• Equities have come under pressure on Quad Witching Day, ES -0.3%, Euro Stoxx 50 -0.1%
• In FX, the DXY has pulled back to the modest benefit of peers while debt is softer but off worst levels
• 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; de Cos and Kazaks also spoke
• 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 US University of Michigan (Prelim.), ECB Survey of Monetary Analysts publication & Quadruple Witching

CORONAVIRUS UPDATE

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)

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 (-0.8%) 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 (+0.6%) 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 (+1.0%) and the Shanghai Comp. (+0.2%) 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. (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%)

US

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)

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)

UK Retail Sales MM (Aug) -0.9% vs. Exp. 0.5% (Prev. -2.5%, Rev. -2.8%); Ex-Fuel MM (Aug) -1.2% vs. Exp. 0.8% (Prev. -2.4%, Rev. -3.2%)

• YY (Aug) 0.00% vs. Exp. 2.7% (Prev. 2.4%, Rev. 1.9%); Ex-Fuel YY (Aug) -0.9% vs. Exp. 2.5% (Prev. 1.8%, Rev. 0.9%)

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) Subsequently, ECB's de Cos said market expectations do not foresee a rate hike in 2023.

ECB's Kazaks says the inflation outlook is likely to be revised higher and inflation will likely be higher than expected if there are no more shocks. (Newswires)

EU HICP Final YY (Aug) 3.0% vs. Exp. 3.0% (Prev. 3.0%); X F&E Final YY (Aug) 1.6% vs. Exp. 1.6% (Prev. 1.6%)

• X F,E,A&T Final YY (Aug) 1.6% vs. Exp. 1.6% (Prev. 1.6%)

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)

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)

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) Seperately, reported via Sputnik that the Russian online voting system suffered DDOS-attack coming from US, German, Ukrainian IPs.

EQUITIES

Bourses in Europe has conformed to a mixed picture (Euro Stoxx 50 -0.3%; Stoxx 600 -0.3%) after failing to hold into the +1% gains seen at the open for the bellwether index, whilst Euro futures now mostly lower on Quad Witching Day. The FTSE 100 Dec contract fell under 7,000 as the Sep contract expired. US equity futures meanwhile have seen somewhat of a contained divergence before adopting a downside bias, with the RTY narrowly lagging. Back to Europe, the FTSE 100 (-0.1%) is among the straddlers in the region as the Basic Resource sector is once again under pressure – with the biggest losers in the index currently Anglo American (-3.5), Rio Tinto (-2.2%) and BHP (-1.7%) – with the former seeing a downgrade at Morgan Stanley, whilst Glencore (+0.1%) bucks the trend amid an upgrade at the bank. Euro-bourses see broad-based gains. Delving deeper into sectors, Autos and Parts are also on the backfoot amid the ongoing chip shortage. On the flip side, Travel & Leisure leads the gains with reports stating the UK travel red list could be more than halved from its current 62 for the double-jabbed, according to The Times. 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. In terms of individual movers, Commerzbank (+3.3%) holds onto gains after Handelsblatt reported that Cerberus is reportedly considering increasing its stake in the Co. from the current 5% mark via taking on the German state's 15.6% interest in Commerzbank if the German state wishes to sell its holding.

Infineon (IFX GY) CEO expects chip prices to increase significantly. (Newswires)

FX

USD - The Dollar has lost some of its retail sales vigour and Philly Fed fizz amidst signs of stabilisation in US Treasuries, both outright and from a yield curve perspective, while technical traders may also be a bit discouraged by the fact that the DXY did not quite have the legs to at least touch the psychological 93.000 mark when upside momentum was building yesterday. Hence, the index has drifted back down into a comparatively tight 92.639-760 range vs 92.965-467 extremes on Thursday and the Buck has unwound gains vs most major peers bar the Yen that is retreating closer to 110.00 again. Ahead, eyes on preliminary Michigan sentiment to see if the survey echoes upbeat regional vibes for September that kicked off with the Empire State, but also monitoring stocks over Quad Witching.

