• Asian equity markets were lower across the board amid strong headwinds from Wall St where the tech rout intensified on return from the long weekend
• AstraZeneca’s COVID-19 vaccine trial with the University of Oxford has reportedly been placed on hold due to an adverse reaction in a UK participant
• Senior UK Sky News sources believe UK Chief Brexit Negotiator Frost has concluded that a deal with the EU is not achievable without fundamentally compromising UK red lines
• In FX markets, DXY heads into the EU open sub-93.50 whilst EUR/USD and GBP/USD trade on 1.17 and 1.29 handles respectively
• US Senate Republicans are to propose USD 300bln in new COVID aid; Democrats have vowed to block the bill
• Looking ahead, highlights include US JOLTS, BoC Interest Rate Decision, supply from Germany and US 

CORONAVIRUS UPDATE

US COVID-19 cases +26,146 (prev.+34,337) and deaths +175 (prev. +462), while a major newswire tally stated US cases increased by at least 26,452 to a total of 6.34mln and deaths rose by at least 454 to a total of 189.7k. New York COVID cases +557 (prev. +520) and deaths +5 (prev. +2), Texas cases +1,421 (prev. +2,060) and deaths +61 (prev. +20), while a major newswire tally stated California cases increased by at least 3,988 on Tuesday and deaths rose by at least 78. (Newswires)

UK PM Johnson is to announce a ban on social gatherings of more than 6 people as coronavirus cases increase which will apply to whole of England from September 14th, while Ministers are reportedly considering a national curfew to combat virus spread. (Telegraph)

AstraZeneca (AZN LN) vaccine trials with the University of Oxford have reportedly been placed on hold due to an adverse reaction in a UK participant. Furthermore, the Co. later confirmed it voluntarily paused vaccinations to allow a safety review by an independent committee which is a routine action when there is a potentially unexplained illness in one of the trials, while it added it is working to expedite review. (Newswires)

NIH Fauci said Moderna and Pfizer/BioNTech COVID vaccine trials are expected to be enrolled by the end of September and allow another 1-1.5 months for a second dose, while he added It’s unlikely we’ll have a definitive answer by November 3rd and that it is more likely to be the end of the year. (Newswires)

Fujifilm Holdings (4901 JT) will triple output capacity of key COVID-19 19 vaccine substance at Texas facility from as soon as beginning of 2021. (Newswires)

ASIA

Asian equity markets were lower across the board amid strong headwinds from Wall St where the tech rout intensified on return from the long weekend and the Nasdaq slipped into correction territory with Tesla shares crashing over 21% following the S&P 500 snub, while recent hefty losses in the energy complex and AstraZeneca's vaccine trial halt due to an adverse reaction, added to the dejected mood and resulted in around a 10% drop in shares of its Indian listed subsidiary. ASX 200 (-2.4%) underperformed on a retreat from the 6,000 level with all sectors in negative territory and the substantial declines led by energy, tech and financials. Nikkei 225 (-1.2%) fell below 23,000 as exporters suffered the brunt of a firmer currency and as SoftBank continued its slump following the recent publicity regarding its large tech bets and amid news its Chief Compliance Officer has exited the Co. Hang Seng (-1.1%) and Shanghai Comp. (-1.1%) conformed to the widespread negative mood due to the tech rout and as tensions persisted with the US penalising Chinese companies accused of using forced labour in which it withheld orders for 3 companies, as well as threatened action on several others, while it was also reported that China is to sanction senior US officials that visit Taiwan and the American companies they have ties with. Finally, 10yr JGBs were higher following the bull flattening in US and with prices supported by the broad risk aversion, but with upside limited by resistance at the 152.00 level and amid the lack of BoJ buying in the market today. 

PBoC injected CNY 120bln via 7-day reverse repos at rate of 2.20% for a net daily injection of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.8423 vs. Exp. 6.8411 (Prev. 6.8364)

Chinese CPI (Aug) Y/Y 2.4% vs. Exp. 2.4% (Prev. 2.7%) Chinese PPI (Aug) Y/Y -2% vs. Exp. -2.0% (Prev. -2.4%)

US Treasury Secretary Mnuchin has not made his final recommendation to President Trump on who is the best suitor for TikTok, although people in the White House concede Microsoft (MSFT) is better equipped than Oracle (ORCL); FBN's Gasparino. (Twitter)

US is expected to increase its surveillance as China bolsters its naval exercises in the South China Sea, according to Chinese press reports. Later reports noted that a series of US spy planes have been detected around China’s coast. Another surveillance aircraft was seen near a no-entry zone in the East China Sea, where the latest drill began on Tuesday. (SCMP) In related news, China's Global Times tweeted comments from former vice chairman of the Straits Exchange Foundation that there are chances the Taiwan Straits will become tipping point of US-China military conflict, especially if President Trump stages an "October surprise" such as some type of armed conflict to arouse US patriotism. (Twitter)

UK/EU

Senior UK sources believe UK Chief Brexit Negotiator Frost has concluded that a deal with the EU is not achievable without fundamentally compromising UK red lines, although key Cabinet members Gove, Raab and Sunak are opposed, according to Eurasia group. (Sky News)

Senior Democrats have warned an attempt by the UK to backtrack on the Brexit agreement could threaten a future UK/US FTA and relations if Biden wins the 2020 US election. (Guardian)

