• Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines
• That said, gains were capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger
• The German election results saw a narrow victory for the SPD, with the Greens and FDP set to play a key role in the coalition-building process
• EUR was relatively unfazed by the inconclusive German election outcome. Bunds supported by poor performance of the Left party
• House Speaker Pelosi opted to delay the bipartisan infrastructure vote from Monday to Thursday
• Looking ahead, highlights include US Durable Goods, ECB's Lagarde, Panetta, Fed's Evans, Williams, Brainard, BoE's Bailey, 2yr and 5yr US supply

GERMAN ELECTION

German election preliminary final result is SPD at 25.7%, CDU/CSU at 24.1%, Greens at 14.8%, FDP at 11.5%, AfD at 10.3% and Left at 4.9%, while the German Federal Returning Officer announced the seat distribution from the preliminary results which were SPD at 206 seats, CDU/CSU at 196. Greens at 118, FDP at 92, AfD at 83, Left at 39 and SSW at 1. As it stands, three potential coalitions are an option, 1) SPD, Greens and FDP (traffic light), 2) CDU/CSU, Greens and FDP (Jamaica), 3) SPD and CDU/CSU (Grand Coalition but led by the SPD). Note, option 3 is seen as the least likely outcome given that the CDU/CSU would be unlikely willing to play the role of a junior partner to the SPD. Therefore, given the importance of the FDP and Greens in forming a coalition for either the SPD or CDU/CSU, leaders of the FDP and Greens have suggested that they might hold their own discussions with each other first before holding talks with either of the two larger parties. Given the political calculus involved in trying to form a coalition, the process is expected to play out over several months. From a markets perspective, the tail risk of the Left party being involved in government has now been removed due to their poor performance and as such, Bunds trade on a firmer footing. Elsewhere, EUR is relatively unfazed due to the inconclusive nature of the result.

CORONAVIRUS UPDATE

US CDC Director Walensky said they will review Johnson & Johnson (JNJ) and Moderna (MRNA) COVID booster applications with urgency. (Newswires)

WHO is to restart its probe into the origins of the COVID-19 outbreak and will appoint a new team of experts with a mission to look for further evidence how the virus emerged in China. (The Times)

Australia's New South Wales Premier Berijiklian said she sees October 11th as start of the reopening roadmap and sees the final stage of reopening on December 1st, while New South Wales reported 787 new locally-transmitted COVID-19 cases. (Newswires)

Macau tightened COVID-19 restrictions ahead of the Golden Week celebrations with ferry services cancelled and outbound travellers will require a negative COVID-19 test result. (Newswires)

ASIA

Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines but with gains capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger. ASX 200 (+0.7%) was led higher by outperformance in the mining related sectors including energy as oil prices continued to rally amid supply disruptions and views for a stronger recovery in demand with Goldman Sachs lifting its year-end Brent crude forecast from USD 80/bbl to USD 90/bbl. Furthermore, respectable gains in the largest weighted financial sector and details of the reopening roadmap for New South Wales, which state Premier Berijiklian sees beginning on October 11th, further added to the encouragement. Nikkei 225 (Unch.) was kept afloat for most of the session after last week’s beneficial currency flows and amid reports that Japan is planning to lift emergency measures in all areas at month-end, although upside was limited ahead of the upcoming LDP leadership race which reports noted are likely to go to a run-off as neither of the two main candidates are likely to achieve a majority although a recent Kyodo poll has Kono nearly there at 47.4% of support vs. nearest contender Kishida at 22.4%. Hang Seng (+0.3%) and Shanghai Comp. (-1.3%) were varied with the mainland choppy amid several moving parts including back-to-back daily liquidity efforts by the PBoC since Sunday and with the recent release of Huawei’s CFO following a deal with US prosecutors. Conversely, Evergrande concerns persisted as Chinese cities reportedly seized its presales to block the potential misuse of funds and its EV unit suffered another double-digit percentage loss after scrapping plans for its STAR Market listing. There were also notable losses to casino names after Macau tightened COVID-19 restrictions ahead of the Golden Week holidays and crypto stocks were hit after China declared crypto activities illegal which resulted in losses to cryptoexchange Huobi which dropped more than 40% in early trade before nursing some of the losses, while there are also concerns of the impact from an ongoing energy crisis in China which prompted the Guangdong to ask people to turn off lights they don't require and use air conditioning less. Finally, 10yr JGBs were flat but have clawed back some of the after-hour losses on Friday with demand sapped overnight amid the mild gains in stocks and lack of BoJ purchases in the market. Elsewhere, T-note futures mildly rebounded off support at 132.00, while Bund futures outperformed the Treasury space amid mild reprieve from this month’s losses and with uncertainty of the composition for the next German coalition.

