• European bourses & US futures are firmer in an attempt to recoup yesterday's losses; albeit, we remain lower on the week thus-far
• Evergrande Chairman provided upbeat commentary; but, China remains on holiday and we await Thursday's bond interest deadline
• In FX, the DXY has been rangebound with a downside bias above 93.00 with peers firmer across the board ex-JPY
• Canadian PM Trudeau is projected to win a 3rd term with his Liberal party set to form a minority government
• Shell (RDSA LN) is to sell its Permian Basin assets to ConocoPhillips (COP) for USD 9.5bln in cash
• Looking ahead, highlights include US housing starts, building permits and US supply

CORONAVIRUS UPDATE

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)

GLOBAL

OECD Economic Outlook, Interim Report - Link

JP Morgan increases global EM corporate default rate forecasts to 5.5% (prev. 2.4%), Asia to 9.0% (prev. 2.6%), citing China's high-yield property credits. (Newswires)

BofA cuts China's GDP growth forecasts: 2021 8.0% (prev. 8.3%); 2022 5.3% (prev. 6.2%). (Newswires)

US

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 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)

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)

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)

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)

Saudi coalition says it has intercepted and destroying a car bomb launched by the militia towards Khamis Mushait, Sky News Arabia. (Twitter)

EQUITIES

European equities (Stoxx 600 +1.1%) trade on a firmer footing attempting to recoup some of yesterday’s losses with not much in the way of incremental newsflow driving the upside. Despite the attempt to claw back some of the prior session’s lost ground, the Stoxx 600 is still lower by around 1.6% on the week. The Asia-Pac session was one characterised by caution and regional market closures with China remaining away from market. Focus remains on whether Evergrande will meet USD 83mln in interest payments due on Thursday and what actions Chinese authorities could take to limit the contagion from the company in the event of further troubles. Stateside, futures are also on a firmer footing with some slight outperformance in the RTY (+1.2%) vs. peers (ES +0.8%). Again, there is not much in the way of fresh positivity driving the upside and instead gains are likely more a by-product of dip-buying; attention for the US is set to become increasingly geared towards tomorrow’s FOMC policy announcement. Sectors in Europe are firmer across the board with outperformance in Oil & Gas names amid a recovery in the crude complex and gains in Shell (+4.4%) after news that the Co. is to sell its Permian Basin assets to ConocoPhillips (COP) for USD 9.5bln in cash. Other outperforming sectors include Tech, Insurance and Basic Resources. IAG (+4.1%) and Deutsche Lufthansa (+3.8%) both sit at the top of the Stoxx 600 as the Co.’s continue to enjoy the fallout from yesterday’s decision by the US to allow travel from vaccinated EU and UK passengers. Swatch (-0.7%) is lagging in the luxury space following a downgrade at RBC, whilst data showed Swiss watch exports were +11.5% Y/Y in August (prev. 29.1%). Finally, National Express (+7.7%) is reportedly considering a takeover of Stagecoach (+21.4%), which is valued at around GBP 370mln.

Shell (RDSA LN) is to sell its Permian Basin assets to ConocoPhillips (COP) for USD 9.5bln in cash. Shell will return USD 7bln of the proceeds to shareholders as dividends on top pf existing commitments, rest will be used to pay down debt. (Newswires)

FX

CAD/SEK - All the signs are constructive for a classic turnaround Tuesday when it comes to Loonie fortunes as broad risk sentiment improves markedly, WTI consolidates within a firm range around Usd 71/brl compared to yesterday’s sub-Usd 70 low and incoming results from Canada’s general election indicate victory for the incumbent Liberal party that will secure a 3rd term for PM Trudeau. Hence, it’s better the devil you know as such and Usd/Cad retreated further from its stop-induced spike to just pips short of 1.2900 to probe 1.2750 at one stage before bouncing ahead of new house price data for August. Conversely, the Swedish Krona seems somewhat reluctant to get carried away with the much better market mood after the latest Riksbank policy meeting only acknowledged significantly stronger than expected inflation data in passing, and the repo rate path remained rooted to zero percent for the full forecast horizon as a consequence. However, Eur/Sek has slipped back to test 10.1600 bids/support following an initial upturn to almost 10.1800, irrespective of a rise in unemployment.

