• Asia-Pac stocks mostly followed suit to the losses on Wall St where cyclicals underperformed, and financials were hit
• Eurozone and US equity futures traded with a mild upside bias overnight; FTSE 100 futures lagged
• In FX, the DXY was steady, EUR/USD was rangebound, AUD/USD saw mild gains and USD/JPY was lacklustre
• Chinese Industrial Production and Retail Sales data missed expectations
• South Korean military stated that North Korea fired two ballistic missiles
• Microsoft (MSFT) announced an up to USD 60bln share buyback programme and raised its quarterly dividend by 11%
• Looking ahead, highlights include UK CPI, Canadian CPI, US Industrial Production, New Zealand GDP, ECB's Lane & Schnabel, BoJ's Kuroda, and supply from the UK

CORONAVIRUS UPDATE

Pfizer (PFE) will apply for US approval in November to vaccinate young children between six months to five-years-old against COVID-19. (Newswires)

Regeneron (REGN) announced new US government agreement to acquire additional doses of its antibody cocktails in which it will supply extra 1.4mln 1,200mg doses of REGN-COV to the US government by January 31st next year. (Newswires)

AstraZeneca (AZN LN) was reportedly side-lined in Britain's COVID-19 vaccine booster dose drive with the government to offer either the Pfizer (PFE)/BioNTech (BNTX) vaccine or Moderna (MRNA) vaccine to all over 50s irrespective of their first two jabs. (Times)

UK's MHRA said the Moderna (MRNA) COVID-19 vaccine can be used as a safe and effective booster dose for the winter 2021 to 2022 period. (Newswires)

ASIA

Asia-Pac stocks mostly followed suit to the losses on Wall St where cyclicals underperformed and financials were hit as yields declined in the aftermath of the cooler-than-expected CPI print, with the region also digesting disappointing Chinese activity data. The ASX 200 (-0.4%) was pressured by weakness in financials and the commodity-related sectors including energy following similar underperformance stateside after oil prices whipsawed on Typhoon-related disruptions and details of the upcoming Chinese state reserve selling. Nikkei 225 (-0.2%) also suffered due to recent inflows into the currency and with sentiment not helped by the weaker-than-expected Machinery Orders, while the KOSPI (+0.4%) bucked the trend after the Unemployment Rate fell to a record low in August, and with the index unfazed by a ballistic missile launch from North Korea. The Hang Seng (-0.9%) and the Shanghai Comp. (-0.1%) were dampened following the miss on Chinese Industrial Production and Retail Sales data, but the indices were off worse levels as the poor data spurred calls for easing and with the state bureau also trying to paint the economy in a good light, whereby it suggested that main economic indicators still maintained fairly good growth in August and economic operations are still in recovery. Furthermore, the PBoC announced a CNY 600bln MLF operation to fully rollover this month’s maturities and US President Biden refuted reports that he was turned down by Chinese President Xi during their call last week for a face-to-face meeting. Hefty losses however remained for Hong Kong-listed casino stocks which were down by double-digit percentages as Macau begins gaming law revision and licence consultations. Finally, 10yr JGBs gained with prices helped by the risk aversion and post-CPI bull flattening stateside, while the BoJ were also in the market today for over JPY 1.3tln of JGBs with 1-10yr maturities.

PBoC injected CNY 600bln via 1-year MLF vs CNY 600bln maturing with the rate maintained at 2.95% and the central bank 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 6.4492 vs exp. 6.4470 (prev. 6.4500)

US President Biden reportedly proposed a face-to-face meeting with Chinese President Xi during their call last week, although President Xi did not respond. However, President Biden later said it was untrue that Chinese President Xi turned him down for a meeting. (Newswires/FT)

Wall Street executives and Chinese officials are reportedly set to conduct a virtual meeting. In other news, China is to launch targeted measures for small exporters, according to local press citing the Vice Commerce Minister. (Newswires/China Securities Journal)

China stats bureau said major macro economic indicators are in a reasonable range and foundation for economic recovery needs to be consolidated. It also stated that the main economic indicators still maintained fairly good growth in August and economic operations are still in recovery, while it added that online consumption continued to be active. (Newswires)

