• Asian equity markets were mixed with participants indecisive as focus centred on the Presidential Debate
• Initial gains in US equity futures were pared as the debate descended into chaos and Trump suggested that a contested election could last for months
• The UK House of Commons approved the Internal Market bill as expected with a majority of 84 to send it to House of Lords
• A German EU Presidency spokesperson remarked that “a delay of the EU budget and the recovery fund is becoming increasingly likely”
• In FX markets, the DXY remains sub-94.00, EUR/USD retains 1.17 status, whilst GBP/USD hovers around 1.2850
• US President Trump’s administration is expected to come back to the Democrats' stimulus offer somewhere in the neighbourhood of USD 1.5trl, according to Politico

Looking ahead, highlights include UK GDP, German jobs report, US ADP, USD GDP (F), Chicago PMI, DoEs, ECB's Lagarde, Lane, BoE's Haldane, Fed's Kashkari, Kaplan, supply from Germany 

CORONAVIRUS UPDATE

US COVID cases 33,891 (prev. +36,335) and deaths +270 (prev. +295). (Newswires)

Moderna (MRNA) coronavirus vaccine reportedly appears to work for older adults in a small study. according to researchers. (Newswires)

Regeneron Pharmaceuticals (REGN) said its experimental two-antibody cocktail reduced viral levels and improved symptoms in non-hospitalized patients with mild-to-moderate COVID-19. (Newswires)

World Bank President Malpass said he is seeking board approval for USD 12bln of vaccine financing and distribution initiative for developing countries. (Newswires)

Novartis CEO stated that vaccines alone will not be enough to combat COVID-19, adding that significant supplies of highly effective vaccines will likely not be available until the end of 2021. (Newswires)

ASIA

Asian equity markets were mixed with participants indecisive as focus centred on the US Presidential Debate where US President Trump faced off with former VP Biden on a range of topics including COVID-19, the economy, taxes and foreign dealings of former VP Biden’s son. The debate featured plenty of bickering and highlighted no love lost between the candidates with President Trump criticizing Biden’s son and with Biden referring to Trump as a clown on several occasions, while marginal upside was seen in US equity futures early in the debate as the widely viewed front-runner Biden showed a more composed tone with President Trump seemingly disruptive and interrupting Biden and the moderator a few times, which favoured the notion of a Blue Sweep. However, all the gains were later pared at the end of the debate which descended into chaos with plenty of disruptions and President Trump also suggested the idea of a contested election which could last for months. As such, ASX 200 (-1.8%) and Nikkei 225 (-1.1%) were negative with Australia dragged lower by losses in the energy sector and with financials also underperforming, while Tokyo sentiment was lacklustre following Industrial Production data which despite beating expectations, still showed a double-digit percentage contraction Y/Y. Hang Seng (+1.1%) and Shanghai Comp. (+0.5%) were positive on the eve of Golden Week as participants digested better than expected Chinese Official PMI data and although Caixin Manufacturing PMI slightly missed, the data showed new export orders rose by the most in 3 years and the employment gauge returned to growth. Finally, 10yr JGBs traded lacklustre as prices reversed some of yesterday’s gains but with downside stemmed amid the BoJ’s presence in the market today and after the central bank also kept its purchase intentions for October unchanged.

PBoC injected CNY 50bln via 14-day reverse repos at rate of 2.35% for a net weekly drain of CNY 210bln. (Newswires) PBoC set USD/CNY mid-point at 6.8101 vs. Exp. 6.8098 (Prev. 6.8171)

Chinese Manufacturing PMI (Sep) 51.5 vs. Exp. 51.2 (Prev. 51.0). (Newswires) Chinese Non-Manufacturing PMI (Sep) 55.9 vs. Exp. 54.7 (Prev. 55.2) Chinese Composite PMI (Sep) 55.1 (Prev. 54.5) Chinese Caixin Manufacturing PMI (Sep) 53.0 vs. Exp. 53.1 (Prev. 53.1)

Japanese Industrial Production (Aug) M/M 1.7% vs. Exp. 1.5% (Prev. 8.7%). (Newswires) Japanese Industrial Production (Aug P) Y/Y -13.3% vs. Exp. -13.4% (Prev. -15.5%)

