• European bourses trade with losses across the board; US equity futures conform to the risk aversion with NQ narrowly outperforming vs RTY
• Asia-Pac stocks were spooked at the start of the week; Mainland China, Japan, South Korea and Taiwan were closed
• Evergrande fell 17% on default fears; executives redeemed some company investment products in advance earlier this year
• In FX, DXY and JPY are bolstered and core debt is bid, US yield curve bull-flattens, while EUR/USD has tested 1.1700 to the downside
• US Treasury Secretary Yellen called for Congress to raise the debt limit to avoid the Treasury’s cash balance declining to an insufficient level
• 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 ECB's Schnabel and Canadian Election

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 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)

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 (-3.3%) 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)

Fitch says on China property developers': if contracted sales fall, credit profiles may worsen for some time; view will turn negative if sales in H2 2021 fall below that achieved in H2 2019 and/or if sharp fall follows through to H1 2022; adds, government policies in the sector remain tight and show no signs of imminent loosening. (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)

US

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)

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)

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. 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) Elsewhere, the EU Parliament Trade Committee Chair says it will be much more complicated to conclude the EU-Australia agreement. (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)

EQUITIES

Equities in Europe have extended on the losses seen at the cash open (Euro Stoxx 50 -2.0%; Stoxx 600 -1.8%) as the risk aversion from APAC seeped into the region and intensified, with liquidity overnight also low on account of major market closures including Mainland China (and Stock Connect), Japan and South Korea. China's Evergrande was again the focus overnight as shares plumbed the depths amid the ongoing default woes, with contagion also hitting peers in illiquid trade. The mood could also be dampened by woes surrounding the US debt limit, with Treasury Secretary Yellen warning that 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, whilst 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. Add to that the newsflow surrounding fears of UK energy suppliers' collapse alongside the geopolitical row between Australia and France, which expands out to the UK, the US and China. Long-story-short, there is not much in terms of good news, with participants also look ahead to Flash PMIs and a raft of Central Bank meetings, including the FOMC, BoE and BoJ. US equity futures have also succumbed to the risk aversion, with the NQ (-1.2%) feeling some modest cushioning from lower yields vs the ES (-1.4%), RTY (-1.9%) and YM (-1.6%). The NQ has fallen under its 50 DMA (around 15,170) whilst the RTY slipped under its 200 DMA (2,200). Back in Europe, bourses see broad-based losses. The expansion of the German bourse also came into effect, but the DAX 40 (-2.0%) nonetheless conforms to losses across the region. The CAC 40 (-2.3%) narrowly underperforms the region amid losses across several heavy-weight. Sectors in Europe are all in the red by hold a defensive bias. Basic Resources underperform, with the European basic materials stock index falling 5% to hit its lowest since February 4th. Healthcare is cushioned by AstraZeneca's (+3.2%) rise amid a couple of positive drug updates: Imfinzi plus chemotherapy tripled patient survival at three in extensive-stage small-cell lung cancer. Separately, Enhertu reduced the risk of disease progression or death by 72% vs trastuzumab emtansine (T-DM1) in patients with HER2-positive metastatic breast cancer. Meanwhile, UK energy suppliers see tailwinds from the defensive nature of the sector, offsetting some concerns surround the collapse of UK energy providers amid the rise of gas prices, with sources via The Telegraph also suggesting the UK price cap is to remain in place to protect consumers. Elsewhere, Deutsche Lufthansa (+2.8%) took a 180 on earlier losses that stemmed from a capital raise. There wasn't anything in terms of news to induce the upside, although last week there were reports of a potential sale or IPO of its MRO unit, whilst commentary from the Co. was also constructive.

FX

DXY/JPY/CHF/XAU - The Dollar has extended its marked recovery from post-US CPI (and NFP) lows to register fresh peaks almost across the board, and with the latest legs up prompted by broad risk aversion rather than bullish fundamentals as such following a somewhat mixed Michigan sentiment survey last Friday. To recap, the index breached 93.000 ahead of the weekend amidst weakness in stock markets on a number of factors including Quad Witching, but the more recent deterioration in sentiment has emanated from steeper declines in crude and other commodities alongside further depreciation in Evergrande’s share price against the backdrop of ongoing concerns about Delta contagion and in thin, illiquid trading conditions due to holidays in mainland China, Japan, South Korea and Taiwan. The DXY recently topped 93.400 before fading, but remains firm ahead of the NAHB housing index and data before this week’s FOMC. However, the Yen is actually outperforming having rebounded from just under 110.00, while the Franc has pared some declines from sub-0.9300 and Gold is trying to find a base around Usd 1750/oz as Treasury yields ease back and the curve reverts to flattening mode.

