Global

U.S., Europe Step up Efforts on Trade Deal with New Offers. The United States and the European Union promised to cut tariffs on almost all types of imported goods in a bid to wrap up a free trade pact by the end of 2016, negotiators for the two parties said on Friday. Chief EU negotiator Ignacio Garcia-Bercero said the new offers exchanged this week would eliminate duties on 97% of tariff lines - a lot more than Washington had first offered, but only a slight increase on Brussels' initial proposal. Negotiators declined to specify which goods were excluded from the new offers, but EU officials have said agriculture is one sensitive area where protections would remain. (Reuters)

Malaysia

Inflation Falls to 2.6% in September on Cheaper Fuel. Consumer price inflation of 2.6% YoY in September was lower than the consensus estimate of 2.9% but only just above the house estimate of 2.5%. Compared to the previous two months, inflation was significantly lower due to falling transport costs (down 3.8% YoY) as government-regulated prices for petrol and diesel were cut for the second month in a row in September. Inflation in the Food & Non-Alcoholic Beverages category, the largest component of the Consumer Price Index (CPI) at nearly a third, continued to increase in September to a 21-month high of 4.3% YoY. (See Economic Viewpoint: Malaysia Consumer Price Index)

Malaysia's Fiscal Consolidation Trend Will Remain Intact This Year - Moody’s. Malaysia's fiscal consolidation trend will remain intact this year due to the implementation of the GST and the reduction of energy subsidies, according to Moodys’ Investors Service. In a pre-budget commentary on Malaysia, Moody’s said the key question regarding the positive outlook on Moody's A3 rating is whether Malaysia's government can muster the political will to sustain the trend of fiscal consolidation that it initiated in 2010. Moody’s however said given expected pressures on revenues next year due to low oil prices, it is unclear whether the government will cut spending to a sufficient degree to maintain that trend. (The Edge)

Government Keeps to Plans, So No Impact on Ratings – S&P. Standard & Poor’s Ratings Services (S&P) said the proposed budget does not affect Malaysia’s ratings as the government has kept to its fiscal consolidation plans. “The sovereign credit ratings and outlook on Malaysia are not affected,” it said in a statement last Friday. S&P also noted that the budget – which targets a deficit of 3.1% of GDP for 2016, down from 3.2% in 2015 and 3.5% in 2014 – is in line with its expectation of a gradual fiscal consolidation over the medium term. “Malaysia’s successful implementation of the GST has acted as a buffer against a drastic decline in the country’s energy-related fiscal revenues,” it added. (The Sun Daily)

Khazanah to Intensify Transformational Investment in Malaysian Economy. Khazanah Nasional Bhd and its companies will support the fiscal efforts announced in the Budget 2016 by intensifying the execution of catalytic and transformational investments in the Malaysian economy, its Managing Director Tan Sri Azman Mokhtar said. These investments include the RM6.77 billion worth of nine high economic multiplier projects, and the RM500 million venture and private equity investments for domestic sectors. In a statement, Azman said given the challenging external and domestic conditions, a tough balancing act had been addressed, through proactive budgetary and redistribution measures. (Bernama)

Government Maintaining Long-Term Target of Achieving Balanced Budget. The government is maintaining its long-term target of achieving a balanced budget by 2020 with its commitment towards fiscal consolidation. Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar said the government was able to reduce the fiscal deficit to 3.2% in 2015 and will further narrow it to 3.1% next year. Asked if the current oil prices are a concern to government revenue, he said the revenue base has been broadened with GST. He added that the impact of low oil and other commodity prices had resulted in the necessary adjustments by the government. (Bernama)

Country Will Continue to Attract Direct Investments Despite Challenges. Despite prevailing economic challenges, Malaysia will be able to attract much needed direct investments into the country given its strong economic fundamentals. International Trade and Industry Minister Datuk Seri Mustapa Mohamed said Malaysia continued to receive new investments while existing investors undertook expansion of their existing projects and even diversified their operations in the country. "A total of 453 manufacturing projects were approved with investments worth RM53.5 billion against investments of RM51.8 billion approved in the same period last year," he said. (Bernama)

Asia

China Cuts Interest Rates as Policy Divergence with U.S. Widens. China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S. The one-year lending rate will be cut to 4.35% from 4.6% effective Saturday, the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5% from 1.75%. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions. (Bloomberg)

