• European equities remain downbeat but have nursed some losses throughout a relatively quiet European session thus far
• US President Trump said he supports something like a plan for coronavirus relief proposed by the bipartisan group, adding “we are getting closer to a deal on coronavirus relief”
• BoJ left policy unchanged as expected but revised their economic assessment higher; Brazil’s selic rate was also U/C
• FX sees the DXY modestly downbeat but has been choppy throughout the morning with major peers well within ranges
• Looking ahead, highlights include BoE & SARB policy announcements, US building permits, weekly jobs, ECB's de Guindos

CORONAVIRUS UPDATE

US COVID cases +34,240 (prev. +34,597) and deaths +961 (prev. +387), while a major newswire tally stated that US cases increased by at least 39,332 to a total of 6.65mln and deaths rose at least 1,147 to a total of 196.9k. (Newswires)

US President Trump said he thinks the distribution of a vaccine could begin in October or a little bit later and that the US could distribute at least 100mln doses by year-end, while he thinks CDC's Redfield made a mistake when he stated that the vaccine would not be widely available till next summer and commented that one person on the White House staff tested positive for COVID-19. (Newswires)

Eli Lilly (LLY) announced proof of concept data for neutralizing antibody LY-COV555 in COVID-19 outpatient setting, while it added that LY-COV555 was well tolerated across all doses with no serious adverse events reported. Furthermore, the primary endpoint of viral load change from baseline at day 11, was met by one of three doses and it intends to publish results of interim analysis in peer-reviewed journal, as well as discuss appropriate next steps with global regulators. (Newswires)

ASIA

Asian equity markets traded subdued as the soured mood rolled over into the region following the uninspiring finish on Wall St where the major indices whipsawed post-FOMC. At the meeting, the Fed kept rates at 0.00%-0.25% as expected, left its asset purchase schedule and median FFR dot plot forecasts unchanged, while it guided that it expects to maintain an accommodative stance of monetary policy until its goals of maximum employment and inflation at the rate of 2% over the longer run are achieved, which initially boosted risk appetite on the prospects that rates are to remain low for the years ahead. However, stocks then faltered during Fed Chair Powell’s press conference, where despite there being no specific trigger headline, he did suggest the pace of the recovery would slow and that the lack of fiscal aid will eventually hurt the economy, while the dot plots had earlier showed that some policymakers viewed a lift off in 2022 and 2023. As such, ASX 200 (-1.2%) and Nikkei 225 (-0.7%) were weaker as tech stocks succumbed to the underperformance of the sector stateside and with Tokyo trade lacklustre due to adverse currency effects, as well as tentativeness amid the BoJ policy announcement which failed to spark off any major fireworks as the central bank kept policy settings unchanged and although it upped its assessment of the economy, exports and output, this was widely anticipated. Hang Seng (-1.6%) and Shanghai Comp. (-0.4%) were also negative after the PBoC drained liquidity from the interbank market and as participants await TikTok’s fate with President Trump to review the deal on Thursday morning but noted that he doesn't like that the US part of TikTok would not be sold to Oracle, while reports had also suggested that the proposal did not address US government security concerns. Finally, 10yr JGBs were flat with price action stuck once again at the 152.00 focal point and with a non-committal tone seen after the BoJ policy announcement proved to be a damp squib.

PBoC injected CNY 110bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 30bln. (Newswires) PBoC sets USD/CNY mid-point at 6.7675 vs. Exp. 6.7668 (Prev. 6.7825)

US President Trump said the TikTok deal needs to be 100% as it relates to national security and that he will review  the report regarding TikTok on Thursday morning, while he doesn't like that the US part of TikTok would not be sold to Oracle and was told there is no legal path to ensure money from deal goes to US government. (Newswires)

Oracle (ORCL) would handle all TikTok user data and would oversee TikTok US technical operation, while it could check source code to disable back doors under the proposal, according to sources. Furthermore, sources added that the board of directors would be approved by US government and ByteDance would still have visibility into TikTok's algorithm. Subsequently, ByteDance says they are discussing a cooperation plan with some Co's to address US Gov't concerns on the security of US data; would not involve the sale of business & technology, final deal not signed, according to the Global Times. (Newswires)

BoJ kept monetary policy settings unchanged as expected with rates held at -0.1% and QQE with Yield Curve Control maintained to flexibly target 10yr JGB yields at around 0%, while it maintained its forward guidance and the decision on YCC was made by 8-1 vote as Kataoka dissented as usual. BoJ revised higher its assessment on Japan’s economy, exports and output in which it stated that Japan’s economy remains in a severe state but appears to pick up and that both exports and output are picking up. Furthermore, it stated that the economy is expected to improve as a trend due to easy monetary conditions and the effect of government stimulus measures but noted that CPI is likely to hover in negative territory for the time-being. (Newswires)

US

US President Trump said he supports something like a plan for coronavirus relief proposed by the bipartisan group, adding “we are getting closer to a deal on coronavirus relief”. (Newswires)