UK/EU

UK's House of Commons approved the internal market bill with a majority of 84 to send it to House of Lords, where ministers might face a rougher ride as the government does not possess a majority in the upper house. (Sky News)

Regarding the UK’s state aid paper, EU sources state this does not provide appropriate governance measures to ensure the EU could hold the UK to its commitments; additionally, such regulation would need agreement at ‘the highest level’. (Guardian)

Ireland Foreign Minister Covaney said there is a good chance of getting a Brexit trade deal done by year-end and that October 15th is not a hard deadline to the EU, while he also doesn't think a deadline that early should be implemented if the two sides are close to an agreement. (Newswires)

WTO authorized the EU to impose tariffs on USD 4bln of US goods in response to Boeing (BA) subsidies, according to sources. (Newswires)

A German EU Presidency spokesperson, on the EU Recovery Fund noted “we observe with concern that the number of different blockades in the budget negotiations seems to be increasing rather than decreasing”, subsequently “a delay of the EU budget and the recovery fund is becoming increasingly likely”. (Newswires) 

Italy Treasury is to lower 2020 Deficit-to-GDP target to 10.8% from 11.9% and is to raise 2021 target to 7.0% of GDP from 5.7%, while it is to set target at 4.7% and 3.0% of GDP in 2022 and 2023, respectively. (Newswires)

UK BRC Shop Price Index (Sep) Y/Y -1.6% vs. Exp. -1.4% (Prev. -1.6%). (Newswires) UK Lloyds Business Barometer (Sep) -11 (Prev. -14)

FX

The DXY was unmoved by the Presidential Debate but as the risk tone deteriorated the greenback nursed some of the prior day’s losses that had coincided with a decline in yields and strength in its major counterparts especially EUR/USD which recently reclaimed the 1.1700 handle. GBP/USD was indecisive after recent reports the UK sent 5 new trade deal drafts to the EU in an effort to break the stalemate, although the House of Commons also passed the Internal Market Bill which Brussels had firmly opposed. USD/JPY was choppy amid the mixed risk appetite and antipodeans were varied with mild support in NZD after a slightly improved Business Survey data and with Fonterra announcing an increase in milk collections to provide some encouragement for the dairy sector which contributes to a significant chunk of NZ exports.

New Zealand ANZ Business Confidence (Sep) -28.5% (Prev. -41.8%). (Newswires) New Zealand ANZ Activity Outlook (Sep) -5.4% (Prev. -17.5%)

Fonterra New Zealand milk collection in September rose 3.2% from the prior season to 100.7mln kgms. (Newswires)

Turkey lowered withholding tax on bank deposits to year-end and cuts tax on FX transaction to 0.2% from 1.0%. (Newswires)

COMMODITIES                                                          

WTI crude futures slipped below USD 39.00/bbl after yesterday’s near 4% drop amid the subdued risk tone and several bearish headlines with Libya’s Sarir oil field resuming production and with Marathon reducing staff at some refineries due to weaker demand from the COVID-19 pandemic, while the latest private inventory report did little to support prices despite a surprise draw in headline crud stockpiles. Gold prices saw mild pressure as the USD nursed some losses and with the precious metal hampered by resistance at the USD 1900/oz level, while copper was restricted by the indecisive risk tone and fell beneath USD 3/lb.

US Private Inventory Crude Stocks (w/e 25th August) -0.83mln (exp. +1.6mln, prev. -1.6mln). (Newswires)

Arabian Gulf Oil co. chief said Libya's Sarir oilfield has restarted production. (Newswires)

Marathon (MPC) Galveston Bay, Texas refinery (585k BPD) is laying off salaried staff due to COVID-19 demand loss and Marathon is also reducing salaried staff at its Los Angeles refinery, according to sources. (Newswires)

Norway's Industri Energi and Safe Labour unions said its workers will not go on strike after agreeing on a wage deal, but Lederne Labour union said its workers will go ahead with strikes. This could cut the country's oil output by some 470k BPD, according to the Nowegian Oil and Gas Association. (Newswires)

