• Asian equities traded cautiously following the recent downbeat global risk appetite
• Wall Street saw its heaviest losses since May with the S&P closing lower by 1.7%
• In FX, the DXY was rangebound above 93.00, EUR/USD was steady after finding support at 1.17 and GBP/USD nursed losses sub-1.37
• Canadian PM Trudeau is projected to win a 3rd term with his Liberal party set to form a minority government
• US House Speaker Pelosi and Senate Majority Leader Schumer confirmed the continuing resolution to deal with the debt limit
• Looking ahead, highlights include Riksbank rate decision, US housing starts & building permits, ECB's de Guindos, supply from Germany & the US

CORONAVIRUS UPDATE

India expects the first Johnson & Johnson (JNJ) COVID-19 vaccine doses next month. (Newswires)

New South Wales announced the Byron Bay area will be placed under lockdown for seven days from 17:00 local time today. (Newswires)

Japan is mulling lifting the virus emergency and will make a decision on September 28th. (FNN)

ASIA

Asian equities traded cautiously following the recent downbeat global risk appetite due to Evergrande contagion concerns which resulted in the worst day for Wall Street since May, with the region also contending with holiday-thinned conditions due to the ongoing closures in China, South Korea and Taiwan. ASX 200 (+0.2%) was indecisive with a rebound in the mining-related sectors counterbalanced by underperformance in utilities, financials and tech, while there were also reports that the Byron Bay area in New South Wales will be subject to a seven-day lockdown from this evening. Nikkei 225 (-1.8%) was heavily pressured and relinquished the 30k status as it played catch up to the contagion downturn on return from the extended weekend with recent detrimental currency inflows also contributing to the losses for exporters. Hang Seng (-0.3%) was choppy amid the continued absence of mainland participants with markets second-guessing whether Chinese authorities will intervene in the event of an Evergrande collapse, while shares in the world’s most indebted developer fluctuated and wiped out an early rebound, although affiliate Evergrande Property Services and other property names fared better after Sun Hung Kai disputed reports of China pressuring Hong Kong developers and with Guangzhou R&F Properties boosted by reports major shareholders pledged funds in the Co. which is also selling key assets to Country Garden. Finally, 10yr JGBs were higher amid the underperformance in Japanese stocks and with the Japan Securities Dealers Association recently noting that global funds purchased the most ultra-long Japanese bonds since 2014, although upside was limited amid softer demand at the enhanced liquidity auction for 2yr-20yr maturities and with the BoJ kickstarting its two-day policy meeting.

China Evergrande (3333 HK) Chairman is confident the Co. will walk out of its darkest moment and deliver property projects, while he added they will fulfill responsibilities to property buyers, investors, partners and financial institutions. There were also comments from S&P that it doesn't expect the Chinese government to provide any support for China Evergrande, although ING's Chief Economist for Greater China expects the Chinese government restructuring team to help Evergrande get some capital but may be required to sell stakes to a third party. (Newswires)

China appealed the panel report regarding US duties on photovoltaic cells via WTO. (Newswires)

UK/EU

UK Business and Energy Secretary Kwarteng and Ofgem Chief Brearley said in the event that an energy supplier fails, they are committed that consumers face the least amount of disruption and noted they agreed on the position that the energy price cap will remain in place. (Newswires)

US Trade Chief Tai met with UK Trade Secretary Trevelyan and emphasized the commitment to deepen bilateral trade and investment ties, while they agreed to continue talks on addressing market-distorting practices of China and other non-market economies. (Newswires)

ECB's Villeroy said the recent strength of inflation is temporary and stated 'no doubt' inflation rate is to fall below 2% by 2023 and that the ECB needs to keep policy accommodative. (Newswires)

US President Biden has asked to speak with French President Macron to stress the desire for a closer working relationship on Indo-Pacific and other issues, although the time for a call was not yet set. (Newswires)

EU Commissioner for Internal Markets Breton warned that something is broken regarding transatlantic relations, as tensions related to AUKUS pact threatening to impact trade and technology. (FT)

