• Asia-Pac stocks were spooked at the start of the week; Mainland China, Japan, South Korea and Taiwan were closed
• US equity futures also slipped overnight with the RTY underperforming, NQ losses were less pronounced
• In FX, DXY extended gains above 93.00, USD/JPY fell under 110.00, and antipodeans underperformed
• Evergrande fell 17% on default fears; executives redeemed some company investment products in advance earlier this year
• US Treasury Secretary Yellen called for Congress to raise the debt limit to avoid the Treasury’s cash balance declining to an insufficient level
• Iraq’s Oil Minister said OPEC+ is working to maintain a price of USD 70/bbl for Q1 next year
• Iran Foreign Ministry said the nation may hold talks on the nuclear deal on the sidelines of the UN General Assembly next week
• Looking ahead, highlights include German Producer Prices, Canadian Elections, ECB's Schnabel

CORONAVIRUS UPDATE

NIH’s Fauci stated that the FDA’s final decision regarding permitting booster shots is expected in the week ahead. There were also recent comments from White House COVID adviser Zients who reiterated that the US has plenty of supply to provide for all boosters pending regulators' recommendations and that the US would be ready to start boosters next week if approved. (Newswires)

US FDA advisory committee voted against Pfzier (PFE)/BioNTech (BNTX) booster shots for ages of 16 and over in which 2 voted yes, 16 no and 0 abstained. Furthermore, there were prior reports that it could propose a modified voting question if it voted against Pfizer's booster application, while it unanimously voted to approve Pfizer/ BioNTech vaccine as boosters for those aged 65 and older and those at high risk. (Newswires)

US CDC advisory group said it will take up the need for booster shots at a meeting scheduled for September 22nd-23rd, which makes it all but certain that no booster rollout will happen on Monday which was previously suggested as a date to possibly get boosters. It was also reported that CDC cautioned state health officials last week not to give booster shots until there is regulatory action by the FDA and a recommendation from the CDC. (Fox Business News/Washington Post)

US CDC study noted that all three US-approved COVID-19 vaccines are found to be effective, while it added the Moderna (MRNA) vaccine stayed highly protective and Pfizer (PFE) shot's protection against hospitalization waned in the study which saw a reduction in hospitalisation protection from 91% to 77% after four months. (Newswires)

US is to buy hundreds of millions more doses of the Pfizer (PFE)/BioNTech (BNTX) vaccine to donate to the world. (Washington Post)

Japan is reportedly mulling lifting the state of emergency at the end of the month. (Newswires)

New Zealand PM Ardern said the Auckland lockdown is to be eased to level 3 from midnight on Tuesday and will stay at level 3 for at least two weeks, while the rest of the country will stay on level 2. (Newswires)

Australia's Melbourne is to exit its COVID-19 lockdown once 70% of Victoria state is fully vaccinated and the limits on “reasons to leave your home and the curfew" will no longer be in place once the vaccination target is reached around October 26th. (Newswires)

ASIA

Asia-Pac stocks were spooked at the start of the week amid Evergrande contagion concerns and a continued slump in commodities, while the weakness also followed on from last Friday’s losses on Wall Street and with risk appetite dampened by the key holiday closures, as well the upcoming busy schedule of central bank updates including policy meetings from the FOMC, BoE and BoJ. The ASX 200 (-2.1%) was pressured by underperformance in mining names amid ongoing woes in underlying commodity prices that recently saw a more than 20% weekly decline in iron ore prices for its worst week since the GFC, which dragged prices beneath the USD 100/ton for the first time in 14 months. Conversely, M&A newsflow spurred the stocks at the other end of the spectrum with ALE Property Group boosted after Charter Hall consortium proposed to acquire a 50% stake in the Co. and AusNet Services also saw double-digit percentage gains after it received a AUD 9.8bln takeover proposal from a Brookfield Asset Management affiliate. The Hang Seng (-4.8%) plunged as focus remained on Evergrande which declined by another 17% on default fears, with the concerns not helped by reports that executives redeemed some company investment products in advance earlier this year and are facing severe punishment for securing early redemptions, while banks were also said to be unwilling to provide debt insurance concerning Evergrande and the Co. reportedly began repaying investors in its wealth management products with discounted real estate. The Evergrande woes pressured other real estate names in Hong Kong and resulted in contagion effects for property-exposed insurers, with the mood also dampened following the “patriots only” election in Hong Kong where less than 5.0k electorates voted to choose members of the 1,500-strong Election Committee in which only 1 democracy-leaning candidate won a seat among the candidates which were vetted as loyal to Beijing. The absence of Stock Connect trade further added to the lack of demand as mainland China was closed for the mid-Autumn festival, alongside the holiday closures in Japan, South Korea and Taiwan.

