• Asian equities traded mixed as the region partially shrugged off the negative mood which initially rolled over from Wall St
• US stocks slumped after US President Trump announced that he is to walk away from COVID relief talks until after the election
• US President Trump instructed Senate Majority Leader McConnell not to delay and focus full-time on approving Amy Coney Barrett to the Supreme Court
• In FX markets, the DXY remained elevated following Trump’s announcement, EUR/USD remained subdued and GBP/USD trades sub-1.29
• US House Democrats stated that Facebook (FB), Amazon (AMZN), Alphabet (GOOG), Apple (AAPL) enjoy ‘monopoly power’ and recommended big changes
• Looking ahead, highlights include German Industrial Output, DoEs, FOMC Minutes, ECB's Lagarde, Fed's Williams, Kashkari, Evans, supply from UK, Germany

CORONAVIRUS UPDATE

US COVID cases +39,548 (prev. +36,778) and deaths +361 (prev. +378), while a major newswire tally stated that US cases increased by at least 43,653 to a total of 7.53mln on Tuesday and deaths rose by at least 735 to a total of 211.0k. New York COVID cases +1,393 (prev. +933) and deaths +9 (prev. +8). (Newswires)

NIH advanced six new COVID-19 testing technologies through its RADX initiative, while it is expected to add as many as 500k tests per day to capacity by year-end and 1mln tests by early 2021. Furthermore, NIH said studies suggested rogue antibodies and gene mutations explain some cases of severe COVID-19 and that two NIH studies suggested a reason some otherwise healthy people turn gravely ill from COVID could be unknown trouble spots in the immune system. (Newswires)

White House reportedly cast aside objections to the FDA's plans for assessing whether a COVID vaccine should be given widely, according to reports citing sources. However, US President Trump tweeted overnight that new FDA rules make it more difficult to speed up vaccines for approval before Election Day and he suggested it was "just another political hit job!". (WSJ/Twitter) Operation Warp Speed Chief Advisor stated that Pfizer (PFE) and Moderna (MRNA) COVID-19 vaccine efficacy readouts are expected between November and December. (Newswires)

UK PM Johnson was said to be grappling last night regarding imposing tougher lockdown restrictions for millions of people in the north, while other reports noted the UK Cabinet is divided regarding tougher lockdown restrictions and the proposed traffic light system could be postponed. (Sun/Telegraph)     

The UK decision on introducing COVID-19 testing for international arrivals which is designed to reduce quarantine times will not take place until November at the earliest; instead, Gov’t will be creating a taskforce to encourage oversees travel. (Guardian)

ASIA

Asian equities traded mixed as the region partially shrugged off the negative mood which initially rolled over from Wall St, where stock markets slumped in late trade after US President Trump announced that he is to walk away from COVID relief talks until after the election amid disparities regarding the value of the stimulus package. This resulted to losses of more than 1% for all major US indices and the large tech names were also pressured in extended trade after the House democrats antitrust committee report noted several tech giants enjoyed ‘monopoly power’ and recommended changes including structural separations and prohibiting dominant platforms from entering adjacent lines of business. Nonetheless, the tone in Asia gradually improved with ASX 200 (+1.3%) first to buck the trend as it reclaimed the 6000 level, led by strength in consumer stocks after the announcement of an expansionary budget which brought forward tax cuts and with sentiment also helped by increased calls for the RBA to loosen policy next month. Nikkei 225 (-0.3%) was weaker as exporters suffered from the ill effects of recent flows into the local currency but with the index off worst levels amid the slightly brightening picture, while the Hang Seng (+0.5%) reclaimed the 24000 level after shrugging off early indecision following tepid Hong Kong PMI data which showed an improvement although remained in contraction territory for a 31st consecutive month. Finally, 10yr JGBs eked minimal gains amid the lacklustre risk tone in Tokyo and following the tepid Rinban operation by the BoJ which were in the market for a reserved JPY 400bln of JGBs mostly concentrated in 3-5yr maturities.