Australian PM Morrison said issues with EU on trade will be worked through in the approaching weeks and months but noted it is not easy to get an agreement with the EU on trade, while it was also reported that EU Foreign Policy Chief Borrell and Australian Foreign Minister Payne discussed the AUKUS collaboration. (Newswires)

FX

In FX markets, the DXY remained rangebound above the 93.00 level after failing to fully benefit from the risk aversion stateside as the recent gains against activity currencies were offset by lost ground to its haven peers, with the greenback also contained by a lack of data releases and positioning ahead of the FOMC. There was plenty of attention on Congress where House Speaker Pelosi and Senate Majority Leader Schumer confirmed the inclusion of a debt ceiling suspension to December 2022 in their bill to fund the fund the government which will be unveiled on Tuesday for a potential floor vote, while Pelosi separately noted that she hopes the USD 3.5tln spending bill will pass but there may be adjustments and that the top line number could change. EUR/USD was rangebound after having bounced off support at 1.1700 yesterday. GBP/USD nursed some losses after its recent drop beneath 1.3700 but with price action limited ahead of the BoE meeting this week and amid light pertinent newsflow although a senior EU diplomat reiterated that the EU will not renegotiate the Irish protocol but stands ready to engage with the UK. USD/JPY bounced off its lows amid the return of the Japanese participants and antipodeans were choppy due to the mixed risk tone, as well as soft New Zealand Consumer Sentiment and Card Spending data but with AUD/USD underpinned by cross related flows including the early advances in AUD/NZD. Meanwhile, CAD strengthened overnight and firmed to under 1.28 against the greenback with gradual support seen after projections that Canadian PM Trudeau won a third term with his Liberals set to form a minority government.

RBA Minutes from the September 7th Meeting reiterated the central scenario is that conditions for a rate increase will not be met until 2024 and the board is committed to maintaining highly supportive monetary conditions. It also repeated that the outbreak of the Delta variant delayed but not derailed the recovery and the economy was expected to bounce back due to an increase in vaccinations and as restrictions are relaxed, although there is considerable uncertainty regarding the timing and pace of the recovery with progress towards goals likely to take longer due to Delta. Furthermore, the Board will continue to review bond purchases in light of economic and health situation, while members continued to emphasise on the importance of maintaining lending standards. (Newswires)

RBNZ Assistant Governor Hawkesby said the early discovery of vaccines against COVID-19 supported a stronger-than-expected recovery in the global economy and the August monetary policy statement noted more confidence that employment was at maximum sustainable level, while he added that demand for New Zealand's goods exports fared much better than previous global downturns which also benefitted from robust recovery in largest trading partner, China. Hawkesby added that monetary and government spending policies helped support a strong rebound in spending and business investment also picked up as the economy recovered, while the Committee agreed in August that the least regrets policy stance is to further reduce monetary stimulus to anchor inflation expectations. Furthermore, he stated they are in a good position to navigate the approaching period with the labour market at maximum sustainable employment, but noted that monetary policy response would be needed for future health lockdowns should there be a more enduring impact on inflation and employment, as well as stated there was significant disruption to supply chains particularly concerning the shipping industry and that COVID-19 has made it more difficult for firms to source labour. (Newswires)

Canadian PM Trudeau is projected to win a 3rd term with his Liberal party set to form a minority government, according to CTV projections, while the leader of Canada's opposition Conservatives later conceded defeat in the election. (Newswires)

• New Zealand Westpac Consumer Sentiment (Q3) 102.7 (Prev. 107.1)
• New Zealand Credit Card Spending YY (Aug) -6.3% (Prev. 6.9%)

COMMODITIES

Commodities were mixed with WTI crude futures finding some mild reprieve after finding support at the USD 70/bbl level to recoup some of the prior day's losses which had been triggered by the risk aversion, with oil prices not helped by Nigeria reducing official selling prices and the continued gradual return of Gulf of Mexico output. On the geopolitical front, French Foreign Minister Le Drian stated time is running out for a potential accord on the Iran nuclear deal and called for Iran to appoint representatives, although EU Foreign Policy Chief Borrell ruled out an Iran nuclear deal joint commission ministerial meeting on the sidelines of the UN General Assembly. Gold prices remained flat due to the uneventful greenback and as focus remains on the looming FOMC, while copper prices traded sideways amid the cautious mood and lingering contagion concerns.