US President Trump's administration is considering at least USD 300mln cash aid to oil refiners that are denied 2019 biofuel waivers, according to sources. (Newswires)

UK/EU

UK PM Johnson agreed to compromise on Internal Market Bill, according to a Business Insider journalist who added that it is worth remembering that as far as the EU is concerned, even with these amendments, the bill still breaks international law. (Business Insider)

In Brexit talks, the EU has touted the option of instating different fishing rights around the Channel Islands to those around the UK in a move that would grant more access to French and Dutch vessels. UK government sources have insisted that they wish to retain control of waters around the islands. (Telegraph) Subsequently, EU Chief Brexit negotiator Barnier told EU27 ambassadors that the coming days will be decisive and hopes that a trade deal with the UK will be possible, UK move on fisheries is a glimmer of hope but not enough yet. (Newswires)

US Secretary of State Pompeo said talks on a bilateral trade agreement between the UK and the US were on track for "successful conclusion before too long". (FT) US Democratic Presidential Candidate Biden stressed that any trade deal between US and UK must be contingent upon respect of the Good Friday Agreement and preventing the return of a hard border. (Newswires)

ECB Governing Council has decided that it concurs with ECB Banking supervision that there are ‘exceptional circumstances’ allowing the temporary exclusion of certain central bank exposures from the leverage ratio. (ECB)

EU HICP Final YY (Aug) -0.2% vs. Exp. -0.2% (Prev. -0.2%)

-        HICP-X F&E Final YY (Aug) 0.6% vs. Exp. 0.6% (Prev. 0.6%)

-        HICP-X F&E Final YY (Aug) 0.6% vs. Exp. 0.6% (Prev. 0.6%)

EQUITIES

Stocks in Europe remain in negative territory but have nursed some losses since the cash open (Euro Stoxx 50 -0.8%), in a continuation of the post-Fed global stocks slide. European bourses see broad-based losses with Italy’s FTSE MIB (-1.2%) modestly underperforming given its exposure to banks – with the sector weighed among the laggards, whilst Telecom Italia (-2.5%) resides at the foot of the Italian index after the EU regulator said it is likely to oppose Italy's plan to create a single national broadband network. Back to sectors, material names are also pressured amid the USD-induced slide in base metal prices, subsequently cushioning losses for the industrial sector. In terms of individual movers, LSE (-1%) shares trade lower as Deutsche Boerse (-0.6%) and Six gear up to submit their bids for LSE’s Borsa Italiana, with reports stating that the exchanges reportedly launched a charm offensive to win the backing of Italian officials. Richemont (-1.6%) and Swatch (-0.9%) are pressured amid another MM contraction in Swiss watch exports; separately, European auto names see broad losses after dismal EU new car registration figures. On the flip side, Next (+6.1%) is among the top gainers in the region post-earnings after raising guidance, after which the CEO suggested profit would be resilient in the event of another national lockdown.

FX

JPY/DXY - The Yen is back in the ascendency after conceding ground to the Dollar in wake of Fed and BoJ policy meetings, with Usd/Jpy briefly back above 105.00 before reversing to fresh September lows around 104.70. In truth, there was little new or unexpected from either Central Bank, but the former did upgrade its 2020 outlook and another tech-related retreat in US stocks exacerbated the broad Buck bounce that boosted the index beyond 93.500 at one stage. However, the DXY is already fading fast within a 93.614-93.140 range and the Yen has reclaimed safe-haven status following the Nikkei’s overnight decline and a degree of re-flattening along the Treasury curve. At this stage, hefty option expiry interest at the 105.00 strike (1.9 bn) may be losing influence, but could yet come back into play pending US housing data, IJC and the Philly Fed survey.

CAD/NZD/GBP - All unwinding more of their pre-FOMC gains relative to the Greenback, as the Loonie extended its post-Canadian CPI downturn towards 1.3250, the Kiwi briefly relinquished 0.6700+ status in wake of Q2 NZ GDP confirming a technical recession, albeit not quite as contractionary as expected and Sterling failed to sustain momentum through 1.3000 in the run up to the BoE at midday (full preview of the event available via the Research Suite).

CHF/AUD/EUR - Not much to be gleaned from Swiss trade that revealed a moderately wider surplus, but the Franc is trying to pare losses below 0.9100 against US Dollar and the Aussie is revisiting 0.7300 after holding just above 0.7250 and 1 bn expiries between 0.7240-35, with some underlying support via a significantly better than forecast jobs report. Elsewhere, the Euro has retested 1.1800+ from sub-1.1750 lows, but looking hampered by decent expiry interest at the round number and from 1.1845 to 1.1855 in 1 bn and 1.5 bn respectively, with little independent impetus from final Eurozone inflation data or ECB commentary.