UK/EU

UK Chancellor Sunak Chancellor Sunak is said to be preparing new support for businesses hit by local lockdowns, while it was separately reported that Chancellor Sunak is seeking to block suspicious companies from listing on the London Stock Exchange under a security plan. (FT/The Times)

EU fishing member states are reportedly taking an increasingly hard line over any concessions to the UK in the current phase of Brexit talks. (RTE) Separate reports note that French President Macron is standing firm on his demand that the French fishing industry maintains its current level of access to British waters, according to sources. (Newswires)

ECB's Lane said we expect about half of the cumulative decline in output in H1 to have been reversed in Q3 and noted the temporary nature of the PEPP means that the forward guidance is connected to the pandemic. Lane also stated that a resurgence in COVID cases is posing new problems, while he added that a less costly and more prudent approach is to add sufficient extra monetary policy accommodation to boost inflation momentum and in order to reconnect to the pre-COVID inflation path. (Newswires)

FX

The DXY remained elevated after the knee-jerk reaction from President Trump’s announcement to walk away from stimulus negotiations which triggered flows in haven currencies, although the upside for the greenback has lost some steam overnight amid a gradual improvement in risk appetite during Asia hours and with participants looking ahead to the looming FOMC Minutes. EUR/USD was subdued after its pullback from 1.1800 and break below the 100-hour MA level of 1.1748, with the single currency also not helped by the recent cautious ECB rhetoric from President Lagarde and Spain’s de Cos. GBP/USD also languished near the prior day’s lows beneath 1.2900 amid mixed Brexit headlines during yesterday’s session. Elsewhere, USD/JPY was rangebound as both the USD and JPY benefitted from the haven demand and with price action contained nearby a large option expiry of USD 1.8bln at 105.50 for today’s New York cut, while antipodeans were subdued by the USD strength and expectations of central bank policy easing. However, AUD/USD has since nursed some of the losses after rebounding from a floor at the 0.7100 level.

COMMODITIES

WTI crude futures were dragged below USD 40/bbl amid President Trump’s stimulus decision, while a larger than expected build of crude stockpile in the latest private inventory report also contributed to the lacklustre price action in oil. However, losses were stemmed by supply side factors with Saudi Arabia slightly raising its OSP to Asia by USD 0.10/bbl for November and with Delta strengthening to a level 4 hurricane which has so far resulted to an estimated 29.2% shut-in of Gulf of Mexico oil production. Gold prices were flat as the precious metal received some respite from the prior day’s collapse below USD 1900/oz, while copper traded sideways with a mild negative bias owing to the stimulus-related disappointment.

US Private Inventory Crude Stocks (w/e 2nd October) +1.0mln (exp. +0.3mln). (Newswires)

US EIA cut 2020 world oil demand growth forecast by 300k BPD to a decline of 8.62mln BPD Y/Y and cut 2021 world oil demand growth forecast by 280k BPD to an increase of 6.25mln BPD Y/Y. (Newswires)

Saudi Arabia raised November Arab light crude oil OSP to Asia by USD 0.10/bbl which it set at (USD) -0.40/bbl to Oman/Dubai average, while it maintained prices to US and Northwestern Europe in which it set OSP to US at +1.05/bbl to ASCI and OSP to NW Europe at -2.00/bbl to ICE Brent Settlement. (Newswires)

NHC said the extremely dangerous Hurricane Delta continues heading towards the northeast coast of the Yucatan peninsula and is expected to bring a life-threatening storm, as well as extreme winds, while BSEE estimated 29.2% of offshore crude oil production and 8.6% of natural gas production shut-in for the US Gulf of Mexico. (Newswires)

Norway's Lederne labour union plans to expand oil strikes on October 10th, according to a state mediator. (Newswires)

GEOPOLITCAL 

Armenian PM stated that Armenia may make concessions over the Nagorno-Karabakh region if Azerbaijan is ready to do the same, accord to Tass. (Tass)

US Commerce Department finalises 20-year extension of Russian nuclear agreement to reduce imports of uranium from Russia, according to a statement. (Newswires)