BSEE Gulf of Mexico oil production shut-in at 18.2% or 331k BPD Monday (prev. 23.2% on Friday). (Newswires)

Nigeria cut October Bonny crude OSPs to minus USD 0.64/bbl vs Dated Brent and cut Qua Iboe OSPs to minus USD 0.68/bbl vs Dated Brent. (Newswires)

GEOPOLITICAL

EU Foreign Policy Chief Borrell said there will be no Iran nuclear deal joint commission ministerial meeting in the sidelines of the UN General Assembly, while French Foreign Minister Le Drian said its true that time is running out for a potential accord on Iran nuclear deal and called on Iran to appoint representatives to nuclear talks with world powers ASAP. (Newswires)

US

Treasuries bull-flattened in one-way trade on Monday (2s30s -6bps) in a broader flight-to-quality as stocks tumbled through supports with China/Evergrande sits top-of-mind. By settlement, 2s -1.2bps at 0.214%, 3s -2.1bps at 0.452%, 5s -4.6bps at 0.820%, 7s -5.8bps at 1.109%, 10s -6.4bps at 1.306%, 20s -6.5bps at 1.791%, 30s -6.6bps at 1.844%; TYZ1 volumes were average. Inflation breakevens fell with 5yr TIPS +0.8bps at -1.711%, 10yr TIPS -2.1bps at -0.994%, 30yr TIPS -3.2bps at -0.345%. Eurodollars bull-flattened, although fronts were weaker after the fifth consecutive rise in the 3m USD Libor fixing (FRA-OIS spreads were bid). SOFR and EFFR both unchanged at 5bps and 8bps, respectively. In lack of other catalysts, traders are positing the potential for contagion due to the Evergrande fallout, whether that will be localised to the Chinese property market or beyond. While it may not become a global credit event, analysts suggest it could prove substantial headwinds for China growth going ahead due to the absolute size of the Co. and the property sector. Back to USTs, Europe wasted no time in extending the FTQ as they returned from the weekend, rallying into the NY handover. There was a brief respite for govvies as stocks and yields both saw a dead-cat bounce at the cash equity open in NY, with Dealers touted to be on the defensive ahead of the 20yr bond auction Tuesday (10yr TIPS on Thursday too) only to resume their slide lower into the latter session. The S&P 500 crossing beneath its 100dma for the first time since early November 2020 was enough to keep yields at lows into the futures settlement. Traders now look to Tuesday's 20yr bond auction, with no concession made for the auction clouded by the FOMC meeting the next day. T-note (Z1) futures settled 15+ ticks higher at 133-08+.

US House Speaker Pelosi and Senate Majority Leader Schumer confirmed the continuing resolution to deal with the debt limit and stated that they seek a debt limit suspension through to December 2022. There were also comments from President Biden that he applauds House Speaker Pelosi and Senate Majority Leader Schumer's plan to include suspending the debt limit in the bill to fund the government, while Pelosi later stated that she hopes the USD 3.5tln bill will pass but noted there may be adjustments and that the top line number could change.(Newswires)

US Senate Minority Leader McConnell said Democrats will not get GOP help on the debt limit and that they do not need Republicans help on debt, while he reiterated that they will not support legislation (continuing resolution) that raises the debt limit. (Newswires)

US House Rules Committee refrained from convening last night and Democrats will instead unveil government funding/debt ceiling bill today which they will bring to the Rules Committee and potentially to the floor, according to Punchbowl's Sherman. (Twitter)