PBoC injected CNY 100bln via 14-day reverse repos on Sunday with the rate at 2.35% for a CNY 50bln net injection and injected CNY 100bln via 14-day reverse repos on Monday with the rate at 2.35% for a net daily injection of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.4695 vs exp. 6.4696 (prev. 6.4599)

US Justice Department reached a deal to allow Huawei CFO Meng to return to China and the US confirmed it reached a resolution of charges against Huawei's CFO Meng Wanzhou, while the prosecutor said Huawei CFO is to be released on a personal recognisance bond and that the US plans to withdraw its request to Canada for her extradition. Furthermore, US said Huawei CFO Meng admitted she made material misrepresentations about Huawei's Iran operations to a senior bank executive to preserve Huawei's banking relationship and the US said it continues to prepare for trial against Huawei, as well as looks forward to proving its case in court. It was also confirmed that the two Canadians imprisoned by China were released. (Newswires)

Chinese cities seized Evergrande (3333 HK) presales to block the potential misuse of funds and it was also reported that Evergrande New Energy Vehicle Group (708 HK) terminated plans of issuing CNY shares in the STAR Market of the Shanghai Stock Exchange. (Newswires/FT)

China's banking regulator has vowed equal treatment for international firms, while it was also reported that China plans to relax restrictions on domestic banks' ability to provide yuan-denominated loans overseas. (Newswires/Nikkei/Caixin)

China's Guangdong has asked people to turn off lights they don't require and use air conditioning less as the energy crisis spreads from factories to homes. (Newswires)

Japanese PM Suga said leaders of the Quad group involving Japan, US, Australia and India agreed to cooperate on vaccine clean energy and space, while they agreed to hold a summit annually. PM Suga had also commented that lifting of import restrictions by US against Japanese products is a major step in supporting recovery from the earthquake and tsunami. (Newswires)

UK/EU

UK government is reportedly planning a temporary visa scheme for three months to make it easier for foreign lorry drivers to work in the UK. However, business leaders have warned that the UK government’s plan to issue 10,500 temporary visas to foreign lorry drivers and food industry workers to tackle labour shortages does not go far enough to fix Britain’s supply chain crisis. (BBC/FT)

European Commissioner for Financial Stability, Financial Services and the Capital Markets Union McGuinness stated that threats are not helpful and that Britain should pursue solutions as she thinks Article 16 is used in very extreme circumstances. (Newswires)

FX

In FX markets, the DXY was steady and held on to the 93.00 level amid a lack of pertinent drivers for the greenback over the weekend and with participants looking ahead to a slew of Fed speakers including Fed Chair Powell on Wednesday, who will participate at the ECB Forum of Central Banking along with ECB President Lagarde, BoE Governor Bailey and BoJ Governor Kuroda. In other news, the bipartisan infrastructure vote was delayed from Monday to Thursday as although House Speaker Pelosi suggested confidence it will get passed this week, she had also left the door open for a delay and noted she will never bring a bill to the floor that doesn’t have sufficient votes. Pelosi also stated that she will build a consensus on President Biden’s USD 3.5tln social agenda but also reportedly suggested that the final figure for the package could be less than USD 3.5tln. EUR/USD was unchanged at the 1.1700 handle after the closely fought German election where the SPD just about pulled ahead with 25.7% of the votes and CDU/CSU at 24.1% which shifts attention now to coalition negotiations and with both parties still in a position to negotiate their own party-led coalitions although the CDU/CSU would need support from at least two of the other parties to hold on to power. GBP/USD was uneventful amid the ongoing fuel crisis which has prompted ministers to suspend competition laws to permit fuel suppliers to talk to each other to allow information sharing and target petrol stations running dry, while the government is also planning a temporary visa scheme for foreign lorry drivers and food industry workers to fix the supply chain crisis, although business leaders have warned that the plans to address the labour shortages were not sufficient. USD/JPY marginally retraced last week’s firm gains but remained above 110.50 and antipodeans were supported amid the gains in commodities and with AUD/USD also encouraged by the sooner reopening prospects for its most populous state.