BOJ Easing Alone Not Enough to Reach Inflation Target - Aso. Monetary policy alone isn’t enough for inflation to reach the Bank of Japan’s target of 2%, according to Japan’s finance minister. “Prices aren’t rising in Japan not because of a lack of money, but because of a lack of demand,” Japanese Finance Minister Taro Aso said on Friday. “The economy is fine, but looking at inflation, the effect of a halving of oil prices has been pretty huge. Aso said last week that it was unlikely the central bank would expand easing now. He said Friday that any decision on monetary policy, and whether to expand monetary stimulus, should be left to Kuroda and the bank. (Bloomberg)

S&P Says Japan Needs to Raise Tax Revenue with Sales Tax Hike. Japan needs to use a planned increase in its sales tax to boost government revenue and lower its outstanding debt burden, ratings agency Standard & Poor's said on Friday. Exempting some food items from a tax increase scheduled in 2017 could prove a positive step by making it easier for voters to accept higher taxes, KimEng Tan, S&P's Asia-Pacific senior director of sovereign ratings, said in an interview. "The important thing is the sales tax must bring in revenue to bring down debt level," Tan said. Japan's government plans to raise the nationwide sales tax to 10% from 8% in 2017 to pay for rising welfare spending. (Reuters)

Singapore September CPI Falls 0.6% on Year; Matching Poll. Singapore September CPI Falls 0.6% on Year; Matching Poll. Singapore's consumer prices fell as expected in September amid a continued decline in transportation, housing and utilities costs. The consumer price index fell 0.6% YoY in September, matching the median estimate in a poll of five analysts. The cost of transportation declined 2.2% in September from the previous year, while housing and utilities costs were down 3.6%. Food prices rose 1.8%, the data showed. The CPI fell 0.5% in the first nine months compared with a year ago, the data showed. The September decline marks the 11th consecutive month of contraction in the index. (Dow Jones)

China Can Grow 6-7% for Next Three-Five Years - PBOC Vice Governor. China would be able to sustain economic growth of around 6-7% in the next three to five years, Yi Gang, vice governor of the People's Bank of China, said on Saturday. The comments came the day after China's central bank cut interest rates for the sixth time in less than a year. The vice governor said the PBOC planned to keep interest rates at a reasonable level to reduce the corporate debt burden, and noted that interest rate liberalization does not mean that the central bank would reduce regulation of rates. (Reuters)

China's Central Bank Says Rate Cut Will Lower Social Financing Costs. China's central bank on Friday cut interest rates and lowered the amount of cash banks must hold as reserves. A Q&A document released by the People's Bank of China said the rate cut was in line with the economic situation and would further lower social financing costs to support the real economy. The central bank also said China's inflation stayed on a lower level overall, leaving some room for a rate cut. The reduction in the reserve requirement ratio for banks was a preemptive move to support liquidity in the banking industry, the PBOC said. The targeted RRR cut aimed at better supporting the rural sector and small businesses. (Reuters)

China Home Prices Rise for Fifth Month in September. Home prices in China rose for a fifth consecutive month in September, suggesting a mild recovery in the housing market that will relieve some pressure on the struggling economy. Average new home prices inched up 0.3% in September from August, according to calculations based on data released by the National Statistics Bureau (NBS) on Friday. That matched the pace in August. MoM price gains were recorded in 39 of the 70 cities surveyed, up from 35 in August. New construction rose 15.3% in September from the same period a year ago, calculations based on official data showed. (Reuters)

Americas

Markit October Flash Manufacturing PMI Unexpectedly Rebounds. U.S. manufacturing activity in October unexpectedly bounced to a five-month high, signaling possible improvement in a sector under pressure from a strong dollar and weaker global demand. The U.S. flash PMI rose to 54.0, up from 53.1 in September. In September, the index sat near a two-year low. Economists surveyed expected a decline to 52.3. The latest reading points to the fastest upturn in business conditions since May, according to Markit. The report's employment gauge jumped to 52.9 from September's 50.8. Meanwhile, subindexes measuring output and new orders rose to their best levels since March. (Dow Jones)

Europe

German Manufacturing Takes a China Hit. German manufacturing grew the least in five months in October, reflecting a slowdown in emerging markets that’s threatening the global outlook. The latest PMI from Markit Economics showed a factory index fell to 51.6 from 52.3 in September. Economists had forecast a decline to 51.7. New orders grew at the slowest pace since July, with companies citing softer demand in markets including Russia and China. There was a more upbeat picture from services in the euro region’s largest economy, where the index of activity increased to a seven-month high. That helped lift a composite gauge of both sectors to 54.5 from 54.1. (Bloomberg)