PBoC injected CNY 50bln liquidity via 7-day reverse repos and CNY 50bin yuan via 14-day reverse repos for a net CNY 100bln injection on Saturday. (Newswires)

China’s top regulators defended their crackdown on various industries during a meeting with Wall Street executives and reassured them that tighter regulations aren’t aimed at stifling technology companies or the private sector. In other news, TikTok restricted the daily screen time for Chinese youths under the age of 14 to just 40 minutes and Macau officials are to meet gaming industry names today to consult on proposed casino law revisions that had been announced last week. (Newswires)

Evergrande stated the some of its executives redeemed some company investment products in advance earlier this year and bosses are reportedly facing severe punishment for securing early redemptions, while the Co. was said to have begun repaying investors in its wealth management products with discounted real estate. Furthermore, reports noted that a key test for whether the Co. will continue to meet its obligations will be on Thursday when interest payments on two Evergrande notes come due. (Newswires)

Chinese customs authorities announced that they would stop the import of custard and wax apples from Taiwan due to pest concerns, while Taiwan’s Foreign Minister said that this was a “hostile move” amid souring relations between the two governments and Taiwan was reported to threaten to take China to the WTO. (Newswires)

Kyodo News poll showed Japanese vaccines chief Kono was favoured among 49% of respondents, followed by former foreign minister Kishida with 19%, while Takaichi was at 16% and Noda at 3%. (Newswires) Mainichi poll shows Japanese LDP's Kishida is reportedly favoured to be the next party leader. (Mainichi)

Boxing star Manny Pacquiao announced that he will run for president of the Philippines in next year’s election after railing against corruption in government and what he calls President Rodrigo Duterte's cosy relationship with China. (Newswires)

UK/EU

The UK government is in discussions with the energy industry over how to tackle the predicted collapse of small energy suppliers amid the gas and electricity price surges. The Times suggests UK consumers could end up with the bill, with two senior industry sources predicting the bill could be several billions of pounds if energy suppliers go under. Under another option, the government could use loan guarantees to larger energy suppliers to take on extra costs of taking on failed suppliers’ customers. (Times) UK ministers are said to be preparing support measures amid the gas crisis, with energy companies asking for government bailout. Industry sources also suggested that VAT or green levies on energy bills could be frozen or reformed to ease the burden on prices. Government sources confirmed the energy price cap will remain to provide some protection to consumers. (Telegraph)

UK PM Johnson is to press for the US to open up for UK visitors, while he will also reportedly to challenge Amazon (AMZN) founder Bezos regarding the Co.'s tax record during a face-to-face meeting. (Newswires/Telegraph)

UK’s Housing, Communities and Local Government Minister Gove’s department was renamed the Department for Levelling Up, Housing and Communities, while former BoE chief economist Haldane has been appointed head of a new levelling up taskforce formed jointly by Gove and PM Johnson. (Newswires)

Latest Insa poll for Bild am Sonntag showed that support for SPD was unchanged at 26% and support for Merkel’s CDU/CSU increased by 1ppt to 21%, while it was also reported that snap Forsa poll showed SPD’s Scholz was seen to have won the television debate a week prior to the election. (Newswires)

German SPD’s Scholz said conditions for a potential coalition partner would include support for taxing the rich. Furthermore, he’d also require backing for raising the minimum wage to EUR 12 next year, while he added the pension level will remain stable and the retirement age will not rise any further. (Newswires)

FX

In FX, the DXY remained firmer after having climbed above the 93.00 level late last week as the haven currency was spurred by the risk aversion and losses in its major counterparts with underperformance in activity currencies. This week’s focus for the currency will be on the FOMC on Wednesday, while the US House is also said to vote on the debt ceiling this week and time is running short on getting a stopgap funding measure to avoid a shutdown at month-end. EUR/USD was pressured by the firmer greenback with the single currency at its lowest level in almost a month. GBP/USD was also pressured but with downside stemmed by support at 1.3700 and commodity-linked currencies were lacklustre due to recent losses in oil and metal prices with antipodeans also constrained by their high-beta statuses, while attention for CAD turns to today’s federal election which is now seen as a close race with PM Trudeau’s Liberals and Conservatives headed by O’Toole polling around 30% each although the Liberals are expected to clinch more seats for another minority government.