COMMODITIES

Commodities were mostly higher with oil prices underpinned amid the mostly positive risk tone and reopening hopes for the Asia-Pac region which boosted WTI crude to briefly above the USD 75/bbl for the first time since July, while prices also received a tailwind amid an ongoing power crisis in China, panic fuel buying in the UK and bullish expectations including from Goldman Sachs which upped its Brent crude year-end forecast to USD 90/bbl from USD 80/bbl. Gold eked marginal gains with the precious metal contained by an uneventful greenback as participants await this week's upcoming central bank speakers including Fed Chair Powell mid-week and copper also mildly benefitted from the predominantly constructive mood but with upside restricted by the underperformance in China due to ongoing Evergrande woes and power crunch concerns.

US Baker Hughes Rig Count (w/e Sept 24th): Oil +10 at 421, Nat Gas -1 at 99, and Total +9 at 521. (Newswires)

UK ministers suspended competition laws to permit fuel suppliers to talk to each other to allow information sharing and target petrol stations running dry, while Business Minister Kwarteng stated that this step will allow the government to work constructively with fuel producers, suppliers, hauliers and retailers to minimise disruptions. It was also reported that UK PM Johnson is to consider using the British Army to deliver fuel to petrol stations and Transport Minister Schapps stated that there would not be queues nor shortages if people behaved normally when buying petrol. Furthermore, fuel industry representatives said they want to reassure the public that issues were due to temporary spikes in customer demand and not a national shortage of fuel, while a BP (BP/ LN) spokesperson stated that around 30% if its sites in the UK network are without either main grade of fuel and UK's largest energy retailers had warned suppliers could refuse to absorb the customers of failed rivals without government support. (Newswires/Times/Guardian/FT)

Russia’s Kremlin said Gazprom is ready to boost gas sales to Europe. (Interfax)

Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. (Newswires)

Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and natgas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Furthermore, Citi stated that it sees gold prices averaging USD 1,778/oz this year and copper prices averaging USD 9,165/ton this year. (Newswires)

Hess (HES) sees oil demand to reach 100mln bpd at year-end or Q1 2022, while it sees demand to reach 101mln or 102mln bpd next year, while Vitol's CEO said global oil demand is still 4mln bpd behind 2019 levels although noted that the global gas market is set for a reasonably bullish five-year outlook. (Newswires)

UK's second largest oil refinery, the 296k BPD Stanlow refinery, is in talks with tax officials over a deferred tax bill, with reports also stating that it could be on the brink of collapse. (Guardian)

GEOPOLITICAL

IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility and that the decision not to grant access to the latter is contrary to the terms of their joint statement issued earlier this month. Furthermore, the IAEA said all activities mentioned in their joint venture for all identified equipment and facilities are indispensable to maintain continuity of knowledge, although the Iran envoy dismissed IAEA report regarding surveillance cameras at the Tesa Karaj facility as inaccurate. (Newswires)

North Korean government said they could consider an intra-Korea summit if mutual respect can be assured. There were also comments from the South Korean Unification Minister that they hope to be able to communicate with North Korea via the hotline and suggested they need to have smooth and stable communication. In relevant news, South Korea and US begin there two days of biannual defense talks this Monday amid conciliatory signals from North Korea. (Newswires/Yonhap)