SCANDI/EM - Bearish risk sentiment and a pull-back in oil prices are weighing on the Sek and Nok, but the Try and Rub are also feeling increased investor angst over diplomatic issues as the Lira slides to new all time lows beneath 7.5000 and the Rouble is back under 75.0000. Similarly, the Zar is on the backfoot pre-SARB and Brl look set for corrective losses even though the BcB held the Selic rate at 2% as widely anticipated.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1700 (501M), 1.1750-55 (400M), 1.1775 (531M), 1.1800 (1BLN), 1.1845-55 (1.5BLN), 1.1860-65 (600M), 1.1875 (1BLN), 1.1890-1.1900 (1.6BLN)

-        AUD/USD: 0.7235-40 (1BLN), 0.7325 (225M)

-        USD/JPY: 105.00 (1.9BLN), 105.10 (500M), 105.25 (355M), 105.35-40 (1BLN), 105.45-55 (2.1BLN), 106.00 (2BLN)

Australian Employment Change (Aug) 111.0k vs. Exp. -50.0k (Prev. 114.7k) Australian Unemployment Rate (Aug) 6.8% vs. Exp. 7.7% (Prev. 7.5%) Australian Participation Rate (Aug) 64.8% vs. Exp. 64.7% (Prev. 64.7%)

New Zealand GDP (Q2) Q/Q -12.2% vs. Exp. -12.8% (Prev. -1.6%, Rev. -1.4%) New Zealand GDP (Q2) Y/Y -12.4% vs. Exp. -13.3% (Prev. -0.2%, Rev. -0.1%) New Zealand GDP Annual Average (Q2) -2.0% vs. Exp. -2.3% (Prev. 1.5%)

Brazil Central Bank maintained the Selic rate at 2.00% as expected, through unanimous decision and said it does not intend to reduce monetary stimulus until inflation expectations are sufficiently close to target over the policy horizon. (Newswires)

FIXED INCOME

The price action and contrasting moves match, if not the precise timing, so it seems fair to suggest that bonds have backed off due to the recovery in stocks rather than anything compelling from the Fed or BoJ, data or other extraneous factor. However, for French OATs and Spanish Bonos, supply could be an issue given multi-tranche auctions to take down and German Bunds will have taken heed of the Eur 100 bn new debt that will need financing next year as the latter retreated to 173.74 from 174.21 at best, Gilts tested the water beneath 136.00 at 135.95 vs 136.36 at one stage and the 10 year T-note slipped to 139-11+ compared to 139-18 at the overnight session high. Next up, the BoE before US housing data, weekly and continuing claimant counts, the Philly Fed, details of next week’s 2, 5 and 7 year sales and the Usd 12 bn 10 year TIPS offering.

German Finance Minister Scholz is planning new debt of close to EUR 100bln in 2021 budget, according to sources. (Newswires)

COMMODITIES

WTI and Brent front month futures are attempting to nurse overnight losses which were induced by the sentiment deterioration post-Fed, alongside a firmer Dollar heading into today’s JMMC meeting due to commence at 1300BST/0800ET. In terms of the findings from yesterday’s JTC meeting, the OPEC+ panel sees initial signs of a decline in oil inventories and noted that the increase in COVID-19 cases may weigh on economic recovery and oil demand – comments that are in-line with the OPEC MOMR which stated that risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines. JMMC focus will fall on any commentary surrounding the recent oil price decline and demand outlook alongside compliance. Separately, in the Gulf of Mexico, Sally has weakened to a tropical storm but is still producing torrential rains, according to the NHC WTI Oct meanders around USD 40/bbl (vs. low 39.42/bbl) while its Brent counterpart hovers around USD 42.00/bbl (vs. low 41.50/bbl). Elsewhere, precious metals remain subdued by the USD in the aftermath of the FOMC, with spot gold flatlined throughout the European morning sub-USD 1950/oz (vs. overnight high 1960/oz), whilst spot silver surrendered its USD 27/oz status. In terms of base metals, LME copper also succumbs to the Dollar strength and broader losses in the stock markets, whilst Dalian iron ore futures dipped to the lowest level in over six weeks amid the USD’s movements and the growing prospect for further supply improvements, whilst steel demand in China was not as strong as some had expected.

OPEC+ panel sees initial signs of a decline in oil inventories; increase in COVID-19 cases may weigh on economic recovery and oil demand, according to documents; concerned about the rise in cumulative compensation oil output which was 2.8mln BPD August; UAE produced 182k BPD above oil output quota in August, JTC document. (Newswires)

Israel is to reportedly propose the construction of a Saudi-Israel land pipeline for oil and distillates to then export to Europe. Sources state that there have been high level meetings on the matter. Such a plan would be "cheaper and safer for the Gulf states by bypassing dangerous sea routes and the costly Suez Canal." (Globes)

GEOPOLITICAL

Reports that the US government confirmed it will sell USD 7bln of arms to Taiwan including cruise missiles and drones, while 2 Chinese PLA aircrafts were warned off after entering Taiwan's air defence identification zone, ahead of the US official's visit to Taiwan. (Newswires/SCMP) Additionally, China's Foreign Ministry says they firmly oppose any form of official interaction between the US and Taiwan adding the US's visit will embolden Taiwan pro-independence forces. (Newswires)