• European bourse trade mixed after an initial foray lower as China-losses accelerated into the APAC close
• US equity futures are flat/contained in the run-up to CPI, with the NQ narrowly lagging
• In FX, the DXY is softer but straddling 92.50 while peers are mixed and AUD lags post-Lowe
• RBA Governor Lowe said it is difficult to understand markets pricing of hikes in 2022 and 2023
• UK ministers are said to be mulling axing pre-departure COVID tests to “low risk” countries for the fully-vaccinated, according to the Telegraph
• Chinese regulators have advised against travel over national holidays and announced draft rules regarding the internet
• NHC said Nicholas briefly strengthened into a hurricane but is expected to moderate to a Tropical Depression by Wednesday
• Looking ahead, highlights include US CPI

CORONAVIRUS UPDATE

A UK COVID booster programme will be confirmed later, the BBC understands. The booster would be a single dose of the Pfizer (PFE) vaccine at least six months after a second dose. The programme will reportedly be similar to the proposals published by vaccine experts in June, which suggest over 70s and high-risk individuals will be vaccinated first, before expanding to all adults over 50. (BBC) UK Department of Health and Social Care said children aged 12-15 will be offered the COVID-19 vaccination beginning next week. (Newswires)

UK ministers are said to be mulling axing pre-departure COVID tests to “low risk” countries for Britons who have been fully vaccinated. Cheaper lateral flow tests may however be needed for travellers from “high risk” red list countries and unvaccinated arrivals. (Telegraph)

Chinese regulators have advised against travel over national holidays. (Newswires)

Australia's New South Wales reported 1,127 new locally transmitted COVID-19 cases and Victoria state reported 445 news cases, while Canberra's COVID-19 lockdown is to be extended for an additional four weeks. (Newswires)

Russian President Putin says he must self isolate after COVID was detected among people close to him, Ria; Kremlin adds that he does not have COVID-19. (Newswires)

ASIA

Asia-Pac stocks eventually followed suit to the mostly positive handover from the US, where a late rebound helped Wall Street snap a five-day losing streak but with gains capped ahead of US CPI data. The ASX 200 (+0.2%) traded with a non-committal tone for most of the session as outperformance in energy was offset by losses in the tech sector and although New South Wales posted its lowest daily COVID infections in almost two weeks, this was still over 1,100 cases and there was also the announcement of a four-week lockdown extension for Canberra. The Nikkei 225 (+0.7%) gained as exporters cheered a weaker currency which briefly lifted the index to its highest in more than three decades, while the KOSPI (+0.7%) outperformed despite the lack of fresh catalysts aside from South Korean President Moon targeting fully vaccinating 70% of the population by the end of next month. The Hang Seng (-1.2%) and the Shanghai Comp. (-1.4%) were lacklustre ahead of tomorrow’s activity data and speculation the PBoC may not fully roll over this month’s MLF maturities, while the focus was on China Evergrande with the Co.’s May 2023 Shanghai exchange-traded bond paused due to abnormal fluctuations in which it rose by nearly 23% on denial of bankruptcy rumours, although its actual shares were down 10% after it flagged a continued significant decline in contract sales and is exploring asset sales, as well as hired financial advisers to assess its capital structure. Finally, 10yr JGBs were subdued as Japanese stocks traded at 31-year highs and amid the uninspired picture for T-notes and Bund futures, while firmer demand at the enhanced liquidity auction for longer-dated JGBs failed to inspire underlying bond prices.

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 at 6.4500 vs exp. 6.4490 (prev. 6.4497)

China is to publish draft rules for protecting minors on the internet and developing a civilized internet; should cultivate internet culture to promote socialist core values; China will look to further regulate content and information distribution. (Newswires)

Japanese environment minister Koizumi would reportedly support vaccine minister Kono for LDP leadership and it was also noted that Ishiba will not contend in the race to replace PM Suga. (Newswires)

US

US senior Senate Republicans reportedly threatened to block Treasury nominations if the Biden administration doesn't blacklist the Nord Stream 2 firm. (Newswires)

US NFIB Business Optimism Index (Aug) 100.1 (Prev. 99.7)

UK/EU

EU plans to call for stronger chip intellectual property; EU seeks an alliance with the US on investor screening and chip supply; EU seeks to hammer out principles for US cooperation this month, according to reports. (Newswires)

The UK government became a shareholder in more than 150 companies during the pandemic after spending about GBP 1.1bln to support 1,190 companies through the Future Fund and with about 158 of the companies converting the loans into equity stakes. (Guardian)

UK has decided to delay some elements of the new post-Brexit border controls. (Newswires)

UK Trade Minister Truss said the UK should look to Asia’s booming market for growth. (Times)

UK ILO Unemployment Rate (Jul) 4.6% vs. Exp. 4.6% (Prev. 4.7%); Claimant Count Unemployment Change (Aug) -58.6k (Prev. -7.8k, Rev. -48.9k)