• Chinese Industrial Production YY (Aug) 5.3% vs. Exp. 5.8% (Prev. 6.4%)
• Chinese Retail Sales YY (Aug) 2.5% vs. Exp. 7.0% (Prev. 8.5%)
• Chinese Fixed Assets Investment Rural YY (YTD)(Aug) 8.9% vs. Exp. 9.0% (Prev. 10.3%)
• Chinese China House Prices YY (Aug) 4.2% (Prev. 4.6%)
• Japanese Machinery Orders MM (Jul) 0.9% vs. Exp. 3.1% (Prev. -1.5%)
• Japanese Machinery Orders YY (Jul) 11.1% vs. Exp. 15.7% (Prev. 18.6%)

UK/EU

BoE's Bailey urged banks to hold off on pressure from the EU to shift euro derivatives from London to the continent. (Newswires)

UK Chancellor Sunak said interest in UK enterprises by PE firms is an indication of confidence in the UK economy. (Newswires)

ECB's Schnabel said that they do not expect inflation to be persistently too high. (Newswires)

FX

In FX, the DXY traded steady and slightly north of 92.50 after having recovered from the softer-than-expected CPI data, with the prior intraday rebound spurred by a haven bid as stocks retreated during US hours but with upside in the greenback capped amid government funding concerns. There were comments from Senate Majority Leader Schumer who warned that the GOP are playing a risky game on the debt limit, and Senate Minority Leader McConnell noted that Republicans are united in their opposition to raising the debt ceiling and that Democrats need to do it on their own because they're pursuing a multi-trillion-dollar bill. EUR/USD was rangebound amid light newsflow and as attention turns to the approaching German elections later this month, with the single currency kept afloat by support at 1.1800. GBP/USD was also subdued after its pullback to 1.3800 which has since provided a base ahead of UK inflation data. USD/JPY and JPY-crosses were kept lacklustre by the recent haven flows and antipodeans were also uninspired due to their high beta statuses and disappointing Chinese activity data.

COMMODITIES

WTI crude futures were kept afloat overnight after recovering from the prior day's fluctuations. WTI rebounded off support from the USD 70/bbl level and was later helped by the larger than expected draws in the latest private sector inventory data, while there were several resumptions of refineries post-Nicholas. Gold prices were unchanged and just about hold above the USD 1800/oz level and copper remained lacklustre after this week's declines and due to the disappointing activity data from China.

US Energy Private Inventory Data: Crude -5.4mln (exp. -3.5mln), Cushing -1.4mln, Gasoline -2.8mln (exp. -2.0mln), Distillate -2.9mln (exp. -1.6mln). (Newswires)

BSEE Gulf of Mexico production shut-in at 39.57% or 720k BPD Tuesday (prev. 43.6% or 794k BPD on Monday, 49% on Sunday, and 66% on Friday). (Newswires)

NHC said flash flood expected across portions of the deep south during the next couple of days as Nicholas moves slowly east-northeastward across southern portions of the Houston metropolitan area. NHC also noted that life threatening flash floods are expected in parts of the deep south, but added that Nicholas is forecast to become a tropical depression Tuesday evening and will degenerate into a remnant low on Wednesday or by early Thursday. (Newswires)

Colonial Pipeline line 1 products pipeline is back in service after Tropical Storm Nicholas, but line 2 is still down. In relevant news, Port of Houston said all terminals were to remain closed on Tuesday due to widespread power outages after Hurricane Nicholas but expected to resume vessel operations on Tuesday evening and normal operations on Wednesday, while Port of Corpus Christi, Texas stated it returned to normal operations on Tuesday morning. (Newswires)

Kinder Morgan (KMI) said it is working with local distribution companies to restore local power in areas impacted by Nicholas and that most facilities that lost power are back in service or are being supported by a generator. It was also reported that Marathon Petroleum's (MPC) Galveston Bay, Texas refinery (585k BPD) is operating after storm and Chevron (CVX) said its Petronius facility is ready to produce once the pipeline export routes it utilises resume operations, while Citgo Petroleum said its Corpus Christi and Lake Charles refineries are operating normally after Tropical Storm Nicholas. Conversely, LyondellBasell's (LYB) Matagorda complex was shut down due to power outages but other Gulf Coast facilities are operating as planned, while Phillips 66 (PSX) said several midstream assets in Southeast Texas have been affected by power outages due to Tropical Storm Nicholas. (Newswires)

