• Asian equity markets traded mixed with the region tentative; US equity futures drifted higher overnight
• In FX, DXY pulled back from yesterday's highs, GBP/USD reclaimed 1.3800 and antipodeans narrowly outperformed
• US and Australia issued a joint statement that noted they will strengthen ties with Taiwan
• ECB stated the FT story regarding inflation and a potential rate increase is not accurate
• The UK travel red list could be more than halved from its current 62 for the double-jabbed, according to The Times, in time for late October
• Evergrande (3333 HK) should not bet on a government bailout, according to reports citing Chinese state media
• Looking ahead, highlights include UK Retail Sales, US University of Michigan (Prelim.), ECB Survey of Monetary Analysts publication & Quadruple Witching

CORONAVIRUS UPDATE

Moderna (MRNA) announced Health Canada approved its new drug submission for Spikevax for active immunization to prevent COVID-19 in individuals 12yrs and older. (Newswires)

Novavax (NVAX) will participate in Oxford University's Com-COV3 study which will compare mixed COVID-19 vaccine schedule in adolescents between ages of 12-16. (Newswires)

Italy’s government approved decree making it obligatory for all workers to have a 'COVID green pass', according to sources. (Newswires) In-fitting with recent reports

The UK travel red list could be more than halved from its current 62 for the double-jabbed, according to The Times, in time for late October. Turkey is tipped to be among those removed from the list. The UK Transport Minister is today expected to announce the scrapping of the amber list, thus there will only be red and green lists. (The Times)

ASIA

Asian equity markets traded mixed with the region tentative ahead of several APAC market closures next week, albeit with the mood at a slight improvement from the negative bias stateside, where strong data supported taper calls approaching quad witching hour. The ASX 200 (-1.1%) underperformed with the index pressured by hefty losses in the mining-related sectors after recent declines in underlying commodity prices due to a firmer greenback and Chinese efforts to contain prices through its state reserves. The mood in Australia was also dampened by fears of a backlash from China to the recent AUKUS security pact and with M&A discussions between private equity and Iress failing to reach an agreement which resulted in double-digit percentage losses for shares in the latter. The Nikkei 225 (+0.5%) was positive and tested the 30,500 level with the index getting an uplift from a mostly weaker JPY, but with gains capped by the ongoing COVID outbreak and with the Cabinet Office lowering its overall economic assessment for the first time in four months. The Hang Seng (+0.4%) and the Shanghai Comp. (-0.6) lacked firm commitment ahead of a four-day weekend in the mainland due to the Mid-Autumn Festival and with some brief support after the PBoC’s liquidity efforts involving a total CNY 100bln injection evenly split between 7-day and 14-day reverse repos. In addition, plenty of focus remained on China Evergrande with its shares severely hit again on default fears and reports that suggested the unlikelihood of a government bailout, although there was some reprieve to affiliate Evergrande Property Services as its shares rose around 8% which seems inconsequential compared to its near-50% decline YTD. Finally, 10yr JGBs were subdued following the spillover selling from USTs and gains in Japanese stocks, with demand also hampered by the lack of BoJ purchases in the market today with the central bank instead offering to buy JPY 75bln in 3yr-5yr corporate bonds from next Friday.

• PBoC injected CNY 50bln via 7-day reverse repos and CNY 50bln via 14-day reverse repos with rates maintained at 2.20% and 2.35% respectively, while the PBoC is to also issue CNY 5bln in 6-month bills on September 24th (Newswires)
• PBoC set USD/CNY mid-point at 6.4527 vs exp. 6.4501 (prev. 6.4330)

Evergrande (3333 HK) should not bet on a government bailout, according to reports citing Chinese state media. Co. was also said to have reached a partial debt payment agreement with Shenzhen World related to receivables in which it will pay around CNY 246mln and will make the payment using properties. There were also earlier reports that a group of China Evergrande bondholders selected investment bank Moelis & Co and law firm Kirkland & Ellis as advisers on a potential restructuring of a tranche of bonds, according to sources. Furthermore, one of the sources noted that the advice focuses on around USD 20bln in outstanding offshore bonds in the event of non-payment, while an Evergrande holder noted that the bonds are rallying pretty hard and that people are buying in blocs which seems like it's institutional demand rather than just retail. (Newswires)

