• Asian equity markets traded mostly lower; US equity futures traded flat with a downside bias
• In FX, the DXY was rangebound, USD/JPY was subdued, antipodeans traded indecisively
• Crude prices held onto the prior session's gains
• US, UK and Australia agreed on a new security partnership for the Indo-Pacific region
• UK ministers are to announce that vaccinated travellers will no longer be required to take a COVID test before entering England
• ECB's Lane said the yield curve is still pretty low and is happy that policy of accommodation is helping to build core inflation
• Looking ahead, highlights include US Philadelphia Fed, Initial/Continued Jobless Claims, ECB's Lagarde, supply from France and Spain

CORONAVIRUS UPDATE

The White House said the booster shot programme is to begin September 20th if it gets approvals. In relevant news, the CDC's independent advisory committee on immunization plans to meet September 22nd-23rd and is prepared to discuss COVID-19 vaccine boosters. (Newswires)

Pfizer (PFE) and Moderna (MRNA) said protection from their COVID-19 vaccines waned over time with Pfizer noting that efficacy fell about 6% every two months following the second dose. However, other reports noted that Moderna new data shows its vaccine remains highly effective against COVID-19 in real-world effectiveness study during the surge in Delta cases and the Co. believes data supports the benefit of an MRNA-1273 booster dose. (Newswires/FT)

UK ministers are to announce that vaccinated travellers will no longer be required to take a COVID test before entering England under new proposals in which the green and amber destinations will be merged into of category of safe destinations, while there will be a separate list of “no go” countries which hotel quarantines will be required. (FT)

ASIA

Asian equity markets traded mostly lower as the region failed to sustain the momentum from Wall St where all major indices finished higher after risk appetite was spurred by stronger than expected NY Fed Manufacturing data and with plenty of attention on a bullish note from JPMorgan which expects the SPX to reach 4,700 by the end of 2021 and surpass 5,000 in 2022 on better-than-expected earnings. The ASX 200 (+0.5%) was led higher by the energy sector following similar outperformance stateside after oil prices surged by more than 3% during the prior session amid the constructive mood across risk assets and recent bullish inventory data, with Australian defence contractor Austal among the biggest gainers in the local benchmark after the US, UK and Australia announced a new security partnership for the Indo-Pacific region in which the US will provide Australia with the capability to deploy nuclear-powered submarines in an effort to counter China. The Nikkei 225 (-0.6%) failed to hold on to early gains with sentiment dampened by recent currency strength and weaker than expected Exports data, while the KOSPI (-0.7%) was pressured following hawkish rhetoric from North Korea concerning the recent missile launch which was from a new railway-borne missile system and reportedly serves as an efficient counter strike weapon to threatening forces. The Hang Seng (-1.8%) and Shanghai Comp. (-0.7%) declined with Hong Kong pressured by underperformance in the property sector and with several casino names extending on yesterday’s slump amid regulatory concerns. Sentiment was also clouded by the recent ‘AUKUS’ partnership to counter China and ongoing Evergrande default woes with Co. shares at decade lows and its onshore bonds suspended after Chinese authorities told lenders not to expect any interest payments due next week and following the credit rating downgrade by S&P due to depleted liquidity. Finally, 10yr JGBs were kept rangebound as headwinds from the selling in USTs were offset by the lacklustre risk appetite in Asia and with demand also sapped by weaker metrics from this month's 20yr JGB auction.

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 6.4330 vs exp. 6.4354 (prev. 6.4492)

China is reportedly probing 'blind-box' funds for compliance regarding their investment positions and if they adhere to the stated contractual terms. (China Securities Journal)

Japanese Chief Cabinet Secretary Kato said they are considering convening an extraordinary session of Parliament on October 4th to select a new PM. There were also comments from LDP leadership contender Kono that they cannot change monetary policy radically due to the pandemic hit to the economy and that the must offer tax exemptions to companies that boost distribution of wealth to workers, while he added that any new stimulus package must first lay out targets before deciding the size of spending and should prioritise spending on 5G and renewable energy. (Newswires)

• Japanese Trade Balance Total Yen (Aug) -635.4B vs. Exp. -47.7B (Prev. 441.0B, Rev. 439.4B)
• Japanese Exports YY (Aug) 26.2% vs. Exp. 34.0% (Prev. 37.0%)
• Japanese Imports YY (Aug) 44.7% vs. Exp. 40.0% (Prev. 28.5%)