• Average Earnings (Ex-Bonus) (Jul) 6.8% vs. Exp. 6.8% (Prev. 7.4%, Rev. 7.3%)

EQUITIES

Bourses in Europe retain the mixed narrative seen at the cash open (Euro Stoxx 50 -0.1%; Stoxx 600 -0.1%), whilst losses in China accelerated towards the close. US equity futures have been largely moving in tandem with their European counterparts ahead of US CPI, albeit in a more contained range and with the tech-laden NQ (Unch) currently narrowly lagging vs cyclical RTY (+0.2%) – with traders also cognizant of Quad Witching this Friday. Sectors in Europe do not portray a particular theme, but Oil & Gas remains as one of the winners amid price action in the crude complex, whilst basic resources hold their spot as the laggard as base metal prices falter. Travel & leisure stays around the middle of the pack and relatively flat, with reports overnight suggesting that UK ministers are said to be mulling axing pre-departure tests to "low risk" countries for Britons who have been fully vaccinated. In terms of individual movers. Ocado (-2.6%) is pressured following a downbeat trading update, but the group expects retail to deliver strong revenue growth in FY22. SAP (-0.3%) is pressured as peer Oracle (-1.9% pre-market) fell post-earnings. Pandora (+5.8%) is bolstered as the group is to up its share buyback programme by some DKK 500mln. Finally, the morning saw the release of the BofA Fund Manager Survey, which noted that equity protection was at the lowest since Jan 2018 and liquidity conditions are viewed as best since just before the 2008 global financial crisis.

Amazon (AMZN) has increased the average starting wage to around USD 18/hr from USD 17/hr to attract US workers; plans to hire some 125k warehouse and transport workers

FX

AUD/NZD/GBP - The Aussie did not get much time to appreciate improvements in NAB business confidence and conditions or stronger than expected Q2 house prices before dovish commentary from RBA Governor Lowe relating to market pricing for tightening next year and in 2023. Although he stressed that the Delta outbreak has delayed rather than derailed the economic recovery, a first OCR hike is not envisaged until 2024 even though other countries may raise benchmark rates earlier. Lowe went on to predict a Q2 GDP contraction of at least 2% with risks of a significantly bigger fall and repeated that the Bank wants to see unemployment in the low 4% area ahead of jobs data on Thursday. Aud/Usd is pivoting 0.7350 amidst decent option expiry interest just below between 0.7340-45 (1 bn), but the Aud/Nzd cross is slipping towards 1.0300 from 1.0350+ at one stage as the Kiwi holds above 0.7100 vs its US rival in the run up to NZ Q2 GDP tomorrow. Meanwhile, the Pound has bounced firmly to top 1.3880 at best against a broadly flagging Greenback post-UK labour and earnings/pre-US CPI, but with barriers in Cable at 1.3900 likely to offer resistance in a similar vein to support via the 200 DMA that resides at 1.3831 today.

USD/EUR/CAD/JPY/CHF - As noted above, the Buck has back off a bit further from Monday’s best levels, with the DXY straddling 92.500 within a 92.481-664 range and looking for direction from the aforementioned inflation data in the absence of Fed input due to the usual purdah observed in advance of an FOMC meeting. Hence, the Euro is taking some advantage to form a base beyond 1.1800, but could be capped by 1.2 bn option expiries at 1.1835, while the Loonie is hugging a tight line either side of 1.2650 where 1 bn rolls off and does not appear likely to arouse the same size from 1.2600-10 unless WTI crude spikes or Canadian manufacturing sales are super strong. Elsewhere, the Yen is still clinging to 110.00 ahead of Japanese machinery orders and the Franc remains sub-0.9200 following a pick up in Swiss producer and import prices, though nothing strong enough to warrant any change in the SNB’s policy stance.

SCANDI/EM - Conversely, Swedish inflation readings may well resonate with the more hawkish Riksbank Board members given the scale of overshoots vs consensus and the Bank’s own estimate, and Eur/Sek is lower in response, while Eur/Nok is down on the back of another rise in Brent to breach Usd 74/brl briefly and bullish Norges Bank regional survey rather than any obvious reaction to the election result. However, the Rub and Mxn are both softer in the face of higher US Treasury yields and curve re-steepening that is also weighing on the Try and Zar in contrast to resilience in the Cnh and Cny irrespective of reports that the PBoC may not roll all this month’s maturing MLFs.

