• Risk sentiment remains positive after the APAC-lead; however, latest Evergrande sources have tarnished sentiment somewhat, ES +0.6%
• Chinese authorities are asking local governments to begin preparations for the potential downfall of Evergrande, WSJ citing sources
• On the subject, China has told Evergrande to avoid a near-term USD bond default; we await details of today's payment
• DXY is subdued with peers firmer across the board ex-JPY on the broader tone; Norges Bank hiked as expected
• Looking ahead, highlights include BoE, CBRT & SARB rate decisions, US flash PMIs, US IJC, Canadian Retail Sales

CORONAVIRUS

US FDA authorised a booster dose of the Pfizer (PFE)/BioNTech (BNTX) for individuals aged 65 years and older, as well as for individuals 18-64 years old that are at high risk of severe COVID-19. Subsequently, EMA is reportedly to decide early-October on the use of Pfizer/BioNTech COVID-19 vaccine boosters, according to sources (Newswires)

ASIA

Asian equity markets traded mostly positive as the region took its cue from the gains in US with the improved global sentiment spurred by some easing of Evergrande concerns and with stocks also unfazed by the marginally more hawkish than anticipated FOMC announcement (detailed above). ASX 200 (+1.0%) was underpinned by outperformance in the commodity-related sectors and strength in defensives, which have more than atoned for the losses in tech and financials, as well as helped markets overlook the record daily COVID-19 infections in Victoria state. Hang Seng (+1.2%) and Shanghai Comp. (+0.4%) were also positive after another respectable liquidity operation by the PBoC and with some relief in Evergrande shares which saw early gains of more than 30% after recent reports suggested a potential restructuring by China’s government and with the Co. Chairman noting that the top priority is to help wealth investors redeem their products, although the majority of the Evergrande gains were then pared and unit China Evergrande New Energy Vehicle fully retraced the initial double-digit advances. KOSPI (-0.4%) was the laggard as it played catch up to the recent losses on its first trading day of the week and amid concerns that COVID cases could surge following the holiday period, while Japanese markets were closed in observance of the Autumnal Equinox Day.

PBoC injected CNY 60bln via 7-day reverse repos and CNY 60bln via 14-day reverse repos with the 7-day reverse repo rate kept at 2.20% and 14-day reverse repo rate kept at 2.35%, for a net daily injection of CNY 110bln. (Newswires) PBoC set USD/CNY mid-point at 6.4749 vs exp. 6.4755 (prev. 6.4693)

China's Loan Prime Rates are more likely to decline in Q4, according to Chinese press reports. (China Securities Daily)

China Evergrande's (3333 HK) Chairman held a meeting yesterday where he said the firm will try its best to resume work and output, while executives were urged to ensure quality delivery of properties and the Chairman also noted that the top priority is to help wealth investors redeem their products. In other news, Chinese Estates reportedly sold 108.9mln Evergrande shares at a HKD 9.5bln loss. Most recently, China has told Evergrande to avoid a near-term USD bond default. Link to analysis (Newswires)

Chinese authorities are asking local governments to begin preparations for the potential downfall of Evergrande, WSJ citing sources which characterised the actions as “getting ready for the possible storm,” authorities are instructed to step in only at the last minute if Evergrande fails to manage its affairs in an orderly fashion. Local governments tasked with preventing unrest and mitigating the ripple effect on home buyers/broader economy. (WSJ) Link to analysis

CENTRAL BANKS

Swiss SNB Policy Rate (Q3) -0.75% vs. Exp. -0.75% (Prev. -0.75%); CHF reiterated as ‘highly valued' and remains willing to intervene in the foreign exchange market as necessary in order to counter upward pressure on the Swiss franc. Link to release and analysis

Norwegian Key Policy Rate (Sep) 0.25% vs. Exp. 0.25% (Prev. 0.00%); based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December. Link to release and analysis

Brazil Central Bank hiked the Selic rate by 100bps to 6.25% as expected, with the decision unanimous and it sees a rate hike of the same magnitude at the next meeting. BCB stated in the current phase of rate hike cycle, this pace of adjustment is best to guarantee anchoring of inflation expectations and it sees a robust economic recovery in H2, while it added that heightened fiscal risks creates an upward asymmetry in balance of inflation risks. (Newswires)

RBNZ will proceed with its proposal to tighten loan-to-value ratio restrictions on lending to owner-occupiers to reduce risky mortgage lending in which it will restrict the amount of lending banks can do above the LVR of 80% from 20% to 10% effective November 1st. (Newswires)

US

White House said progress was made in President Biden's meeting with Congressional Democrats, while President Biden and his team will have a follow up meeting from today. In other news, US President Biden tweeted that he is sick and tired of the super-wealthy and large corporations not paying their fair share in taxes and that it is time for it to change. (Newswires)

