geopolitical risk premium.
• EIA said US homes using electricity as a primary heating source are set to rise this winter while heating oil use falls.
• Russian Deputy PM Novak said Russia can help to restore Syria and is ready to tap oil reserves in Syria.

GEOPOLITICAL

MIDDLE EAST

• US President Trump said Israeli forces could resume fighting in Gaza as soon as he gives the word if Hamas won't uphold the ceasefire deal, according to CNN.
• Israel's Defence Minister instructs military to prepare comprehensive plans to 'defeat Hamas' in Gaza if war is renewed.
• Israeli media quoted a security source stating that Hamas is aware of the whereabouts of the bodies of other hostages and if Israel deems that Hamas is not releasing additional bodies, Israel will consider its steps, according to Sky News Arabia.
• Hamas armed wing said it has handed over all hostages and bodies it was able to recover so far, while the remaining bodies need efforts and special equipment to recover. Furthermore, it stated that it is committed to what was agreed upon in the ceasefire deal.

RUSSIA-UKRAINE

• US Defence Secretary Hegseth said "if there is no path for peace, then the US will impose costs on Russia", and the Ukraine war did not begin on Trump's watch but will end on his.
• UK Chancellor Reeves announced targeted sanctions against Russia's Lukoil and Rosneft.
• German Defence Minister Pistorius said Germany will finance a USD 500mln package on US arms for Ukraine under the Purl program. It was also reported that Germany is negotiating with Turkey over potential deliveries of Eurofighter jets, in the context of NATO.
• NATO's chief Mark Rutte said NATO will implement numerous counter-drone measures to build up, expand and accelerate NATO's ability to counter drones.

ASIA-PAC

NOTABLE HEADLINES

• China's central bank publication stated they plan to increase financial support for growing consumption and guide financial institutions to innovate products and services to boost financial support for consumption, while it plans to increase loan support for business entities in the consumer industry.
• China's state planner issued action plan for developing EV charging infrastructure, aiming to establish 28mln charging facilities nationwide by end-2027, while the initiative targets meeting charging demand for over 80mln electric vehicles.
• China's NPC Standing Committee is to hold a meeting from October 24th-28th.
• Japan's LDP leader Takaichi asked Innovation Party leaders for their support in a premiership vote and coalition, while talks will start from Thursday. It was also reported that Innovation Party leader Yoshimura will vote for LDP's Takaichi in the premiership vote if the two parties agree on policy talks, while he will respond to LDP leader and her proposals by next Monday.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Reeves said higher taxes on the wealthy "will be part of the story" at the upcoming budget, while the Chancellor told the Guardian there “won’t be a return to austerity” and hinted at tax increases for the most well off.
• German Chancellor Merz aims to slash red tape on banks to boost the economy, according to Reuters.
• ECB's Nagel said the German economy is improving.
• ECB's Villeroy said the global economy is surprisingly resilient, while Villeroy also commented that France can’t afford to fixate on short-term fiscal challenges and must find credible solutions for reducing its deficit.

DATA RECAP

• EU Industrial Production MM (Aug) -1.2% vs. Exp. -1.6% (Prev. 0.3%)
• EU Industrial Production YY (Aug) 1.1% vs. Exp. -0.2% (Prev. 1.8%)