RBA Governor Lowe said the Delta outbreak has delayed but not derailed the recovery and reiterated the OCR is unlikely to rise before 2024, while he noted it is difficult to understand markets pricing in of hikes in 2022 and 2023. Lowe added that rates might increase in other countries but domestic factors are different and that the board judged fiscal policy is best response to current Delta lockdowns. Lowe sees Q3 GDP likely to shrink by at least 2% with risk of a significantly larger contraction and stated they cannot keep buying bonds forever with purchases likely to stop sometime next year. Furthermore, he stated that they need to see unemployment in low 4's to lift wages and that inflation temporarily above 3% would not be a problem. (Newswires)

Norway's conservative incumbent-PM Solberg called Labour Leader Store to concede the election. (Newswires) Attention now turns to the composition of the left-wing coalition, likely to be led by Labour's Store

Norges Bank Regional Network (Q3): business sector activity has increased substantially in recent months. The reopening of society has boosted demand, and contacts expect demand to increase further. (Norges Bank)

Swedish CPIF YY (Aug) 2.4% vs. Exp. 1.9% (Prev. 1.7%); MM (Aug) 0.5% vs. Exp. 0.2% (Prev. 0.3%)

• Ex Energy YY (Aug) 1.4% vs. Exp. 1.1% (Prev. 0.5%); MM (Aug) 0.3% vs. Exp. 0.0% (Prev. 0.0%)

Australian NAB Business Confidence (Aug) -5 (Prev. -8.0); Business Conditions (Aug) 14 (Prev. 11.0)

• Home Price Index (Q2) 6.7% vs. Exp. 6.0% (Prev. 5.4%)

FIXED

Italian bonds were already rebounding from early lows and leaving their debt peers behind before results of the multi-tranche auction results showed higher demand across the board and the 3 year gross yield back down near all time lows for a cash sale. However, the 10 year benchmark is now extending its advantage and recovery gains beyond 154.00 towards the half round number above, while Bunds and Gilts remain circa ¼ point below par following somewhat mixed receptions to Schatz and 2026 supply within 171.80-34 and 127.93-61 bands on Eurex and Liffe respectively. Similarly, USTs are still soft and the curve re-steepening into CPI that is expected to moderate on most counts.

COMMODITIES

WTI and Brent front-month futures have been choppy but ultimately hold onto gains. The dip in stocks heading into the European cash open prompted futures to come off best levels at the time. Aside from that, the main driver for prices has been Hurricane Nicholas which made landfall and eyes the Gulf coast – although again, it's worth keeping in mind the impact on refinery demand for US crude. That being said, Nicholas is expected to weaken to a tropical depression by Wednesday. The morning also saw the release of the IEA OMR, which cut its 2021 global demand growth forecast by 105k BPD (in-line with OPEC) but upgraded the 2022 forecast by 85k BPD to 3.2mln BPD (vs OPEC's 4.2mln BPD) and noted signs of abating COVID cases means demand is expected to rebound sharply in Oct by 1.6mln BPD. IEA noted that strong pent-up demand, vaccinations should underpin robust rebound in oil demand from Q4 2021, whilst the report gave a hat-tip to the recent US SPR sales and China's reserves release, which should help balance some of the strong pent-up demand cited by the IEA and expected in Q4. The agency lowered its Aug and Sep demand forecasts by almost 600k BPD on China and Southeast Asia mobility curbs. On that note, Chinese regulators have advised against travel over national holidays – with the mid-Autumn festival taking place from Sep 20th. The IEA made no mention of Iranian oil – with participants on the lookout for a potential date for JCPOA talks to resume. From a data perspective, the weekly Private Inventories will be released tonight. WTI resides just under USD 71/bbl, having traded on either side of the figure (vs low USD 70.50/bbl), while its Brent counterpart trades choppily around USD 74/bbl (vs low 73.50/bbl). Elsewhere, spot gold and silver trade on the softer side of today's current tight range, with the former still under the USD 1,800/oz mark and below its 50 and 21 DMAs at 1,797.73 and 1,799.22, respectively. Elsewhere, LME copper is on the backfoot following late-door losses in Chinese stock markets, with the red metal back under USD 9,500/t. Meanwhile, Chinese coking coal and coke futures closed with losses in excess of 5% amid regulatory concerns, according to traders.

IEA cuts 2021 global demand growth forecast by 105k BPD but upgrades the 2022 forecast by 85k BPD to 3.2mln BPD; signs of abating COVID cases means demand is expected to rebound sharply in Oct by 1.6mln BPD. Lowers Aug and Sep demand forecasts by almost 600k BPD on China and Southeast Asia mobility curbs. (Newswires)

NHC said Nicholas has strengthened into hurricane with strong winds and storm surges in portions of the central and upper Texas coasts; however, has since weakened and is expected to moderate into a Tropical Depression on Wednesday. (Newswires)

Protestors have blocked oil tankers loading at the Ras Lanuf and Es Sider terminals in Libya, according to sources; Ras Lanuf resumed operations shortly after the blockade was reported. (Newswires)

Marathon's Galveston Bay, Texas refinery (593k bpd) plans normal output through the tropical storm and Motiva was also said to have increased staff and plans normal operation at its Port Arthur, Texas refinery (636.5k bpd). Furthermore, Valero Port Arthur, Texas refinery (636.5k bpd) was planning normal operations and Lyondell's Houston refinery (268k bpd) will also maintain output throughout the storm, according to sources. (Newswires)

Shell (RDSA LN) said its Appomattox, Enchilada/Salsa and Auger assets in Gulf of Mexico continue to increase output, while its Mars, Ursa and Olympus assets remain shut in. (Newswires)