UK/EU

UK Chancellor Sunak retained his job and Home Secretary Priti Patel also kept her position in a Cabinet reshuffle. Dominic Raab was reappointed to Justice Secretary and Deputy PM, while Liz Truss was appointed as UK Foreign Secretary. Furthermore, Anne-Marie Trevelyan was appointed as Trade Minister and Stephen Barclay was named as Cabinet Office Minister with Michael Gove appointed as the Housing Secretary and Ben Wallace remains the Defence Minister. (Newswires/The Times)

UK Tory part staff were told by the new party co-chairman Oliver Dowden to start preparing for a general election which could come in around 20 months' time. (Telegraph)

The UK government is commencing an investigation into how much the economy's food industry is hit by labour shortages, Brexit and rising commodity prices. (Newswires)

ECB's Lane said the yield curve is still pretty low and is happy that policy of accommodation is helping to build core inflation. Furthermore, he stated that PEPP volume isn't an indicator of the ECB's monetary policy stance and that current instruments are working. (Newswires)

One of the pair of cables of France-UK interconnector (1 GW) will be down until March 2022 due to fire, but another pair of cables (1 GW, which was undergoing maintenance) may return to service in just 10 days. (Newswires)

German election SPD candidate Scholz, current poll front-runner, and finance minister/deputy Chancellor is to be questioned by MPs regarding the money laundering scandal on September 20th. (FT)

FX

In FX, the DXY was rangebound around the 92.50 level following the prior day’s declines amid the gains in stocks on Wall Street. Deliberations continued in Washington where President Biden met separately with moderate Democrat Senators Manchin and Sinema to discuss the spending package, while the US House Ways and Means Committee advanced the plan to increase taxes on the wealthy and corporations in US as part of the Democrats' reconciliation spending bill which moves the tax plan to House negotiations on the full reconciliation bill. EUR/USD was contained above support at 1.1800 with the single currency unmoved by the latest central bank rhetoric. GBP/USD was little changed as recent marginal advances were eventually stalled by resistance around 1.3850 and with the currency largely unaffected by the Cabinet reshuffle announcement. USD/JPY was subdued amid the risk aversion in Japan, while antipodeans traded indecisively with stronger than expected New Zealand GDP data only briefly supporting NZD/USD and with participants digesting the latest Australian jobs data which showed a larger than expected contraction in headline Employment Change but a surprise decline in the Unemployment Rate which the ABS were quick to warn that this reflects a large decline in participation instead of a strengthening in the labour market.

Australian Bureau of Statistics said the fall in unemployment reflects a large decline in participation during recent lockdowns, rather than a strengthening in labour market conditions and noted that unemployed people dropped out of the labour force given that it was difficult to actively look for work. Furthermore, it noted that hours worked declined 3.7% in August which was more than the 1.1% drop in unemployment. (Newswires)

• Australian Employment Change (Aug) -146.3k vs. Exp. -90.0k (Prev. 2.2k)
• Australian Unemployment Rate (Aug) 4.5% vs. Exp. 4.9% (Prev. 4.6%)
• Australian Participation Rate (Aug) 65.2% vs. Exp. 65.7% (Prev. 66.0%)
• New Zealand GDP QQ (Q2) 2.8% vs. Exp. 1.3% (Prev. 1.6%, Rev. 1.4%)
• New Zealand GDP YY (Q2) 17.4% vs. Exp. 16.3% (Prev. 2.4%, Rev. 2.9%)

COMMODITIES

WTI crude futures held on to the prior session's near-4% advances that were spurred by the constructive risk appetite during Wall St trade and a bullish EIA inventory report. However, upside was capped overnight by resistance at USD 73.00/bbl and amid returning activity with the Colonial Pipeline operating normally, while Gulf of Mexico oil production resumed further with oil output shut-in falling to 29.5% from 39.6% the day before. Gold was lacklustre after recently giving up the USD 1800/oz status in the aftermath of the strong Empire Manufacturing data and copper prices dwindled alongside the risk appetite in Asia.