NOK/AUD/NZD - No such qualms for the Norwegian Crown as Brent hovers near the top of a Usd 75.18-74.20/brl band and the Norges Bank is widely, if not universally tipped to become the first major Central Bank to shift into tightening mode on Thursday, with Eur/Nok hugging the base of a 10.1700-10.2430 range. Elsewhere, the Aussie and Kiwi look relieved rather than rejuvenated in their own right given dovish RBA minutes, a deterioration in Westpac’s NZ consumer sentiment and near reversal in credit card spending from 6.9% y/y in July to -6.3% last month. Instead, Aud/Usd and Nzd/Usd have rebounded amidst the recovery in risk appetite that has undermined their US rival to top 0.7380 and 0.7050 respectively at best.

GBP/CHF/EUR/JPY/DXY - Sterling is latching on to the ongoing Dollar retracement and more supportive backdrop elsewhere to pare losses under 1.3700, while the Franc continues its revival to 0.9250 or so and almost 1.0850 against the Euro even though the SNB is bound to check its stride at the upcoming policy review, and the single currency is also forming a firmer base above 1.1700 vs the Buck. Indeed, the collective reprieve in all components of the Greenback basket, bar the Yen on diminished safe-haven demand, has pushed the index down to 93.116 from 93.277 at the earlier apex, and Monday’s elevated 93.455 perch, while Usd/Jpy is straddling 109.50 and flanked by decent option expiry interest either side. On that note, 1.4 bn resides at the 109.00 strike and 1.1 bn between 109.60-70, while there is 1.6 bn in Usd/Cad bang on 1.2800.

EM - Some respite across the board in wake of yesterday’s mauling at the hands of risk-off positioning in favour of the Usd, while the Czk has also been underpinned by more hawkish CNB commentary as Holub echoes the Governor by advocating a 50 bp hike at the end of September and a further 25-50 bp in November.

Riksbank maintains its rate unchanged at 0.00% as expected; Riksbank maintains asset purchase envelope of SEK 700bln; Repo path maintained at 0.00% for the entirety of forecast horizon (Riksbank) - Link to release & analysis

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%)

Notable FX Expiries, NY Cut:

• USD/CAD: 1.2710 (360M), 1.2800 (1.6BLN)
• USD/JPY: 109.00 (1.4BLN), 109.50 (766M), 109.60-70 (1.1BLN), 109.75-85 (660M)

FIXED

BTPs are outperforming in outright terms having topped 154.00 at best for a ¼ point gain on the day, but Gilts are edging it in core debt circles after a stellar debut for the DMO’s inaugural Green bond that received Gbp 100 bn orders and raised Gbp 10 bn in one clip. Note, this compares to an issuance target of Gbp 15 bn in total for the fy and books for the 2033 syndication were the highest on record. Back to Liffe, the 10 year benchmark extended the topside to 127.50 (+5 ticks vs -24 ticks at the low), while Bunds have pared losses in wake of a reasonable 2028 sale rather than strong given the -50 bp average yield that might have enticed more buyers and US Treasuries are lagging awaiting housing data and Usd 24 bn 20 year supply on day 1 of the FOMC.

German Federal Finance Agency is to lower Q4 debt issuance by EUR 4bln vs. prior forecast; 2021 overall debt issuance will reach a record high of some EUR 482bln. (Newswires)

Orders for the UK's syndicated sale of a new 0.875% 2033 green gilt are in excess of GBP 90bln; price guidance +7.5bps above the 2032 conventional gilt, according to bookrunners. (Newswires)

COMMODITIES

WTI and Brent are firmer in the European morning post gains in excess of 1.0%, though the benchmarks are off highs after an early foray saw Brent Nov’21 eclipse USD 75.00/bbl, for instance. While there has been newsflow for the complex, mainly from various energy ministers, there hasn’t been much explicitly for crude to change the dial; thus, the benchmarks are seemingly moving in tandem with broader risk sentiment (see equities). In terms of the energy commentary, the Qatar minister said they are not thinking of re-joining OPEC+ while the UAE minister spoke on the gas situation. On this, reports in Russian press suggests that Russia might allow Rosneft to supply 10bcm of gas to Europe per year under an agency agreement with Gazprom “as an experiment”, developments to this will be closely eyed for any indication that it could serve to ease the current gas situation. Looking ahead, we have the weekly private inventory report which is expected to post a headline draw of 2.4mln and draws, albeit of a smaller magnitude, are expected for distillate and gasoline as well. Moving to metals, spot gold is marginally firmer while silver outperforms with base-metals picking up across the board from the poor performance seen yesterday that, for instance, saw LME copper below the USD 9k mark. Note, the action is more of a steadying from yesterday’s downside performance than any notable upside, with the likes of copper well within Monday’s parameters.

UAE Energy Minister says gas prices will fluctuate, price will be determined by the market; producers must be honest with consumers regarding the cost of net-zero transition. (Newswires)