Russian President Putin’s ruling party is set to win a decisive victory in legislative polls despite simmering discontent after side-lining political opponents with preliminary results showing Putin’s party winning 38.57% in parliamentary vote and Insomar exit poll suggested the ruling party will win the election with around 45%. (Newswires/RIA)

COMMODITIES

Commodities were lower as risk appetite took a hit on Evergrande contagion fears and with many Asia-Pac participants away for holiday. WTI crude futures approached Friday's lows of around USD 71.20/bbl. Furthermore, there were recent comments from Iraq's Oil Minister that OPEC+ is working to maintain a price of USD 70/bbl for Q1 2022 and that the group will likely maintain the output agreement at next month's meeting if prices remain stable. Gold was subdued around USD 1750/oz with the precious metal hampered by a firmer greenback but with losses also stemmed ahead of the FOMC, and copper prices suffered as risk assets were spooked amid worries of an Evergrande default which pressured the property sector and contributed to the continued slump in iron ore futures which suffered intraday losses of around 10% after having recently posted the worst weekly performance since the 2008 financial crisis.

US Baker Hughes Rig Count (w/e Sept 17th): Oil +10 at 411, Nat Gas -1 at 100, and Total +9 at 512. (Newswires)

Iraq Oil Minister said the global economy is recovering and expects oil prices to set at above USD 65/bbl. Iraq’s Oil Minister added that OPEC+ is working to maintain a price of USD 70/bbl for Q1 next year and will likely keep the same oil deal unchanged during the next meeting in October if prices remain stable, although any possible future lockdowns or decreases in prices could impact the next meeting decisions. (Newswires)

Chinese Premier Li said the government will continue its efforts to stabilize commodity prices through a variety of measures. (Xinhua)

GEOPOLITICAL

French President Macron is to hold a call with US President Biden in the approaching few days with the country said to be seeking clarification regarding the cancellation of the submarine order by Australia in favour of the AUKUS security pact, while France was said to have cancelled a defence meeting with the UK following the submarine row. It was also reported that France recalled its ambassadors from the US and Australia for consultations and said the "exceptional" decision was made after the seriousness of the US and Australian announcement on September 15th, while a source said there is no need to recall ambassador to the UK over the deal. Furthermore, Australian PM Morrison said they understand France’s disappointment regarding the submarine deal and are disappointed about the French recall of its ambassador but added that national interest comes first and he doesn’t regret the decision. (Newswires)

Iran Foreign Ministry said the nation may hold talks on restoring the 2015 nuclear deal on the sidelines of the United Nations General Assembly next week. (Newswires)

US

Treasuries saw another belly-led sell-off to end the week as participants position into next week's FOMC. By settlement, 2s +0.9bps at 0.226%, 3s +1.6bps at 0.473%, 5s +3.2bps at 0.866%, 7s +3.7bps at 1.167%, 10s +3.9bps at 1.370%, 20s +3.6bps at 1.857%, 30s +2.8bps at 1.909%; TYZ1 volumes were average. Inflation breakevens fell after 5yr TIPS +5.6bps at -1.718%, 10yr TIPS +4.9bps at -0.974%, 30yr TIPS +3.4bps at -0.313%. Eurodollars steepened, with the EDZ2-EDZ4 spread rising 3.5bps to 104bps, where it hasn't been since early July. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. As NY got going, the belly of the Treasury curve was hardest sold, with heavy activity in November 5yr puts while spot 5s flirted above key support at 0.87% – levels it hasn't been above this cycle since the pronounced curve bear-flattening in June post-FOMC hawkish dot plots, and before that, not since the early Q2 peak bond bearishness on heavy reflation trade exposure. As the selling picked up, IFR noted that a flurry had been linked to risk parity trades, "selling Treasuries as stocks continue to weaken on tax hike uncertainties", ahead of E-mini S&P futures testing the 50dma support. Note that in wake of the UoM survey data, inflation breakevens began to decline (seemingly not a reaction to the rise in the consumer inflation expectations) as real yields played catch up to the earlier selling in nominals. Desks were citing participants positioning into the FOMC next week, with intermediate real yields hardest hit given that sector of the curve being most sensitive to selling on the back of hawkish Fed signalling. On a positioning basis too, the TIPS universe looks vulnerable to bouts of profit-taking. UBS wrote recently, "Net inflation-related ETF flows have been remarkably strong in 2021, and now exceed the peak inflows for each of the prior six years, particularly in shorter dated inflation protected ETFs". T-note (Z1) futures settled 10 ticks lower at 132-25.

US Treasury Secretary Yellen called for Congress to raise the debt limit in a WSJ Opinion article and said that if not, the Treasury Department’s cash balance will decline to an insufficient level and the government will not be able to pay its bills sometime in October. (WSJ)

US Democrat Senator Manchin reportedly thinks that Congress should take a strategic pause until next year before voting on President Biden’s USD 3.5tln spending plan. In relevant news, House Budget Chair Yarmuth said the economic agenda is likely to slip to early October and that no decision was made on tying the debt limit to government funding, while he suspects that the headline number will be somewhat below USD 3.5tln. (Newswires/Axios)