• Asia-Pac equity markets followed suit from the lacklustre performance in the US
• Sentiment stateside was subdued on return from Labor Day with weakness seen in cyclicals
• In FX, the DXY sits above 92.50, EUR/USD and GBP/USD trade on 1.18 and 1.37 handles respectively
• US Democrat Senator Manchin privately warned he would only support as little as USD 1.0tln of Biden's spending plans
• Looking ahead, highlights include EIA STEO, Fed Beige Book, US Crude Private Inventories, BoC Policy Decision, BoE's Bailey, Ramsden, Broadbent, Tenreyro, Fed's Williams, Kaplan and supply from UK, Germany and the US

CORONAVIRUS UPDATE

AstraZeneca (AZN LN) CEO Soriot said there is no need to rush needlessly into COVID-19 booster shots and that booster jabs may not be needed for everyone in the UK, while rushing into a nationwide rollout of third doses risks piling extra pressure on the NHS. (Telegraph)

Japanese government is to extend COVID emergency measures to the end of this month but will gradually ease COVID-19 restrictions beginning in October, according to local press. There were later comments from Japanese Chief Cabinet Secretary Kato that the government is considering specific plans how to relax restrictions on activities amid COVID, while Economic Minister Nishimura said experts agreed to focus on the medical situation when deciding whether to lift restrictions. (Newswires)

ASIA

Asia-Pac equity markets followed suit from the lacklustre performance in the US where sentiment was subdued on return from the Labor Day weekend with weakness seen in cyclicals. ASX 200 (-0.4%) traded negative as the ongoing COVID-19 disruptions continued to take their toll on the nation’s stock markets and with gold miners frontrunning the declines after the precious metal recently slipped beneath the 1800/oz level, although losses for the index were stemmed with the top-weighted financial sector underpinned by the higher yield environment. Nikkei 225 (+0.4%) recovered from opening losses, helped by stronger than expected GDP revisions for Q2 and although the government is likely to extend COVID emergency measures to the end of this month, reports added that it will gradually ease COVID-19 restrictions beginning in October. Furthermore, SoftBank was the biggest gainer in the Japanese benchmark with its shares briefly higher by double-digit percentages after the recent share-swap agreement with Deutsche Telekom fuelled speculation it could lead to a share buyback. Hang Seng (-0.7%) and Shanghai Comp. (+0.1%) traded indecisively amid ongoing regulatory and debt concerns with reports noting that China will increase transparency of policies and will crackdown to better support companies in competition, while Evergrande shares were choppy after Fitch downgraded its credit rating from CCC+ to CC which reflects the view that a default of some type seems probable. Finally, 10yr JGBs declined following the bear steepening in US where bonds were also pressured by increased issuer activity and with demand dented by the GDP-uplifted mood in Japanese stocks, although the pressure in JGBs was cushioned by the BoJ's presence in the market for more than JPY 1tln of government bonds.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point to 6.4674 vs exp. 6.4685 (prev. 6.4533)

China will increase transparency of policies and will crackdown to better support companies in competition. (People's Daily)

US House Panel will reportedly conduct a hearing regarding the South China Sea dynamic on September 14th. (Newswires)

• Japanese GDP Revised QQ (Q2) 0.5% vs. Exp. 0.4% (Prev. 0.3%)
• Japanese GDP Rev QQ Annualised (Q2) 1.9% vs. Exp. 1.6% (Prev. 1.3%)
• Japanese GDP Cap Ex Rev QQ (Q2) 2.3% vs. Exp. 2.0% (Prev. 1.7%)

FX

In FX, the DXY was steady and held on to the gains from the prior session where it had reclaimed the 92.50 level amid a rise in yields and the mostly subdued sentiment in the US, while focus for the greenback turns to the upcoming JOLTS data and a flurry of incoming Fed speakers, with Bullard overnight suggesting that the Fed should proceed with tapering and dismissed concerns the rebound in the labour market was faltering. EUR/USD suffered from the firmer greenback whilst GBP/USD gave up the 1.3800 handle with newsflow for the UK dominated by PM Johnson's tax announcement. USD/JPY remained at this week's highs above 110.00 with price action steady as outflows from the safe-haven JPY were offset by the upward revision to GDP data, while antipodeans lacked excitement and only partially nursed the prior day’s losses with Westpac suggesting AUD/USD will likely be prone to declines in the approaching weeks to possibly the 0.7200 handle but maintained its year-end target of reaching 0.7500.

