• Bourses in Europe extended on the losses seen at the cash open and trade lower across the board
• US equity futures have also been hit in tandem with the surge in global yields; NQ underperforms
• US 10yr yield rose further above 1.50%, the 20yr topped 2.00% and the UK 10yr hit 1.00% for the first time since March 2020
• Advances in the crude complex saw Brent Nov contract reach USD 80/bbl, although volume and open interest has migrated to Dec
• The Senate voted along party lines to block the bill to suspend the debt limit and avoid a government shutdown
• Looking ahead, highlights include, US Consumer Confidence, ECB's Lagarde, de Guindos, Panetta, Schnabel, Fed's Powell, Evans, Bullard, Bowman, Bostic, BoE's Mann, OPEC World Oil Outlook 2021, supply from the US

CORONAVIRUS UPDATE

Japanese Economic Minister Nishimura confirmed the government plans to lift the state of emergency on October 1st, but added they will continue the requirement of shorter hours for eateries and will ease curbs in phases in about a month. (Newswires)

Sanofi (SAN FP) executive says people may need a fourth COVID booster jab, but not an annual one. (Newswires)

Japanese PM Suga confirms that the COVID state of emergency will be lifted in all regions at the end of the month. (Newswires)

ASIA

Asian equity markets traded mixed following on from a Wall Street lead where value outperformed growth and tech suffered as yields rose. ASX 200 (-1.5%) was the laggard with losses in healthcare, gold miners and tech frontrunning the declines which dragged the index beneath 7300. Nikkei 225 (-0.2%) was lacklustre and briefly approached 30k to the downside but then bounced off worse levels amid a softer currency, while the KOSPI (-1.1%) also declined following a suspected North Korean ballistic missile launch and with a recent South Korean court order to sell seized Mitsubishi Heavy assets as compensation for wartime forced labour, threatening a flare up of tensions between Japan and South Korea. Hang Seng (+1.2%) and Shanghai Comp. (+0.5%) were underpinned after the PBoC continued to inject liquidity ahead of the approaching National Day holidays and with Hong Kong led higher by strength in property names after the PBoC stated it will safeguard legitimate rights and interests of housing consumers which also provided Evergrande-related stocks further reprieve from their recent sell-off. Finally, 10yr JGBs retreated on spillover selling from T-notes after yields rose on the back of further Fed taper rhetoric and with prices not helped by the uninspiring 2yr and 5yr auctions stateside, while weaker results at the 40yr JGB auction also provided a headwind for prices.

PBoC injected CNY 100bln via 14-day reverse repos with the rate at 2.35% for a CNY 100bln net injection. (Newswires)PBoC set USD/CNY mid-point at 6.4608 vs exp. 6.4600 (prev. 6.4695)

World Bank expects China's economic growth of 8.5% and sees growth at 2.5% for the rest of East Asia and Pacific region, while it noted that the East Asia and Pacific region recovery is undermined by the Delta variant spread and that economic activity began to slow in Q2. (Newswires)

Japan's Foreign Minister said the South Korean court decision ordering sale of Mitsubishi Heavy (7011 JT) assets is a clear violation of international law, while Japan's Chief Government Spokesperson said the court decision on selling Japanese assets poses serious situation for relations and that South Korea liquidation of Japan assets must be avoided. (Newswires)

BoJ Minutes from the July meeting stated that Japan's economy picked up as a trend, but remained in a severe situation due to the impact of COVID-19 and private consumption was stagnant due to strong downward pressure on consumption of services including eating and drinking, as well as accommodations. Furthermore, it noted the employment and income situation remained weak due to the impact from the pandemic, while a few members stated increase in wholesale prices is not translating much to consumer inflation. (Newswires)

Chinese State Grid will strictly control power consumption by high-energy consuming and polluting sectors, will ensure power supply to residents; will make preparations for power supply during National Day holidays and winter period, will strengthen communications with government to guarantee thermal coal supply. (Newswires)

• Chinese Industrial Profits YY (Aug) 10.1% (Prev. 16.4%)
• Chinese Industrial Profits YY YTD (Aug) 49.5% (Prev. 57.3%)