French Economy Picks up as Services, Manufacturing Strengthen. French economic output picked up in October to the fastest in four months as growth in manufacturing and services accelerated. A composite index of both industries by Markit Economics rose to 52.3 from 51.9 in September. A gauge of services activity increased to 52.3 from 51.9, while a factory output measure jumped to a 19-month high. Nevertheless, Markit noted weakness in the labor market, with employment in manufacturing falling at the sharpest pace in 10 months. Economists in a survey forecast the French economy will grow 0.3% this quarter, matching the estimated pace for the three months through September. (Bloomberg)

Eurozone October Business Growth Surprisingly Strong - PMI. Eurozone business activity picked up more than expected in October as new work for services companies flooded in at the fastest rate since April, but there was still no sign of inflationary pressures, a survey showed. What will disappoint policymakers was the way companies cut prices again, after holding them steady in September. Markit's Composite Flash PMI came in at 54.0 this month, up from September's 53.6 and above even the most optimistic forecast in a poll, which predicted a dip to 53.4. The composite output price index dipped to 49.8 from last month's 50.0, but price cutting meant the new business index for services rose to a six-month high of 54.1 from 53.6. (Reuters)

Consumers Help U.K. Economy Withstand Shaky Global Backdrop. Britain’s economy is holding firm for now as domestic demand weathers a global slowdown that’s keeping central banks around the world on alert. Economists forecast that data next week will show expansion of 0.6% in the third quarter, close to the 0.7% pace reached in the previous three months. That would also mark an 11th straight quarter of growth. Consumer spending is providing support as Britons take advantage of stagnant prices and rising wages, though weak spots have emerged. Manufacturing has faltered and services growth was the slowest in more than two years in September. (Bloomberg)

UK Rate Rise Not a Certainty – Carney. An increase in Britain's rock-bottom interest rates is not guaranteed although households should prepare for higher borrowing costs, Bank of England Governor Mark Carney said in comments published on Saturday. "If events mean that does not happen and rate rises are not appropriate, then we will do the right thing and we will not adjust rates," Carney was quoted as saying. Carney said in the interview that the Bank expected that when rates do go up, the path would be "gentle". He also said the bank was "focused not on loosening monetary policy, but on raising interest rates and deciding the right time and place to do that." (Reuters)

Swiss Low Rates Could Last Decades, Financial Regulator Tells Newspaper. Switzerland's low interest rate environment could last years or possibly decades, the country's financial regulatory chief told a Swiss newspaper on Sunday. In December 2014, the Swiss National Bank introduced a negative deposit rate for the first time since the 1970s. "Such an environment is historically unique," he said. "The longer the phase lasts, the harder the exit will be once interest rates become attractive again." Switzerland's finance industry is generally well-equipped to absorb shocks, he said, citing the results of stress tests that the regulatory body performed with banks and insurance companies. (Reuters)

Currencies

Euro Hits Two-Month Low Vs Dollar as ECB Weighs. The euro on Friday continued its downward trend against the dollar following European Central Bank chief Mario Draghi's comments a day earlier that signaled further monetary easing could be on deck for the euro zone. Europe's common currency checked in below $1.10, hitting a low against the dollar not seen since early August, and was down 3.05% versus the greenback for the week. The euro also fell to a one-month low against the yen. The muted gains in China-linked currencies also reflected the U.S. dollar's strength through the day. The greenback was up 0.6% versus the yen at 121.40 yen. Dollar Index was up 0.8% at 97.172. (Reuters)

Commodities

Oil Down as Dollar Offsets China Move; Glut Hits Prompt U.S. Crude. Oil fell on Friday, erasing early gains as traders dismissed a rate cut by China to focus on a surging dollar and weaker spot prices for U.S. crude as a glut weighed on prompt supplies. Brent crude oil was down $0.21 at $47.87 a barrel by 1:27 p.m. EDT, after falling as much as $0.63 earlier. WTI was down $0.70, or 1.5%, at $44.68, after hitting a three-week low at $44.20. Both Brent and WTI have lost about 5% on the week, sliding for a second straight week. U.S. crude stockpiles have risen for four straight weeks amid reduced refining activity during the autumn maintenance season. (Reuters)

Gold Flat to Slightly Lower; Erases China-Fueled Gains. Gold was flat to slightly lower on Friday as the dollar soared to its highest level in more than two months and U.S. equities raced higher after China eased monetary policy for the sixth time in a year, reviving expectations of a U.S. rate hike. Spot gold eased 0.03% to $1,166.3 an ounce at 1905 GMT. U.S. gold futures settled down 0.3% at $1,162.8. Silver was up 0.32% at $15.90 an ounce, platinum dipped 0.85% to $1,007.20 per ounce and palladium gained 1.4% to $695.25 per ounce. (Reuters)