Japanese Economic Minister Nishimura said that they need to determine if China meets the extremely high standards of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP. (Newswires)

• Singapore Non-Oil Exports MM (Aug) -3.6% vs. Exp. 2.4% (Prev. -0.9%)
• Singapore Non-Oil Exports YY (Aug) 2.7% vs. Exp. 8.3% (Prev. 12.7%)

UK/EU

UK Chancellor Sunak is planning to use next month’s Budget to lay out new rules to rein in government borrowing amid Treasury concerns that any rise in interest rates could blow a hole in the heavily-indebted public finances, while the new rules will commit him to stop borrowing to fund day-to-day spending within three years which is said to be a move intended to illustrate Tory fiscal discipline ahead of the next election. Furthermore, the fiscal rules will also require underlying debt to start falling by 2024-25 which currently stands at about 100% of GDP. (FT)

It was initially reported that ECB unpublished inflation estimate models, which forecast 2% target being hit by 2025 and raises the prospect of an earlier rate rise in just over two years, according to reports in FT citing sources from a phone call between Chief Economist Lane and German banks. However, ECB later stated the story regarding inflation and a potential rate increase in not accurate with the conclusion on rates not consistent with forward guidance. (Newswires/FT)

Netherlands PM Rutte is reportedly to invite Britain to join a defence deal with the EU. (The Times)

Spain Labour Ministry said it will hike the minimum wage by 1.6%. (Newswires)

FX

In FX, the DXY is off this week's best levels after stalling just shy of the 93.00 level but held on to most the prior day's gains amid higher yields following the recent better than expected data releases stateside, which supported the notion for a sooner Fed taper including the surprise expansion in Retail Sales and better than expected Philly Fed data, although some analysts noted that with the decline in the Philly Employment sub-index, the data therefore may not contribute to the meeting the Fed's 'substantial further progress' bar for the labour market. EUR/USD was despondent following its recent retreat to beneath 1.1800 but is off worse levels after finding a floor at 1.1750 and with a recent FT report suggesting the ECB’s unpublished inflation estimate models forecast the 2% target being hit by 2025 which raises prospects of an earlier rate rise in just over two years, although the central bank later dismissed this as inaccurate with the conclusion on rates not consistent with its forward guidance. GBP/USD nursed some losses and contends with resistance at 1.3800 amid a recent article noting that UK Chancellor Sunak is planning to use next month’s Budget to lay out new rules to rein in government borrowing. USD/JPY was underpinned by the positive risk appetite in Japan and antipodeans were kept rangebound for most of the session, owing to the firmer greenback, recent commodity pressure and concerns of a China backlash to Australia’s recent security pact with the UK and US.

COMMODITIES

WTI crude futures were choppy around the USD 72.50/bbl level after having whipsawed in tandem with stocks in the aftermath of the stronger than expected US data. In supply-side news, Gulf of Mexico oil production continued its slow return with shut-ins estimated at around 28% on Thursday, while there was also a recent note from Commerzbank which sees Brent crude at USD 75/bbl for year-end but to modestly fall to USD 70/bbl in 2022, and suggested the market will be facing oversupply next year if OPEC+ sticks to its current production plans. Spot gold was steady overnight, with the precious metal finding some respite from the recent pullback beneath the 1800/oz level that had been exacerbated by the strong US data which boosted the greenback and stoked Fed taper calls, while copper also recovered off its lows as risk appetite in Asia slightly improved but with the rebound only modest in comparison to this week's declines.