FX

The DXY held on to the prior days’ gains to trade around the 93.50 level after the risk averse tone triggered flows into the hard currency. However, the USD momentum has since lost steam overnight as US equity futures rebounded off their lows and amid doubts regarding the GOP’s “skinny bill” valued around USD 300bln which Senate Majority Leader McConnell expects a procedural vote on this week, as Democrats have vowed to block the bill and had previously rejected a larger proposal of USD 500bln. Elsewhere, most major currencies were lacklustre with EUR/USD subdued after the recent breakdown of support at the 1.1780 level with the single currency pressured by a firmer greenback, while GBP/USD tested 1.2950 to the downside following recent underperformance due to heightened concerns of a no-deal Brexit and with senior UK sources believing that UK Chief Brexit Negotiator Frost has concluded a deal with the EU is not achievable without fundamentally compromising UK red lines, although Cabinet members Gove, Raab and Sunak are all opposed to this view. Elsewhere, USD/JPY was flat below 106.00 as haven flows into JPY just about upstaged the USD strength, and antipodeans attempted to nurse losses with AUD/USD and NZD/USD bouncing off support at 0.7200 and 0.6600 respectively, which coincided with a slightly firmer PBoC reference rate and inline Chinese inflation data.

Australian Westpac Consumer Sentiment Index (Sep) 93.8 (Prev. 79.5); M/M 18% (Prev. -9.5%). (Newswires)

New Zealand ANZ Business Confidence (Sep) -26.0 (Prev. -41.8). (Newswires) New Zealand ANZ Activity Outlook (Sep) -9.9 (Prev. -17.5)

COMMODITIES

WTI crude futures extended on the slump seen in the prior session where prices fell over 7% due to the risk-averse tone. This subsequently saw WTI drop firmly beneath USD 37/bbl and Brent crude futures also gave up the USD 40/bbl status, while focus now shifts to the latest holiday-delayed stockpile number beginning with the private sector inventory report later today. Elsewhere, gold prices were rangebound as support from haven demand was offset as the greenback held on to recent gains, while copper nursed some of yesterday’s losses after rebounding from support near the USD 3.0/lb.

US President Trump is set to endorse an extended ban on offshore oil development off Florida's western coast. There were also reports that President Trump is to reject retroactive small refinery waivers regarding US biofuel blending regulations and the administration could announce the denial of the waivers as early as this week, according to sources. (Newswires)

US is reportedly sending impounded Iranian fuel to Texas in two tankers, with the first tanker expected to arrive in Galveston on September 9th and the second in Houston next week, according to sources. (Newswires)

GEOPOLITICAL

US President Trump will announce further troop withdrawals from Iraq today and a further drawdown from Afghanistan in approaching days. (Newswires)

US Secretary of State Pompeo said he is deeply troubled by reports of abduction and forced expulsion of opposition leaders in Belarus and that the US is considering additional sanctions. (Twitter)

US Chair and Ranking Republican of House Foreign Affairs Committee has called for an investigation into Russia over the poisoning of Russia Opposition Leader Navalny. (Newswires)

US

Treasuries bull-flattened as the risk tone continued to sour amid a tech-led equity sell-off, although heavy supply likely capped the move. By settlement, 2s -1bps at 14bps, 3s -1.5bps at 17bps, 10s -4bps at 68.5bps, 30s -5bps at 142bps; TYZ0 volumes were decent after the long weekend and many returning from summer stay/vacations. The bid for bonds had already begun in European trade and into the US session as the souring risk tone developed overnight, led by the likes of Tesla after paring recent parabolic strength. Japanese real money accounts were also said to be behind the bid overnight as they bit into the post-NFP rate back-up, while the latter session saw hedge funds/CTAs pare back some of their recent shorts. The tops in USTs were seen not long after the equity open as the heavy corporate supply pipeline came into the fray, with over a dozen IG issuers in the dollar market today (collectively issuing circa USD 20bln), in addition to this week’s chunky Treasury mini-refunding. This week’s auctions were kicked off yesterday in the 3-year maturity which went rather lacklustre, but not disastrous, tailing the 0.166% WI by 0.4bps, with a slightly firmer than average Dealer participation rate (36.29% vs 35.4%), due to disappointing Indirect participation. Looking ahead, Wednesday and Thursday’s 10- and 30-year auction will be pinnacle after last month’s duration rejection, a busy corporate issuance slate post-summer will only add to the thrills. T-Note (z0) futures settled 11+ ticks higher at 139-12+.

US Senate Republicans are to propose USD 300bln in new COVID aid that contains USD 10bln for US Postal Service, according to senate sources. Furthermore, US Congressional Aides stated the Senate GOP COVID spending proposal is not expected to include assistance for US airlines or airports, while FBN's Gasparino tweeted that Republican sources expect a vote on the "skinny bill" COVID relief package on Thursday. (Newswires/Fox News) Senate Republicans also proposed cutting USD 200bln in government funding for future emergency lending by the Fed. If approved, this would shrink money available for the Federal Reserve to provide credit in specific parts of the economy. (FT) US Senate Minority Leader Schumer and House Speaker Pelosi said the COVID-19 bill contains a poison pill provision that democrats would not support, and that Senate GOP's seem set on bill that doesn't come close to addressing the problems and is heading nowhere. (Newswires)