Blackrock (BLK) says it is "dipping our toes" into Chinese equities with a modest overweight, partly amid expectations of policy easing. (Newswires)

Citi lowers China's 2022 GDP growth forecast to 4.9% from 5.5%; citing spillover from the Evergrande restructuring. Pressure on Chinese growth will likely prompt restrained policy easing which would include a 25bps rate reduction. (Newswires)

CENTRAL BANKS

Fed Chair Powell said in the prepared testimony for Tuesday's Senate hearing that higher prices and hiring difficulties may be more enduring than expected, while he reiterated that he sees strong growth for remainder of the year despite risks from the Delta variant and that they would act against sustained higher inflation. Furthermore, Powell added the Fed will do everything it can to keep the economy afloat for as long as it takes and that risks to the outlook remain. (Newswires)

Fed's Bostic (2021, 2024 voter) said he is not convinced they are facing a lengthy bout of troublesome inflation, while he added without clear data showing inflation has arrived and is likely to last, they will allow labour markets to run their course. (Newswires)

ECB's Villeroy says he believes inflation will be below the 2% target in 2023. (Newswires)

ECB’s de Guindos expects a gradual normalisation in Spanish economic activity in the coming quarters. (Newswires)

PBoC governor says China will lengthen the period for the implementation of normal monetary policy; PBoC has conditions to keep normal and upward yield curve, sees no need to purchase assets now. (Newswires)

US

US Senate failed to secure enough votes (48 vs. 50) to advance the bill to suspend the debt limit and avoid a government shutdown, while US Senate Majority Leader Schumer switched his vote to No to allow a future vote on the measure and stated that Democrats will take further action this week to avert a government shutdown and debt default. (Newswires)

UK/EU

UK government announced a standby pool of military drivers due to the fuel crisis and extends specific HGV licenses in the event that panic buying persists. (Sky News)

CDU's Laschet is to step down in his position as North-Rhine Westphalia Premier. (Newswires)

EQUITIES

Bourses in Europe extended on the losses seen at the cash open and trade lower across the board (Euro Stoxx 50 -1.7%; Stoxx 600 -1.7%) as sentiment retreated from a mixed APAC handover as month-end looms alongside tier 1 data and a slew of central bank speakers. US equity futures have also succumbed to the mood in Europe alongside the surge in global yields – which takes its toll on the NQ (-1.5%) vs the ES (-0.8%), YM (-0.4%) and RTY (-0.3%). From a more technical standpoint, ESZ1 fell under its 50 DMA (4,431) and tested the 4,400 level to the downside, whilst NQZ1 briefly fell under 15k and the YMZ1 inches towards its 100 DMA (34,489). Back to Europe, the FTSE 100 (-0.4%) sees losses to a lesser extent vs its European peers as energy prices and yields keep the index oil giants and banks supported – with some of the top gainers including Shell (+2.8%), BP (+2.1%). Sectors in Europe are predominantly in the red, but Oil & Gas buck the trend. Sectors also portray more of a defensive bias, whilst the downside sees Tech, Real Estate, and Travel & Leisure at the foot of the bunch, with the former hit by the rise in yields, which sees the US 10yr further above 1.50%, the 20yr above 2.00% and the UK 10yr hitting 1.00% for the first time since March 2020. In terms of individual movers, Smiths Group (+3.8%) is at the top of the Stoxx 600 following encouraging earnings. ING (+0.3%) holds onto gains after sources noted SocGen's (-0.6%) interest in ING's retail banking arm. Finally, chip-maker ASM International (-3.5%) has succumbed to the broader tech weakness despite upping its guidance and announcing capacity expansion by early 2023.