AUD/CAD/NZD - No surprise to see the Aussie strike while the Greenback is waning after its sharp decline on multiple factors this week (dovish RBA rate guidance, ongoing slump in iron ore, poor jobs data and heightened tensions with China), as Aud/Usd reclaims 0.7300+ status and the Aud/Nzd cross also regains some composure on the 1.0300 handle as the Kiwi lags below 0.7100 against its US counterpart in wake of a marked deterioration in NZ manufacturing PMI into contractionary territory. However, the Aussie may find further upside progress capped by decent option expiry interest at the 0.7325 strike (1 bn) or even get drawn back to similar size at the round number (1.1 bn to be precise), and the same goes for the Loonie given expiries between 1.2635-50 (1 bn) and at 1.2700 (1 bn), not to mention the loss of bullish impetus from WTI crude that is consolidating around Usd 72/brl. Nevertheless, Usd/Cad has retreated a bit further from w-t-d peaks to pivot 1.2650 between 1.2708-1.2600 parameters.

EUR/CHF/GBP - All marginally firmer vs the Dollar, but unconvincingly and still on course to end the week with net losses as the Euro meanders below 1.1800 and above 1.1750 where hefty option expiries reside (1.2 bn and 1.8 bn trailing down to 1.1745), the Franc straddles 0.9270 and Sterling rotates either side of 1.3800 following disappointing UK retail sales data and a pick-up in inflation expectations via the latest BoE/Kantar Attitudes Survey. Note also, Cable appears contained to an extent by technical levels in the form of the 50 and 21 DMAs that are situated at 1.3803 and 1.3780 respectively today, while Eur/Gbp is flirting with its 50 DMA at 0.8543 after rejecting or respecting 0.8500 on Thursday.

JPY - As noted at the outset, the Yen is underperforming having narrowly failed to breach 109.00 and Usd/Jpy now looks intent on testing resistance/offers at the big figure above pending any further repatriation for month, Q3 and Japanese half FY end or another change in chart and fundamental dynamics.

SCANDI/EM - The Nok does not look too fazed by the pull-back in Brent as it eyes a Norges Bank hike, but the Rub, Mxn and Zar are on a weaker footing, while the Try has fallen further in advance of September’s CBRT policy meeting as year end inflation projections rise again. Conversely, the Cnh and Cny are on an even keel into a long Chinese holiday weekend with 7 and 14 day liquidity provided by the PBoC.

CBR Governor Nabiullina says they will consider possible further key rate increases in one or a couple of steps at upcoming meetings. (Newswires)

South Africa's top court says there was a majority decision that former president Zuma has failed his bid to have his sentence overturned. (Newswires)

FIXED

The latest sell-off in bonds has been relatively measured and gradual, but the overriding trend remains intact as bouts of short covering and consolidation become less pronounced before another plateau and retreat to deeper lows in the case of Bunds that recently ducked under 171.00 to 170.98 (-45 ticks on the day) and with the corresponding 10 year yield making a more decisive break above -30 bp. However, Gilts have also restested yesterday’s 127.15 Liffe base (23 ticks sub-par) and probably only held by virtue of bad UK retail sales data, while US Treasuries are hugging troughs within tight overnight session confines awaiting Michigan sentiment for its take on activity so far this month, but also inflation expectations.

COMMODITIES

WTI and Brent front month futures have been trimming the gains seen since yesterday’s European close, with the former now threatening a breach of USD 72/bbl to the downside (vs high 72.72/bbl) and the latter just north of USD 75/bbl (vs high 72.78/bbl). News flow has been light, but prices saw crude prices saw leg lower heading into the European cash open, seemingly in tandem with NatGas prices as Europe reacted to Biden’s commentary suggesting that there is evidence that gas prices should be falling and his admin is investigating why that was not the case. Aside from that, crude price action has been dictated by the overall market mood and price action in stocks. Turning to metals, spot gold and silver consolidate following yesterdays deep declines which saw the yellow metal briefly dip under USD 1,750/oz. Base metals meanwhile nurse yesterday’s losses, with, but LME copper remains sub-USD 9,500/t. Base metals, name iron and copper, are on the watch for any retaliation by China on Australia following the AUKUS security pact.

IEA's Birol says he would be surprised to see oil at USD 100/bbl in 2021, expects elevated gas prices to stay for weeks. (Newswires)