US Moderate Democrat Senator Manchin said he does not think a deal can be reached on reconciliation by next week. There were later reports from CNN's Raju that Senator Manchin said he thinks a deal on reconciliation can come together eventually but made it clear that Democrats are still not close to clinching an agreement and noted that he has "big problems" with the climate provisions. (Newswires/CNN/Twitter)

UK/EU

UK ministers reportedly conceded that the lorry driver crisis will not be eased in time to avert Christmas chaos. (Telegraph)

US State Department expects Secretary of State Blinken to meet with French Foreign Minister Le Drian today and noted that US welcomes France's deep engagement concerning the Indo-Pacific. (Newswires)

Eurozone Markit Composite Flash PMI (Sep) 56.1 vs. Exp. 58.5 (Prev. 59.0); Manufacturing Flash PMI (Sep) 58.7 vs. Exp. 60.3 (Prev. 61.4)

• Services Flash PMI (Sep) 56.3 vs. Exp. 58.5 (Prev. 59.0)

UK Flash Services PMI (Sep) 54.6 vs. Exp. 55.0 (Prev. 55.0); Composite PMI (Sep) 54.1 vs. Exp. 54.5 (Prev. 54.8)

• Manufacturing PMI (Sep) 56.3 vs. Exp. 59.0 (Prev. 60.3)

GEOPOLITICAL

UK Foreign Secretary Truss held a meeting with Iran's Foreign Minister to discuss bilateral, nuclear and regional issues, while Truss urged for Iran to quickly return to JCPOA negotiations with a view of all sides returning to compliance. (Newswires)

Taiwan's Defence Ministry says 19 Chinese air force places entered the ADIZ on Thursday. (Newswires)

Saudi air defenses destroy a Houthi drone which was targeting Jazan, Al Arabiya. (Twitter)

EQUITIES

European equities (Stoxx 600 +0.9%) trade on the front-foot and have extended gains since the cash open with the Stoxx 600 now higher on the week after Monday’s heavy losses. From a macro perspective, price action in Europe has been undeterred by a slowdown in Eurozone PMIs which saw the composite metric slip to 56.1 from 59.0 (exp. 58.5) with IHS Markit noting “an unwelcome combination of sharply slower economic growth and steeply rising prices.” Instead, stocks in the region have taken the cue from a firmer US and Asia-Pac handover with performance in Chinese markets aided by further liquidity injections by the PBoC. Some positivity has also been observed on the Evergrande front amid mounting expectations of a potential restructuring at the company. That said, at the time of writing, it remains unclear what the company’s intentions are for repaying its USD 83.5mln onshore coupon payment. Note, ING highlights that “missing that payment today would still leave a 30-day grace period before this is registered as a default”. The most recent reports via WSJ indicate that Chinese authorities are asking local governments to begin preparations for the potential downfall of Evergrande; however, the article highlights that this is a last resort and Beijing is reluctant to step in. Nonetheless, this article has taken the shine off the mornings risk appetite, though we do remain firmer on the session. Stateside, as the dust settles on yesterday’s FOMC announcement, futures are firmer with outperformance in the RTY (+0.8% vs. ES +0.7%). Sectors in Europe are higher across the board with outperformance in Tech and Autos with the latter aided by gains in Faurecia (+4.6%) who sit at the top of the Stoxx 600 after making an unsurprising cut to its guidance, which will at least provide some clarity on the Co.’s near-term future; in sympathy, Valeo (+6.6) is also a notable gainer in the region. To the downside, Entain (+2.6%) sit at the foot of the Stoxx 600 after recent strong gains with the latest newsflow surrounding the Co. noting that MGM Resorts is considering different methods to acquire control of the BetMGM online gambling business JV, following the DraftKings offer for Entain, according to sources. The agreement between Entain and MGM gives MGM the ability to block any deal with competing businesses; MGM officials believe this grants the leverage to take full control of BetMGM without spending much.

US President Biden's administration is, today, to request information from companies on the impact of the semiconductor shortage, as part of an effort to determine how they can assist. (WSJ)

UK Junior Business Minister Scully says they have had conversations on how much the energy price cap may have to go up. (Newswires)

FX

DXY - Not much bang for the Buck even though the FOMC matched the most hawkish market expectations and Fed chair Powell arguably went further by concluding in the post-meeting press conference that substantial progress on the lagging labour front is all but done. Hence, assuming the economy remains on course, tapering could start as soon as November and be completed my the middle of 2022, though he continued to play down tightening prospects irrespective of the more hawkish trajectory implied by the latest SEP dot plots that are now skewed towards at least one hike next year and a cumulative seven over the forecast horizon. However, the Greenback only managed to grind out marginally higher highs overnight, with the index reaching 93.526 vs 93.517 at best yesterday before retreating quite sharply and quickly to 93.138 in advance of jobless claims and Markit’s flash PMIs.