COMMODITIES

Commodities were rangebound with WTI crude futures stuck around the USD 68.50/bbl level after the prior day's weakness amid a firmer greenback and subdued risk tone, while the continued gradual resumption of Gulf of Mexico production and reports of Qatar reducing oil price premiums against Oman/Dubai for October further adds to the headwinds for prices, with focus for the complex now shifting to holiday-delayed inventory reports. Gold languished after its recent slip beneath the USD 1800/oz level which has since acted as an overnight resistance level and with a rebound also hampered by a steadfast dollar, while copper remained pressured owing to the cautious sentiment.

BSEE Gulf of Mexico offshore oil production shut-in at 79% or 1.44mln BPD on Wednesday (prev. 84% or 1.53mln BPD on Monday). (Newswires)

Port of New Orleans said container vessel operations have resumed following over a week-long shut down from Hurricane Ida, while terminals and industrial real estate properties sustained no major damage. (Newswires)

BP (BP/ LN) said it is in the process of resuming Gulf of Mexico operations post-Ida and is safely resuming operations at Atlantis and Mad Dog, while it expects to resume Thunder Horse and Na Kika in the approaching days. Furthermore, repairs are underway at BP's onshore assets in Houma and Port Fourchon, while PBF is planning to restart its Chalmette, Louisiana refinery (185k bpd) this week and to have most of the refinery online next week. (Newswires)

NHC said there is a 50% chance of a cyclone formation in the next 48 hours for a system located over the south-central Gulf of Mexico. (Newswires)

Qatar set October Marine Crude OSP at Oman/Dubai plus USD 1.65/bbl (prev. September OSP at Oman/Dubai plus USD 2.25/bbl), while Land Crude OSP was set at Oman/Dubai plus USD 1.60/bbl (prev. September OSP at Oman/Dubai plus 2.25/bbl). (Newswires)

GEOPOLITICAL

US State Department said Special Envoy Malley will visit Moscow and Paris between September 7th-10th for discussions regarding Iran's nuclear program, while an official noted the US wants to consult with partners regarding the best path forward given that is does not know when indirect nuclear talks with Iran will resume. Furthermore, Malley will not visit China during the upcoming trip but the US remains in contact with China regarding the Iran issue and Malley's talks will brush upon the upcoming IAEA Board of Governors meeting although the focus will be on nuclear diplomacy with Iran. (Newswires)

US President Biden said he is sure China will try to do something with the Taliban when asked if he is worried that China will fund the Taliban. There were also comments from a US State Department spokesperson that they are concerned by the affiliations and track records of some of the people named in the Taliban government, while the US reiterated its expectation that the Taliban ensure Afghan soil is not used to threaten other countries. (Newswires)

US

Treasuries bear-steepened Tuesday amid a behemoth corporate issuance pipeline ahead of Treasury supply and ECB later this week. 2s +1.4bps at 0.222%, 3s +2.2bps at 0.429%, 5s +3.2bps at 0.817%, 7s +3.9bps at 1.134%, 10s +4.6bps at 1.368%, 20s +4.2bps at 1.906%, 30s +4.2bps at 1.984%; TYU1 volumes were average. 5yr TIPS +0.8bps at -1.767%, 10yr TIPS +4.7bps at -0.991%, 30yr TIPS +3.0bps at -0.250%. Eurodollars saw light volumes but steepened in line with USTs. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. The selling gained traction at the NY handover amid a flurry of issuers announcing deals in the dollar market, creating a flurry of rate-lock related Treasury selling and swap paying, while dealers were eager to make concession ahead of Treasury supply. The selling hit its peak at 132-28+, or 1.385% high yield in cash 10s, as NYSE stocks opened, and rate-lock related flows tied to corporate issuance petered out, seeing T-Notes rise somewhat off their lows into the NY afternoon. The USD 58bln 3yr note auction was solid too, with strong and broad participation, reflective of the well-documented lack of supply in the front-end, while the strong Indirects bid points to continued strong foreign demand – it's hard to infer much ahead of Wednesday's 10yr and Thursday's 30yr auction given the difference in duration profile and respective investor cohorts. Aside from supply, participants are mainly looking to Thursday's ECB confab, coming as EGBs trade lower into the event amid expectations for PEPP taper hints. T-note (Z1) futures settled 12+ ticks lower at 133-00.

Fed's Bullard (2022 voter) said the Fed should proceed with tapering despite the weak US jobs data, while he dismissed concerns the rebound in the labour market was faltering and said there is plenty of demand for workers. (FT)

Fed's Kaplan (2023 voter) was reported to be an active buyer and seller of stocks in 2020 in which he made multiple million-dollar-plus stock trades last year, according to a financial disclosure form provided by his bank. (WSJ)

US Democrat Senator Manchin privately warned the White House and congressional leaders he would only support as little as USD 1.0tln of President Biden's spending plans and up to a maximum USD 1.5tln, according to sources. (Axios)