Morgan Stanley forecasts OPEC will not raise production by 400k BPD per month throughout 2022 and expects OPEC to surprise in terms of its willingness to balance the market once again. (Newswires)

GEOPOLITICAL

North Korea fired an unidentified projectile in the east which Japan's coast guard said appeared to be a missile, while the South Korea military later stated that North Korea had fired two ballistic missiles. Japan's Defence Ministry warned that North Korea's ballistic missile test poses a threat to the world. Furthermore, Japanese PM Suga said North Korea's launch of what was identified as a ballistic missile is outrageous and he strongly condemns this latest action. (Newswires/Yonhap)

The top Iranian international negotiator Araghchi has been replaced by JCPOA critic Kani. (Newswires)

US Republican Senator Graham and House Republican Waltz introduced resolutions calling on Secretary of State Anthony Blinken to designate the Taliban as a terrorist organization and to freeze all Afghanistan government assets held in the US. (Axios)

China's ambassador to the UK was banned from attending an event in Parliament because Beijing imposed sanctions on lawmakers who highlighted human right abuses in Xinjiang. (Newswires)

US

The whole Treasury curve bull-flattened hard after the CPI miss ignited short-covering while broader risk aversion supported haven demand. By settlement, 2s -0.6bps at 0.209%, 3s -1.1bps at 0.430%, 5s -2.4bps at 0.781%, 7s -3.6bps at 1.069%, 10s -4.7bps at 1.277%, 20s -5.4bps at 1.780%, 30s -5.4bps at 1.850%; TYZ1 volumes were above average. Inflation breakevens lower, led by the front end, after 5yr TIPS +1.3bps at -1.782%, 10yr TIPS -1.6bps at -1.055%, 30yr TIPS -3.0bps at -0.370%. Eurodollars saw decent volume as they echoed the bull-flattening of the Treasury curve. SOFR and EFFR both unchanged at 8bps and 10bps, respectively. Treasuries had trundled lower out of APAC on Tuesday, with the positive risk tone from Wall St carrying though, and extending through all the way into the US session to make session lows in T-Notes right before the CPI print at 133-03, cash 10yr yield high of 1.35%. However, the softer-than-expected August CPI print gave points to Team Transitory and ignited a wave of touted short-covering, with one desk noting dealers and fast money had attempted to sell into the strength as the Fed's taper timeline remains intact. But, bids continued to surface after a rocky start for stocks in the NY cash equity session, with the long-end leading the curve flatter. The strength saw yields breakout lower of recent ranges to take the 30yr cash yield to lows of 1.83%, where it hasn't been since early August, while similarly, the 10yr hit lows of 1.26% with T-Note session highs at 133-23 before the buying subsided as Europe departed. Yields meandered sideways, just off the lows, through into the futures settlement, with no recovery in stocks providing any favours for bond bears. T-note (Z1) futures settle 10 ticks higher at 133-19+.

US Senate Majority Leader Schumer called on businesses to highlight dangers of a debt default and said the GOP is playing a risky game on the debt limit, while he expects cooler heads in the GOP to prevail on the issue and said there is a number of different options available on the debt ceiling. (Newswires)

US Senate Minority Leader McConnell said Republicans are united in opposition to raising the debt ceiling and that it needs to be done but Democrats need to do it on their own because they're pursuing a multi-trillion-dollar bill. (Newswires)

White House adviser Deese said Delta variant has a short-term impact on jobs and but added that the labour market is on the right path. (Newswires)

US Treasury suspended former President Trump administration's changes to Fannie Mae and Freddie Mac share agreements. (Newswires)

Microsoft (MSFT) announced an up to USD 60bln share buyback programme and raised its quarterly dividend by 11%. (Newswires)

The Apple (AAPL) event saw the tech behemoth unveil a new iPad and iPad mini which is available from next week. The Apple Watch Series 7 will be available "later this fall", while the iPhone 13, 13 Mini, iPhone 13 Pro, and Pro Max all available from September 24th. AAPL sold off throughout the event, but selling pressures picked up once it ended with some suggesting there may be disappointment around the lack of new "AirPods". For a full summary, please click here.