BSEE Gulf of Mexico oil production shut-in at 28.2% or 514k BPD Thursday (prev. 29.5% on Wednesday). (BSEE)

Entergy (ETR) said all areas within Texas and Louisiana territories have resumed normal operations after Hurricane Nicholas caused outages. (Newswires)

US President Biden commented that gas prices should be going down. (Newswires)

GEOPOLITICAL

US and Australia issued a joint statement that noted they share concern on China claims in the South China Sea and will strengthen ties with Taiwan, while they are also concerned about China's actions in Xinjiang. (Newswires)

US Secretary of State Blinken said the US will stand with Australia against pressure from China and noted that "this is an unshakable alliance", while he also raised concerns about China's use of economic coercion against Australia and said US looks forward to close cooperation with NATO and EU in Indo-Pacific endeavour. There were also comments from US Defense Secretary Austin that he spoke in detail with Australian counterparts about China's destablizing activities and that officials embraced major force posture initiatives that will enhance US presence and access in Australia. Austin added that the US will continue to explore greater engagement, more ground forces training, and increasing the logistical footprint in Australia. Furthermore, Australian Foreign Minister Payne said US alliance is well suited for countering economic coercion but added there are constructive areas for engagement with China and that Australia continues to seek dialogue, while Australian Defence Minister Dutton said new force posture will include greater air cooperation through rotational deployments of all types of US military aircraft to Australia. (Newswires)

The White House said it is not seeking conflict with China and that the US values partnership with France, while it does not see the partnership with US and Australia as a regional divide. There were also comments from France's President Macron that he will discuss the Indo-Pacific situation with German Chancellor Merkel. (Newswires)

China’s Global Times tweeted that new EU-China strategy report highlights both sides are systemic rivals which is not the right way to improve ties and that it makes baseless comments on China's internal affairs, violating basic norms in global relations, citing a spokesman. (Twitter)

North Korea is reportedly expanding a uranium-enrichment plant which could boost the nation's capabilities to develop weapons-grade material, according to reports citing satellite images. (The Times)

German officials have repeatedly warned Russia to stop a wave of cyber attacks which have reportedly intensified ahead of the German election. (Newswires)

Ukraine and US are to hold joint military drills next week, according to Ukrainian General's staff. (Newswires)

US

Treasuries were sold hardest in the belly as strong Retail Sales and survey data keeps Fed timelines intact. By settlement, 2s +0.6bps at 0.219%, 3s +1.9bps at 0.457%, 5s +3.4bps at 0.834%, 7s +3.5bps at 1.130%, 10s +2.7bps at 1.331%, 20s +1.6bps at 1.821%, 30s +1.2bps at 1.881%; TYZ1 volumes were inline with recent averages. Inflation breakevens widened; 5yr TIPS +1.6bps at -1.774%, 10yr TIPS +2.2bps at -1.023%, 30yr TIPS +0.5bps at -0.347%. Eurodollars saw steepening from the reds (2nd year) out, with Z2 -0.5bps at 99.565, Z3 -3.5bps at 98.955, Z4 -5.5bps at 98.58. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. The simultaneous headline beat in the September Philly Fed Mfg. survey also supported the bond selling. Selling extended for the hour or so after the release to take T-Notes to session lows of 132-30, with cash 10s printing a yield high of 1.35%, taking yields (and inflation breakevens) back to pre-CPI announcement levels from Tuesday – German Bund yields hit multi-month highs at -0.28% also. It was also noteworthy that it was the US belly being sold the hardest, with the Fed hike path-sensitive sector taking note from the increased rate hike probabilities being priced in Eurodollars – Thursday's data gives further support to the Fed taper timeline. Yields did pare however slightly off lows after a shaky cash equity open in NY, with the long-end paring the most, but ultimately still cheaper on the session, particularly the intermediates. Traders now look to Friday's prelim. Uni of Michigan survey for September, with attention on the consumer inflation expectation metrics on the back of Monday's NY Fed survey estimates rising to survey highs. T-note (Z1) futures settled 9+ ticks lower at 133-03.

White House said US President Biden had positive discussions with House Speaker Pelosi and Senate Majority Leader Schumer regarding progress in advancing the Build Back Better agenda and agreed the need to repeal Trump-era tax cuts. (Newswires)

White House said Treasury Secretary Yellen conveyed the negative impact of not raising the debt limit during her call with Senate Minority Leader McConnell. In separate news, the US House panel group is to take up the stopgap funding bill on Monday. (Newswires)