• Asian equity markets traded mixed and failed to take full impetus from the rebound across their global peers
• RBNZ kept OCR unchanged at 0.25% and maintained LSAP at NZD 100bln as expected
• Chinese military reportedly stepped up its anti-mine drills as Taiwan bolsters its sea defences to protect against an invasion
• In FX, DXY extended gains above 94.000, EUR/USD gave up 1.1700 and AUD/USD underperformed
• Looking ahead, highlights include German GfK. EZ, UK & US Flash PMIs, Fed's Powell, Kashkari, Mester, Quarles, Evans, Rosengren, Bostic & Daly, and supply from Germany & US

CORONAVIRUS UPDATE

US COVID Cases +39,345 (prev. +37,417) and deaths +438 (prev. +270), while California cases +2,630 (prev. +3,294) and deaths +53 (prev. +31). It was also reported that the New York City Health Department identified a new cluster of COVID-19 cases in Brooklyn which it stated was a cause for significant concern. (Newswires)

Fujifilm Holdings (4901 JT) said its Avigan drug met the primary endpoint in Phase 3 trials for coronavirus. (Newswires)

ASIA

Asian equity markets traded mixed and failed to take full impetus from the rebound across their global peers, with the region tentative amid ongoing US-China tensions and with Japan suffering post-holiday blues on return from the extended weekend. Nonetheless, ASX 200 (+2.1%) outperformed and is on track for its best day in seven weeks as tech names led the broad advances after they found inspiration from the resurgence of the sector stateside, with sentiment also buoyed by increasing calls for the RBA to cut rates at next month’s meeting after RBA Deputy Governor Debelle recently outlined policy options. Nikkei 225 (-0.4%) was subdued as it played catch up to the recent days’ weakness and with Panasonic shares pressured alongside fellow Tesla supplier LG Chem after the EV-maker’s Battery Day Event fell flat where Elon Musk announced plans for a reduction in costs and to manufacture its own batteries, while he also showcased the Model S Plaid which is to be available next year. Conversely, Fujifilm Holdings was at the other side of the spectrum after announcing its Avigan drug met the primary endpoint in Phase 3 COVID trials. Hang Seng (-0.2%) and Shanghai Comp. (Unch.) were indecisive as the continued PBoC liquidity efforts were offset by ongoing US-China tensions after US President Trump put China on blast for the spread of the coronavirus at the virtual UN meeting, while Beijing later criticized President Trump of spreading “political virus”. In addition, the uncertainty regarding the TikTok deal persists and the US House also overwhelmingly passed the forced labour bill which would ban imports from China’s Xinjiang region that were produced using forced labour. Finally, 10yr JGBs were higher amid the risk averse tone in Japan and with the BoJ also in the market for nearly JPY 1.3tln of JGBs in up to 10yr maturities, while it also offered to purchase 3yr-5yr corporate bonds.

PBoC injected CNY 100bln via 7-day reverse repos and CNY 100bln in 14-day reverse repos for a net daily injection of CNY 80bln, with the rate for the 7-day & 14-day reverse repos kept at 2.20% and 2.35%, respectively. (Newswires) PBoC set USD/CNY mid-point at 6.7986 vs. Exp. 6.7982 (Prev. 6.7872)

US House voted to pass the forced labour bill which would ban imports from Xinjiang made using forced labour. (SCMP)

NEC Director Kudlow said the US may have to take a closer look at Chinese Co.'s listed in the US, while he added that US President Trump is optimistic about TikTok, but it is not a done deal and talks are ongoing. (Newswires)

TikTok negotiators are reportedly looking to finish CFIUS talks by the end of the week, according to CNN. There were also reports the White House is re-evaluating the Oracle/TikTok deal after China hawks weighed in about the deal structure which continues to heavily involve ByteDance ownership and that China also appeared to have doubts about the American ownership, according to FBN’s Gasparino. (CNN/Fox Business News)

China's Global Times tweeted China is to protect its interests to send a clear message that no country could seize Chinese asset by force, even if that means TikTok could face a complete ban in the US, citing experts. Furthermore, Global Times also tweeted that Qualcomm (QCOM) may be next to be granted a license to supply Huawei after Intel (INTC) and AMD (AMD), citing analysts. (Twitter)

German Chancellor Merkel is reportedly holding out against a push for a ban of Huawei, leaving the door open to Huawei in Germany under new rules, according to officials. (Newswires)

UK/EU

UK Chancellor Sunak is reportedly mulling German-style wage subsidies to replace the furlough scheme as part of a wider package to support businesses through the second wave of the pandemic. (Telegraph)

ECB's Mersch said the pandemic programme flexibility must not apply to QE. Mersch also reiterated that the ECB does not target the exchange rate but will closely monitor it. (ECB)