CAD/NZD/AUD - The Loonie is leading the comeback charge in major circles and only partially assisted by WTI keeping a firm bid mostly beyond Usd 72/brl, and Usd/Cad may remain contained within 1.2796-50 ahead of Canadian retail sales given decent option expiry interest nearby and protecting the downside (1 bn between 1.2650-65 and 2.7 bn from 1.2620-00). Meanwhile, the Kiwi has secured a firmer grip on the 0.7000 handle to test 0.7050 pre-NZ trade and the Aussie is looking much more comfortable beyond 0.7250 amidst signs of improvement in the flash PMIs, albeit with the services and composite headline indices still some way short of the 50.0 mark.

NOK/GBP/EUR/CHF - All firmer, and the Norwegian Crown outperforming following confirmation of the start of rate normalisation by the Norges Bank that also underscored another 25 bp hike in December and further tightening via a loftier rate path. Eur/Nok encountered some support around 10.1000 for a while, but is now below, while the Pound has rebounded against the Dollar and Euro in the run up to the BoE at midday. Cable is back up around 1.3770 and Eur/Gbp circa 0.8580 as Eur/Usd hovers in the low 1.1700 area eyeing multiple and a couple of huge option expiries (at the 1.1700 strike in 4.1 bn, 1.1730 in 1 bn, 1.1745-55 totalling 2.7 bn and 1.8 bn from 1.1790-1.1800). Note, Eurozone and UK flash PMIs did not live up to their name, but hardly impacted. Elsewhere, the Franc is lagging either side of 0.9250 vs the Buck and 1.0835 against the Euro on the back of a dovish SNB Quarterly Review that retained a high Chf valuation and necessity to maintain NIRP, with only minor change in the ordering of the language surrounding intervention.

JPY - The Yen is struggling to keep its head afloat of 110.00 vs the Greenback as Treasury yields rebound and risk sentiment remains bullish pre-Japanese CPI and in thinner trading conditions due to the Autumn Equinox holiday.

SEK/EM - Not to be outdone, the Swedish Krona is also rallying around a 10.1500 pivot vs the Euro, while the Zar is on the front foot ahead of the SARB amidst widespread gains vs the retreating Usd and positive market tone, but the Try is still bucking the trend on CBRT credibility grounds and its lack of policy potency.

• Australian Manufacturing PMI (Sep P) 57.3 (Prev. 52.0)
• Australian Services PMI (Sep P) 44.9 (Prev. 42.9)
• Australian Composite PMI (Sep P) 46.0 (Prev. 43.3)

Major FX option expiries, NY Cut:

• EUR/USD: 1.1700 (4.1BLN), 1.1730 (1BLN), 1.1745-55 (2.7BLN), 1.1790-1.1800 (1.8BLN)
• AUD/USD: 0.7230-35 (522M), 0.7240 (1.1BLN), 0.7250-60 (696M)
• USD/JPY: 109.60-70 (1.2BLN), 109.85-109.95 (600M), 110.00-05 (805M)

FIXED

The selling has abated somewhat following deeper retreats in Bunds, Gilts and US Treasuries that pushed the respective 10 year bonds down to 171.19, 127.13 and 133-24+ at one stage. However, bonds are still weighing up the FOMC’s clearer message that the taper is likely to be lit in November and chair Powell’s pretty forthright assessment on substantial labour market progress just weeks after maintaining that there was still some way to go at Jackson Hole, not to mention the fact that the bar is low in terms of the next NFP release to satisfy that criteria. Hence, bearish vibes persist amidst a raft of other global Central Bank meetings and updated policy guidance, plus the latest IJC release and Markit’s US PMIs.

ECB allots EUR 97.57bln in TLTRO III.9 (TLTRO III.8 on June 17th saw EUR 109.8bln allotted); given the early repayments of EUR 79.2bln this allotment results in a net liquidity injection of EUR 18.3bln. (ECB/Newswires)

COMMODITIES

WTI and Brent have been choppy throughout the morning in-spite of the broadly constructive risk appetite. Benchmarks spent much of the morning in proximity to the unchanged mark but the most recent Evergrande developments, via WSJ, have dampened sentiment and sent WTI and Brent back into negative territory for the session and printing incremental fresh lows at the time of publication. Back to crude, newsflow has once again centred around energy ministry commentary with Iraq making clear that oil exports will continue to increase. Elsewhere, gas remains at the forefront of focus particularly in the UK/Europe but developments today have been somewhat incremental. On the subject, Citi writes that Asia and Europe Nat. Gas prices could reach USD 100/MMBtu of USD 580/BOE in the winter, under their tail-risk scenario. For metals, its very much a case of more of the same with base-metals supportive, albeit off-best given Evergrande, after a robust APAC session post-FOMC. Given the gas issues, desks highlight that some companies are being forced to suspend/reduce production of items such as steel in Asian/European markets, a narrative that could become pertinent for broader prices if the situation continues. Elsewhere, spot gold and silver are both modestly firmer but remain well within the range of yesterday’s session and are yet to recovery from the pressure seen in wake of the FOMC.

US oil production is expected to increase again with forecasters projecting a 800k BPD increase next year led by privately-owned producers. (FT)