BSEE estimated Gulf of Mexico oil production shut-in at 29.5% or 537k BPD Wednesday (prev. 39.6% or 720k BPD on Tuesday). (Newswires)

Libya's NOC said the Hariga oil terminal will immediately return to normal operations. (Newswires)

China NDRC says will sell additional copper, aluminium and zinc reserves. (Newswires)

GEOPOLITICAL

US, UK and Australia agreed on a new security partnership for Indo-Pacific region in which the US will provide Australia with capability to deploy nuclear-powered submarines but will not provide it with nuclear weapons and the submarines will not be deployed with atomic weaponry, while the leaders also plan further collaboration to enhance joint capabilities in range of areas including cyber, artificial intelligence and quantum technologies. It was also noted that US President Biden did not inform Chinese President Xi of the new partnership in their recent call but did tell him the US is determined to play a strong role in the region. Furthermore, President Biden stated that they will work to build a free and open Indo-Pacific and said this is about investing in alliances and updating them to meet threats. (Newswires)

US President Biden will host UK PM Johnson at the White House next week. (Newswires)

China's embassy in Washington said that countries should shake off their cold-war mentality and ideological prejudice, in response to the US, UK and Australia security pact. There were also separate comments from Australian PM Morrison who confirmed that they will halt submarine program with France and said that Australia's missile strike capability is to be improved, while New Zealand PM Ardern stated that Australian nuclear subs will be banned from New Zealand waters. (Newswires)

The White House said there is ongoing discussion with the Chinese government on the Biden/Xi engagement. (Newswires)

China Global Times noted that China is to take a necessary response to UK Parliament's ban of the Chinese ambassador and possible retaliation includes suspending or terminating trade and other exchanges, according to observers. Furthermore, it noted that London should adjust its mindset on China and that bungling bilateral ties would be detrimental for the UK, citing observers. (Twitter)

In terms of the details regarding North Korea’s test fire on Wednesday, it was from a new railway-borne missile system which serves as an efficient counter strike weapon to threatening forces, according to state media. (KCNA)

Officials in China and Japan discussed the Korean peninsula on the phone on Wednesday, while it was also reported that France and Estonia will raise the latest North Korea ballistic missile launches in a closed-door UN security council meeting on Wednesday. (Newswires)

US

The belly led the Treasury curve lower on Wednesday as early bull-flattening reverses after the strong Empire State survey data for September. 2s +0.4bps at 0.213%, 3s +0.8bps at 0.438%, 5s +1.9bps at 0.800%, 7s +2.5bps at 1.095%, 10s +2.3bps at 1.302%, 20s +2.1bps at 1.803%, 30s +1.5bps at 1.867%; TYZ1 volumes were average. Front-end inflation breakevens led the widening by a few bps; 5yr TIPS +0.5bps at -1.790%, 10yr TIPS +0.7bps at -1.047%, 30yr TIPS +1.2bps at -0.356%. Eurodollars generally saw decent volume sales, reversing Tuesday's rally. SOFR and EFFR both unchanged at 5bps and 8bps. There wasn't much spillover from the firmer-than-expected UK inflation data, which saw short rates in the region ramp up BoE rate hike pricing for 2022. Instead, the bull flattener from Tuesday began picking up traction again into the NY handover as stock indices faltered. The US 30yr tested Tuesday's yield lows at 1.83%, with the August low of 1.81% resistance ahead of the 1.78% July low. However, the tide soon turned after a solid September Empire Fed Mfg. survey, boosted by the Employment and New Orders components, saw the belly-out sold, bringing T-Notes well off their session highs of 133-22+ (cash 10s yield low of 1.26%). Those bearish bond flows extended through into the European close, with the rally in oil post-inventory data also weighing. Session lows in T-Notes were made at 133-09, or 1.32% cash 10s high, before paring a few ticks into the NY afternoon. Traders now look to Thursday's Empire Fed Mfg. survey for further evidence of an activity bounceback in September after the doldrums of August. T-note (Z1) futures settle 7 ticks lower at 133-12+.

US House Ways and Means Committee advanced the plan to increase taxes on the wealthy and corporations in US as part of the Democrats' reconciliation spending bill which moves the tax plan to House negotiations on the full reconciliation bill. (Newswires)

US Treasury Secretary Yellen and IRS are pushing Democrats to require banks to report annual account flows, while the US Treasury later commented that new tax compliance rules could raise USD 700bln in 10yrs. (Newswires)