US

The Treasury curve had been steeper throughout almost the entire session. However, it flattened just before the futures settlement as Trump tweeted that he had directed Republicans to stop negotiating on a pre-election stimulus deal. By settlement, 2s +0.2bps at 14.7bps, 10s -1.7bps at 74.7bps, and 30s -2.4bps at 154.3bps; T-Note volumes were decent, although a large part of that was a result of the Trump-selloff. The narrative behind the steepener remained somewhat similar to Monday: rising fiscal stimulus/supply expectations in the realisation of a Biden-led Blue Sweep, accentuated by a Fed which has not yet shown an appetite to become more active in its duration purchases. However, note that inflation breakevens didn’t rise as they did on Monday, and the earlier bear-steepener was only a couple of bps, as opposed to the c. 10bps on Monday. Those factors pointed to a more supply-induced sell-off earlier (rather than a continuation of improving investor outlooks on inflation/growth, despite the cyclical bias in stocks), particularly as more corporates came to the primary market, as well as the 3-year Note auction, which went averagely with a slight tail. Furthermore, one desk notes that there had been foreign, real money seizing the rate back-up overnight and throughout the session; in the wake of previous rate sell-offs, that foreign demand, particularly the Japanese, has seen duration auctions go down well, the 10-year and 30-year Treasury offerings on Wednesday and Thursday will be telling to see if that is still the case. T-note (Z0) futures settled 4 ticks higher at 139-01+.

Fed's Harker (voter) said COVID is the main factor determining trajectory of economy and that the economy has rebounded faster than many of us had projected but added that he does not see employment returning to pre-covid levels before 2023. Harker also noted that the forecast depends on sustained decline in COVID infections and assumes a widely available vaccine in mid-later 2021, as well as USD 1trln of additional fiscal support which has yet to materialise. (Newswires)

Fed's Mester (voter) said the timing of fiscal stimulus is less important than a package and she is disappointed that fiscal talks have halted, while she added the recovery will continue but it will be slower and that they are always looking to see if there is more they can do. (Newswires)

US President Trump instructed representatives to stop negotiating on stimulus until after the election, while he stated that House Speaker Pelosi is asking for USD 2.4trln to fund badly run Democrat states and that the White House made a generous USD 1.6trln offer. This follows reports that President Trump held a call with Treasury Secretary Mnuchin, House GOP Leader McCarthy and Senate Majority Leader McConnell on COVID relief talks, while there were lots of scepticism in the GOP ranks about the shape of the package under discussion with Pelosi and whether a deal is possible. (Newswires/Twitter)

US President Trump tweeted that Congress should immediately approve USD 25bln for airline support and USD 135bln for paycheck protection program for small business, while he added both of these would be fully paid with unused funds from Cares Act. President Trump also tweeted that if he sent a standalone bill for stimulus checks (USD 1200), they would go out to the people immediately and that he is ready to sign that right now. (Twitter)

US President Trump instructed Senate Majority Leader McConnell not to delay and focus full-time on approving Amy Coney Barrett to the Supreme Court, while Senate Majority Leader McConnell later stated it is time to stop discussing the process regarding judge Amy Coney Barrett's nomination to Supreme Court and that they won't delay it due to coronavirus. (Newswires)

USTR Lighthizer said President Trump's trade policy is working in spite of the virus and that the August trade data reflects the strong performance of the US economy compared to trading partners. Lighthizer also stated that most of the USD 22.6bln YTD rise in US trade deficit is due to the spike in gold imports And that the trade deficit with China is shrinking as phase 1 continues to take effect with increased purchases of US goods. (Newswires)

US Democratic Presidential Candidate Biden said he and President Trump should not debate on October 15th if President Trump still has COVID-19. (Newswires)

US House Democrats stated that Facebook (FB), Amazon (AMZN), Alphabet (GOOG), Apple (AAPL) enjoy ‘monopoly power’ and recommended big changes. The recommendations included imposing structural separations and prohibiting dominant platforms from entering adjacent lines of business, instructing antitrust agencies to presume mergers by dominant platforms to be anticompetitive, shifting the burden onto the merging parties to prove their deal would not harm competition, rather than making enforcers prove it would, while also preventing dominant platforms from preferencing their own services, instead making them offer “equal terms for equal products and services. Furthermore, it noted that Apple uses its dominant position to exploit and exclude rivals and preference its own apps and services. (Newswires)