GEOPOLITICAL

North Korean Ambassador to the UN said North Korea needs external environment favourable to economic construction but cannot sell off its dignity, while the Ambassador added that absolute strength to prevent war can safeguard peace. (Newswires/Yonhap)

US

Treasury yields fell marginally on Tuesday as the Monday risk rally came under pressure and month-end duration extension. By settlement, 2s -0.6bps at 12.5bps, 10s -1.7bps at 64.6bps, 30s -1.4bps at 140.9bps; futures volumes were low. The bid for sovereigns emerged heading into European trade as cyclicals pared their recent rally. Yields rose briefly after the blowout US Consumer Confidence print The bid for T-Notes found further support later in the session as US indices came under pressure, coinciding with reports of a pick-up in New York COVID cases, as well as Germany announcing new restrictive measures. Furthermore, it’s likely that some of the strength can be attributed to month-end duration extension, where latest estimations expect Treasury extension of 0.09yr of Treasuries (0.28yr for Gilts and 0.13yr for EGBs). The mild Treasury strength has seen the 10-year yield fall beneath 65bps for the first time in a few weeks. T-note (Z0) futures settled 5 ticks higher at 139-25.

US President Trump and former VP Biden squared off in the first Presidential Debate in which Biden criticized US President Trump for the coronavirus citing over 200k deaths and over 7mln cases, while US President Trump pointed the blame for coronavirus again on China. During the debate, President Trump said that he has paid millions in taxes, while former VP Biden called on him to show his tax returns and Biden suggested he will remove the tax loop holes if he is President, as well as raise corporate taxes to 28%. US President Trump criticized former VP Biden regarding China and also Hunter Biden's foreign dealings in which he stated that Biden's son received USD 3.5mln from Moscow, while he stated that Hunter was thrown out of the military and noted drug issues. Furthermore, President Trump said we may not know for months regarding the election results and that mail-in ballots are going to be a fraud. (Newswires)

CBS News poll showed 48% viewed Biden had won the debate and 40% thought President Trump won the debate. Post-debate betting odds moved in favour of Democratic candidate Biden, with implied odds from the Betfair Exchange rising to 59% from 56% pre-debate. (Twitter) 

Democratic Presidential Candidate Biden released his tax returns for 2019 which showed his income of nearly USD 985k for both he and his wife, while he called on President Trump to release his tax returns. Furthermore, the Biden couple paid more than USD 346k in federal taxes in 2019 and sought nearly USD 47k refund. (Newswires)

Fed's Williams (voter) said the economic recovery has been more robust than many were expecting and he is optimistic we will be able to continue to see a pretty strong economic recovery for the rest of this year and next. (Newswires)

Federal Reserve Poll noted that banks said they expect loan demands for companies targeted by the main street lending program to increase in next three months under current economic forecasts.  However, only a "modest share" of banks expected they would become more willing to extend main street loans over the period. (Newswires)

US Senate voted 82-6 to pass the procedural hurdle for the stopgap funding bill which paves the way for a final vote on Wednesday. (Newswires)

US President Trump’s administration is expected to come back to the Democrats' stimulus offer somewhere in the neighbourhood of USD 1.5trln, which is near the Problem Solvers’ offer, according to Politico's Sherman. Furthermore, a senior administration official said Treasury Secretary Mnuchin will have an internal conversation about the Democrats’ "scaled down" Hero's Act and a response will come in the call on Wednesday which may be joined by White House Chief of Staff Meadows. (Twitter/Fox Business News)

House GOP is reportedly whipping no vote against the Democrats’ new USD 2.2tln stimulus bill and stated that neither this bill nor anything like it will ever become law and Republicans should remain unified against this partisan power grab, according to Twitter reports citing House GOP whip Scalise’s memo. (Twitter)

US Treasury concluded loans to 7 major airlines and supports additional relief for workers in the industry, while there were separate reported that CDC Director Redfield was said to have pushed to extend the ban on passenger cruises to next year but was overruled during discussions at the White House Situation Room. (Newswires)