FX

In FX markets, the DXY extended on the prior day’s strength above the 94.00 handle helped by the breakthrough in Congress where the House voted to pass the stopgap funding bill to avert a shutdown at the end of this month and fund the government through to December 11th, which now goes to the Senate. The strength in the greenback began during US trade with some attributing it to comments from Fed’s Evans that were taken out of context and suggested that the Fed could increase rates prior to reaching the inflation target, which was just an acknowledgement of the Fed’s flexibility regarding its average inflation target, although he said he was surprised the economy has been able to return to around 90% of pre-COVID levels and pushed back on the idea of open-ended QE as being the main policy solution. The deterioration of the pandemic situation across the Atlantic also worked in the Buck’s favour and saw EUR/USD give up the 1.1700 handle, while GBP/USD remained subdued amid tighter COVID-19 restrictions in the UK. USD/JPY reclaimed the 105.00 handle due to the USD-strength and antipodeans were weaker with AUD/USD pressured after Westpac forecast the RBA to cut rates by 15bps at next month’s meeting and NAB also recently noted there was a significant risk of such a cut, while NZD/USD found brief support after the RBNZ announcement to keep rates unchanged as expected and refrained from jawboning the currency, although the support was eventually faded as the central bank also stated that its Funding for Lending Programme would be ready for launch by year-end.

RBNZ kept OCR unchanged at 0.25% and maintained LSAP at NZD 100bln as expected, while it noted progress is being made on the Bank's ability to deploy additional instruments which include Funding for Lending Programme, negative OCR and purchases of foreign assets. Members also agreed that alternative instruments can be deployed independently and stated that the Funding for Lending Programme will be ready before year-end. Furthermore, it stated that commodity prices for exports remain robust but has partly been offset by the NZD exchange rate and reiterated that a lower OCR would be complementary to other policy tools. (Newswires)

COMMODITIES

Overnight, WTI crude futures languished around 39.50/bbl level amid the weak demand outlook brought on by the increased pandemic concerns and following the surprise build in the latest private inventory crude stockpiles. Elsewhere, spot gold prices were pressured and fell beneath USD 1900/oz on the weight of a firmer greenback and copper also deteriorated as the Asia-Pac region failed to sustain the upbeat momentum seen across global peers.

US Private Energy Inventories (w/e Sept. 18th): Crude +0.7mln vs. Exp. -2.3mln. (Newswires)

GEOPOLITICAL

French President Macron said the US cannot implement sanctions snapback mechanism on Iran because they left the 2015 nuclear deal, while he added that France, Germany and UK will not accept Iran's violations. (Newswires)

South Korean President Moon proposed to declare an end to the Korean War to open the door for “complete denuclearization and permanent peace”. (Yonhap)

Chinese military reportedly stepped up its anti-mine drills as Taiwan bolsters its sea defences to protect against an invasion. (SCMP)

US

Treasuries were choppy/little changed as the broader risk asset rout from Monday began to pare. By settlement, 2s unch. at 13.5bps, 10s, unch. at 67bps, and 30s -1bps at 142bps; T-Note future volumes were low. There was a slew of Fed speak again, although nothing particularly groundbreaking, with Powell sticking to the script in Congress, and Evans suggesting he is open-minded about further bond purchases but does not see open-ended QE as providing an important role; note, Evans’ views are often considered to hold less “sway” than some of the more central Fed figures such as Clarida, Brainard and Williams. Meanwhile, yields remained in tight ranges throughout the session, with one desk noting that dealers and hedge funds were sellers on bounces, with real money a buyer, although a pickup in corporate issuance (including USD 4bln from T-Mobile US) competed for demand, as issuers felt more confident after Monday’s sell-off. At the front-end, the US sold USD 52bln in 2-year notes, in what was a bit of a disappointing auction: 0.134% WI was tailed by 0.2bps; covered 2.42x (vs avg. 2.63x); dealers took slightly more than average as Directs/Indirects took less. Nonetheless, rates at the front-end remain in tight ranges regardless amid the Fed’s lower-for-longer stance. Wednesday’s 5-year note auction now looms. T-note (Z0) futures settled 2 ticks higher at 139-20.

US House passed the stopgap funding bill to avert a government shutdown as expected through votes of 359 vs. 57, which followed an announcement by House Speaker Pelosi's office that an agreement was reached on a Continuing Resolution with the GOP and US Treasury Secretary Mnuchin. (Newswires)

US Treasury Secretary Mnuchin said he does not believe we need additional congressional authorization to take additional risk but does need it to tap funds in certain other areas, while he added that he supports long-term loans for businesses like small hotels as part of additional SBA appropriations. (Newswires)

US President Trump said the announcement regarding pick for Supreme Court nomination is likely at 1700EDT on Saturday, while he stated that he has a pretty good idea regarding his choice for Supreme Court nominee but has not made a final decision. (Newswires)

White House Press Secretary said President Trump is to lay out more health care steps in the next two weeks. (Newswires)