• Asian equity markets were mostly higher amid tailwinds from Wall St where stocks finished a choppy session in the green
• US Secretary of State Pompeo alleged that New York’s Chinese consulate is a major spy hub
• UK Brexit Negotiator Frost and his EU counterpart Barnier were reportedly able to lay the foundation for a round of negotiations next week
• US House Speaker Pelosi said that Democrats are ready for negotiations on stimulus; reports noted that House Democrats are drafting a COVID stimulus bill of around USD 2.4tln
• In FX, DXY was steady, EUR/USD was uneventful, antipodeans outperformed
• Looking ahead, highlights include US Durable Goods, Fed's Williams & ECB's Villeroy

CORONAVIRUS UPDATE

US cases +41,310 (prev. +49,285) and deaths +1,136 (prev. +813), while a major newswire tally stated that US cases surpassed 7mln. (Newswires) New York cases +955 (prev. +665) and deaths +2 (prev. +5), while the New York City Health Department threatened to shut down all non-essential businesses in COVID-19 hotspots if cases continue increasing. (Newswires/NY Post)

US CDC Director Redfield said a COVID-19 vaccine will likely not be widely available until summer or fall 2021. (NBC)

UK COVID cases +6,634 (prev. +6,178) and deaths +40 (prev. +37), which was the highest cases print yet, although testing has more than doubled since the initial break out. (Newswires)

Novavax (NVAX) initiated Phase 3 COVID-19 vaccine trial in UK with 10,000 volunteers and expects to start 30k patient study in US in mid-October. (Newswires)

Bosses of pharmaceutical companies are reviewing whether they can be more transparent about COVID-19 vaccine trials amid intense public and pollical interest and the recent pausing of AstraZeneca and Oxford University’s trial. (Times)

ASIA

Asian equity markets were mostly higher amid tailwinds from Wall St where stocks finished a choppy session in the green as the tech sector rebounded, but with the gains in the US major indices only marginal amid mixed data which showed higher than expected jobless claimants. Nonetheless, the regional bourses were positive with ASX 200 (+1.2%) outperformance spurred by the largest weighted financials sector as the government seeks to repeal the responsible lending obligations legislation in an effort to spur more lending, while Nikkei 225 (+0.5%) was helped by a softer currency and after reports that Japan is mulling a corporate tax cut for SME’s to encourage M&A. Hang Seng (+0.1%) and Shanghai Comp. (Unch) swung between gains and losses despite the recent announcement by FTSE Russell to include China in the World Government Bond Index effective October 2021 and pending confirmation in March, which Morgan Stanley sees to likely spur inflows of as much as USD 90bln from September next year. However, the initial advances in Chinese markets were reversed amid ongoing uncertainty regarding the TikTok deal ahead of looming deadlines with the Trump administration given until 14:30EDT/19:30BST later today to notify the court whether it will postpone the ban set for midnight on Sunday, or file a motion of opposition to the preliminary injunction, which the court would then have to consider on Sunday. There were also jitters caused by China’s second largest developer Evergrande after it warned of a cash crunch that could result to systemic risks if its restructuring/listing plan doesn’t get government approval by January 31st, which saw its shares whipsaw and pressured bond prices to trigger a trading halt of its 5-year bonds in Shanghai due to abnormal fluctuations. Finally, 10yr JGBs were lower amid similar uninspired trade in T-notes with demand sapped by the gains in equities and the lack of BoJ’s presence in the market today.

PBoC injected CNY 90bln through 14-day reverse repos at rate of 2.35% for a net daily drain of CNY 20bln. (Newswires) PBoC set USD/CNY mid-point at 6.8121 vs. Exp. 6.8087 (Prev. 6.8028)

FTSE Russell announced that China will be included in the Global Bond Index effective October 2021, which Morgan Stanley sees to likely spur inflows of as much as USD 90bln from September next year, while it kept Malaysia on watch for bond index exclusion. (Newswires/SCMP)

US Secretary of State Pompeo alleged that New York’s Chinese consulate is a major spy hub, whilst adding it is likely more diplomats and agents will be arrested. (New York Post)

NEC Director Kudlow said there is heavy discussion and scrutiny of the TikTok bid, while he does not know where the Chinese government is going to come out on TikTok. (Newswires)

A federal judge in Washington asked the Trump administration on Thursday to consider postponing the looming ban on downloads of TikTok and the US government has till 14:30EDT/19:30BST today to notify the court whether it will postpone the deadline or file a motion of opposition to the preliminary injunction TikTok requested. Furthermore, if the Trump administration decides not to extend the deadline, the court will conduct another hearing this week to rule on whether to issue a preliminary injunction to block the government from implementing the ban. (Nikkei)

China’s Ministry of Commerce is to launch an anti-dumping investigation on imports of some chloride products from US beginning today. (Newswires)

UK/EU

UK Brexit Negotiator Frost and his EU counterpart Barnier were reportedly able to lay the foundation for a round of negotiations next week, according to an official. The official added that EU will still likely start legal action but will continue discussions with the UK. Several officials warned that negotiations could now stretch into November or December vs. the de facto deadline of October 15th. (Newswires) 

UK GfK Consumer Confidence (Sep) -25.0 vs. Exp. -27.0 (Prev. -27.0); highest reading since lockdown began in March. (Newswires)

France rejected UK warnings of post-Brexit transport delays in the English Channel as tactical posturing and warned the Brussels will not succumb to intimidation to reach a deal, according to FT

EU Commission is to appeal against court decision which quashed order for Apple (AAPL) to repay EUR 14.3bln in tax advantages. (FT)

FX

In FX, DXY traded steady beneath 94.50 after its recent appreciation was stalled by an improvement in risk appetite and following mixed data yesterday. The greenback’s major counterparts were uneventful in which EUR/USD traded sideways near its 50-Hour MA of 1.1670 and GBP/USD was stuck around 1.2750 as it held on to the prior day’s gains. Elsewhere, USD/JPY kept afloat near the prior day’s highs owing to the improved risk tone and antipodeans also marginally gained after CNH initially strengthened on China’s inclusion to FTSE Russell’s global bond index and with CBA forecasting the RBA to remain on hold at the October meeting.