Turkish President Erdogan suggested that Turkey is still considering purchasing a second batch of Russian S-400 defence missile systems and noted that US President Biden never raised the topic of Turkey’s human rights track record with him. (Newswires)

UK's second largest oil refinery, the 296k BPD Stanlow refinery, is in talks with tax officials over a deferred tax bill, with reports also stating that it could be on the brink of collapse. (Guardian)

US

Treasuries bear-steepened further to end the week with continued Fed hike pricing and option expires at play; yields at key support levels. By settlement, 2s +1.5bps at 0.274%, 3s +2.2bps at 0.545%, 5s +2.6bps at 0.955%, 7s +4.1bps at 1.260%, 10s +4.8bps at 1.458%, 20s +6.0bps at 1.931%, 30s +6.1bps at 1.985%; TYZ1 volumes were above averages but not as strong as Wednesday and Thursday. Inflation breakevens little changed, with 5yr TIPS +2.1bps at -1.601%, 10yr TIPS +4.7bps at -0.879%, 30yr TIPS +5.4bps at -0.244%. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. The arrival of US participants saw the tide turn, with duration bids getting hit. Fed's Mester (a 2022 voter) accentuated the move after commenting supporting the conclusion of tapering by mid-2022 (affirming Powell), whilst saying she sees the conditions for rate liftoff by the end of 2022. It was also notable that real yields led the move higher, indicative of a policy-driven rate repricing, as opposed to the inflation breakeven-led move on Thursday, where infra/reconciliation progress was driving the narrative, although nominals caught up in later trade, leaving inflation breakevens little changed on the session. The selling saw the 10yr rise to new local peaks above 1.45%, a key support level with additional significance given the chunky open interest in 132-00 strike monthly TY put options that expire Friday, which equate to around 1.45%; note that cash 5s hit highs of 0.963%, briefly rising above the late June peak at 0.962%, with the post-COVID peak from April serving as next support at 0.988%. Other factors cited for Treasury selling included the front-loaded US auctions next week (details below), in addition to big EGB supply next week with the German elections on Monday. IFR noted that a huge HF sale of around 50k in the long bond future was also driving the long-end action. The T-notes hovered around lows of 132-00 into the futures settlement, with option sellers touted to be defending the strike. T-note (Z1) futures settled 11+ ticks lower at 132-00+.

US House Speaker Pelosi suggested she was confident that the USD 1tln bipartisan infrastructure bill will pass this week and said she will never bring a bill to the floor that doesn’t have sufficient votes, while she later announced that the House will vote on the bipartisan infrastructure bill on Thursday. Furthermore, Pelosi said she will build a consensus on President Biden’s USD 3.5tln social agenda although reportedly suggested that the final figure for the package could be less than USD 3.5tln. (Newswires/abcNEWS)

US Democrat House Majority Leader Hoyer said the House will take up the infrastructure bill this week and that President Biden's agenda bill will be paid for, while the agenda bill will come to the floor in the week and the infrastructure vote depends on debate length. Hoyer also commented that intensity continues as they move forward to the pass two jobs bills next week which are the Build Back Better Act and the Bipartisan Infrastructure Framework.” (Politico/CNN)

US Democrat Rep. Jayapal said at least 50 of her progressive members still plan to vote to sink the infrastructure bill if it goes forward on Monday and that the leadership’s steps to move ahead on the big reconciliation bill is “not enough”, according to CNN’s Manu Raju. Furthermore, she doesn’t think the speaker is going to bring a bill to the floor that’s going to fail and suggested they need to take the temperature down a little bit and that the vote is going to drive up tensions not drive them down. (Twitter)

US Treasury Secretary Yellen and French Finance Minister Le Maire agreed the need for tax deal by the end of October, while other reports also noted that Yellen discussed digital service taxes with the French Minister and urged a compromise on withdrawal of digital service taxes. (Newswires) Reports over the weekend suggested that Ireland would be willing to sign up to the OECD's proposal for a global minimum corporate tax rate if it is set at 15% and not increased. (Business Post)