NOK/GBP - Brent’s reversal towards Usd 74/brl compared to Usd 76+ at one stage on September 15 has eroded more Norges Bank rate hike premium from the Norwegian Crown, while Sterling is also recoiling as a cyclical currency after displaying relative resilience on hawkish BoE vibes of late. Eur/Nok is now hovering around 10.2600 and Cable is striving to contain losses having run into resistance circa 1.3750 and losing support at 1.3700.

AUD/CAD/SEK - No respite for the Aussie from an exit plan and route out of lockdown in Melbourne, Victoria, as iron or prices are crushed again and Aud/Usd retreats through 0.7250 awaiting the latest set of RBA minutes, and the Loonie has been undermined by further WTI retracement alongside a degree of political uncertainty given signs that Canada’s election will go right down to the wire, with Usd/Cad just above 1.2800. Elsewhere, risk-off positioning is weighing on the Swedish Krona towards the bottom of an equidistant range around 10.2000 against the Euro on the eve of the Riksbank policy meeting even though the tone might turn more hawkish following much stronger than forecast inflation data in August.

EUR/NZD - The Euro is embroiled in another tussle, but this time the task is to keep its head over 1.1700 vs the Greenback as it trips stops said to be sitting at 1.1704 (August 20 low), and at this stage decent option expiry interest between 1.1720-30 (1.1 bn) could be capping Eur/Usd rather than exerting any magnetic influence. Similarly, the Kiwi is facing a battle to retain 0.7000+ status as NZ’s services PMI joined the manufacturing index in sub-50.0 territory to counter better news on the COVID-19 front as Auckland’s alert level moves down to level 3 from Tuesday.

EM - Widespread underperformance vs the Usd on all the factors listed above, though also jitters ahead of a host of Central Bank convenes post-Fed.

Russian President Putin’s ruling party has secured a two-thirds majority, after initial reports it was 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)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1720-30 (1.1BLN), 1.1750 (423M), 1.1800 (825M)
• USD/JPY: 109.00 (1.1BLN), 109.95-110.05 (525M), 111.00 (400M)

FIXED

Far from all change, but a marked shift in sentiment and turnaround in fortunes for bonds at the expense of stocks and other riskier assets, like oil and industrial metals. Bunds, Gilts and US Treasuries reached lofty recovery highs, of 171.62 (+62 ticks on the day), 127.40 (+46 ticks) and 133-03 for the 10 year T-note before fading, but have cleared several technical hurdles along the way as a busy week begins with a pronounced loss of risk appetite on multiple factors that have been brewing. More immediately, NAHB’s September index represents the sole release in the pm session and on a relatively quiet Monday in terms of the overall agenda.

COMMODITIES

WTI and Brent front-month futures continue to drift lower, and the complex conforms to the risk-off mood across the market alongside some supply-side developments over the weekend. Firstly, the Iraqi oil minister suggested that OPEC+ is working to maintain a price of USD 70/bbl for Q1 next year and will likely keep the oil deal unchanged during the next meeting in October if prices remain stable. Note – sources via Energy Intel in July suggested a potential pause in the deal amid a lower demand forecast in H1 2022 at the time. Further, the Iranian Foreign Ministry said the nation might hold talks on restoring the 2015 nuclear deal on the sidelines of the United Nations General Assembly next week. That being said, Iran recently reaffirmed the same stance it had during the prior talks earlier this year. WTI Oct has declined back under USD 71.00/bbl (vs high USD 72.08/bbl) whilst Brent Nov moves closer towards USD 74/bbl (vs high USD 75.40/bbl). In terms of bank commentary and amid the ongoing gas crunch, Goldman Sachs noted that tight global gas supplies could create a meaningful bullish catalyst for oil this winter - larger than the downside risk from another COVID wave. The analysts added that a 900k BPD demand uplift from potentially colder winter could lead USD 5/bbl increase on its Q4 2021 USD 80/bbl Brent forecast. It's also worth noting that Chinese Premier Li reiterated that the government would continue its efforts to stabilize commodity prices through a variety of measures. This would be viable for base metals and crude, given that those were the main driving forces in the recent PPI metrics. Base metals have also been hit, with LME copper moving ever closer to USD 9,000/t, having hit a current intraday low of USD 9,053/t. Dalian iron ore prices also saw a slump overnight, with traders citing the ongoing steel curbs dampening demand. Spot gold and silver continue to consolidate following last week's hefty losses ahead of a risk-packed week.

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)

Goldman Sachs on oil, says a 900k BPD demand uplift from potentially colder winter could lead USD 5/bbl increase on its Q4 2021 USD 80/bbl Brent forecast. (Newswires)

Equinor (EQNR NO) has won permission to increase gas exports to Europe from Troll and Oseberg; are also looking at other ways to boost gas output, including ways to increase calorific value; there is spare capacity in Norway's offshore pipeline systems. (Newswires)

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