Banxico cut interest rate by 25 basis points to 4.25% as expected in a unanimous decision. Banxico stated that after having contracted markedly in April and May, economic activity in Mexico began to recover in June and July, although an environment of uncertainty and downward risks prevails. Furthermore, it added that ample slack conditions are expected throughout the time frame in which monetary policy operates. (Newswires)

COMMODITIES                                                          

WTI crude futures extended above the USD 40/bbl level but with upside capped by the ongoing weak demand outlook amid the second wave of the virus with France and UK registering record daily increases in cases and with latest US data also showing larger than expected jobless claimants. Elsewhere, gold prices eked mild gains in a continued but gradual rebound from its 2-month lows of around USD 1850/oz, while copper was kept afloat amid the mostly positive risk tone but with gains limited by the underperformance in China.

US

Treasuries held onto a modest bid throughout the session in quiet trade. By settlement, 2s unch. at 14bps, 10s -1bps 66.5bps, 30s -2.5bps at 140bps; volumes low again, unsurprisingly. There was minimal direction seen in T-Notes, unreactive to both the disappointing Initial Jobless Claims, and the blowout New Home Sales data. The lacklustre 7-year auction didn’t alter the dial either; corporate supply was weak today, with Wednesday’s equity sell-off likely deterring new issuers for the time being. More broadly, the Treasury market is at an inflexion point, where one would theoretically expect the recent sell-off in stocks - and re-downgrading of global growth expectations amid COVID cases spiking again - to see some haven flows into sovereigns. However, Treasury rates are little changed on the week with the 10-year yield very much fixated around the 67bps area. Note that Treasuries have been a consensus long position since COVID and thus positioning likely already remains stretched (that’s not to say it couldn’t get more stretched). Additionally, volumes remain significantly below pre-COVID levels amid the large unwind in leveraged basis trades that have not returned since. There may be just a declining group of marginal buyers. Supply concerns are an issue too. The longer-weighted Treasury supply imbalance has been widely flagged, and given the latest FOMC and recent Fed commentary, it appears that a Fed “twist” to long-end weighted Fed purchases isn’t on the cusp of being released (of course if this was to manifest into a noticeable curve steepening the Fed would soon step into the market). T-note (Z0) futures settled 2+ ticks higher at 139-18+.

Fed Chair Powell said the Fed is a long way from allowing its balance sheet to shrink. (Newswires)

Fed's Barkin (non-voter) said he is less worried about the possibility of inflation escalating in the near future and noted that inflation is not that far off its 2% target, while he added that inflation expectations are stable and well anchored and that 'lower for longer' does not mean 'zero forever'. Furthermore, Barkin said he would have been comfortable with adopting an inflation target range of 1.5%-2.5%. (Newswires)

Fed's Bullard (non-voter) said there could be a sort of full recovery this year where GDP could end the year at similar levels to 2019 and that there is room for a "substantial decline" in the unemployment rate in the months ahead. Bullard also stated that Fed policy is in great shape currently but it could make adjustments if needed and reiterated we are over the hump on need for more fiscal policy, although "some pockets" of the economy may need more help. Furthermore, Bullard stated that inflation could rise to 2% even as soon as next year and that it is premature to think of when to taper asset purchases, while he added the new framework has good chance of success to help lift inflation in the years ahead. (Newswires)

Fed's Evans (non-voter) said more fiscal relief is needed, citing a large potential hole in aggregate demand as prior aid expires, while he added the Fed committed to full range of tools until it is confident economy is on track to achieve its mandate. (Newswires)

US President Trump said he is not sure that the election can be honest. There were earlier comments from the White House Press Secretary that US President Trump will accept results of a free and fair election. (Newswires)

US President Trump signed executive orders on healthcare and announced plans for the healthcare system in which he noted 3 pillars of his plan which were choice, lower costs and better care. Furthermore, President Trump stated there will be health plans that are much cheaper than Obamacare and that he will work to make healthcare premiums fully tax-deductible, while he suggested he is taking on big pharma like never before. (Newswires)

US HHS Azar earlier announced that President Trump will sign an executive order protecting access to health insurance for US citizens with pre-existing conditions and will sign another executive order directing Azar to work with Congress to develop and pass legislation banning surprise health care billing by January 2021. (Fox/Newswires)

US President Trump's lawyers said he deserves a "fair chance" to show the subpoena for his tax returns is overboard and was issued in bad faith, according to an Appeals Court filing. (Newswires)

US Senate voted 93-2 to advance the stopgap funding bill that would avert a shutdown next week, which paves the way for a vote on the final passage. Furthermore, it was later reported that the Senate will conduct the final vote on Tuesday at 17:30EDT/22:30BST, according to C-SPAN’s Caplan. (Newswires/Twitter)

US House Speaker Pelosi said that Democrats are ready for negotiations on stimulus, while it was also reported that House Democrats are drafting a COVID stimulus bill of around USD 2.4tln for possible vote next week, although a final decision is not made yet, according to reporters. (Newswires)

Fed's Brainard is seen as the front runner for Democratic Presidential Nominee Biden's Treasury Secretary pick, while Warren has not been ruled out but is far less likely. (Newswires)