FX

DXY - It took a while for the index to breach resistance ahead of 93.500, but when US Treasuries resumed their bear-steepening run and the intensity of the moves in futures and cash picked up pace the break beyond the half round number was relatively quick and decisive. Indeed, the DXY duly surpassed its post-FOMC peak (93.526) and a prior recent high from August 19 (93.587) on the way to reaching 93.619 amidst almost all round Dollar gains, as 5, 10, 20 and 30 year yields all rallied through or further above psychological levels (such as 1%, 1.5% and 2% in the case of the latter two maturities). However, petro and a few other commodity currencies are displaying varying degrees of resilience in the face of general Greenback strength that is compounded by buy signals for September 30 rebalancing on spot month, quarter and half fy end. Ahead, trade data, consumer confidence, more regional Fed surveys, speakers and the 7 year auction.

NZD/CHF/JPY/AUD - The Kiwi was already losing altitude above 0.7000 vs its US counterpart and 1.0400 against the Aussie on Monday, so the deeper retreat is hardly surprising to circa 0.6975 and 1.0415 awaiting some independent impetus that may come via NZ building consents tomorrow. Meanwhile, the Franc has recoiled towards 0.9300 in advance of comments from SNB’s Maechler and the Yen continues to suffer on the aforementioned rampant yield and steeper curve trajectory on top of a more pronounced 1+ sd portfolio hedge selling requirement vs the Buck, with Usd/Jpy meandering midway between 110.94-111.42 parameters irrespective of renewed risk aversion due to same bond rout dynamic. Back down under, Aud/Usd has faded from around 0.7311 to the low 0.7260 area, though holding up a bit better in wake of not quite as weak as forecast final retail sales overnight.

CAD/EUR/GBP - All softer against their US rival, but the Loonie putting up a decent fight with ongoing help from WTI crude that has now topped Usd 76.50/brl, and Usd/Cad also has decent option expiry interest to keep an eye on given 1.2 bn rolling off at 1.2615 and an even heftier 3 bn at 1.2675 compared to current extremes spanning 1.2693-1.2652. Elsewhere, the Euro has lost its battle to stay afloat of multiple sub-1.1700 lows even though EGBs are tumbling alongside USTs and the same goes for Sterling in relation to the 1.3700 handle irrespective of the 10 year Gilt touching 1% for the first time since March 2020.

SCANDI/EM - Brent’s advances on Usd 80 brl have been offset to an extent by soft Norwegian retail sales data, as the Nok pares more of its post-Norges Bank gains, while the Sek looks somewhat caught between stalls following a recovery in Swedish consumption, but big swing in trade balance from surplus to larger deficit. However, the Try is taking no delight from the costlier price of oil or remarks from Turkey’s Deputy Finance Minister contending that interest rates can move lower by reducing the current account and budget deficits, or conceding that Dollarisation is a problem and steps need to be taken to enhance confidence in the Lira. Conversely, the Cnh and Cny are still holding a firm line following another net injection of 2 week funds from the PBoC and the Governor saying that China will lengthen the period for the implementation of normal monetary policy, adding that it has conditions to keep a normal and upward yield curve, as it sees no need to purchase assets at present.

FIXED INCOME

Only a token nod or deeper downturn on the back of what has to be deemed a disappointing DMO sale of longer-dated 2051 Gilts by all traditional measures, and an especially lengthy tail. Hence, it might be tempting to venture that bonds have hit levels that are verging on ‘oversold’ terrain and losses have been overextended at 125.35, 169.59 for Bunds and 131-09 in terms of the T-note, or simply that another bout of consolidation ahead of the halfway point in Europe has set in before a relatively busy pm agenda comprising US data, regional Fed surveys, orators and the final slug of Treasury issuance before September and Q3 draw to a close.

COMMODITIES

WTI and Brent futures have extended on the gains seen during APAC hours, which saw the Brent November contract topping USD 80/bbl, albeit the volume and open interest has migrated to the December contract – which topped out just before the USD 80/bbl mark. WTI November meanwhile advanced past the USD 76/bbl mark to a current peak at USD 76.67/bbl (vs low USD 75.21/bbl). Desks have been attributing the leg higher to tight supply – with the UK fuel situation further deteriorating amid a shortage of drivers coupled with panic buying. It's worth bearing in mind that the demand side of the equation has also seen supportive, with the US announcing the lifting of international travel curbs recently alongside the economic resilience to the Delta variant heading into the winter period. Traders would also be keeping an eye on the electricity situation in China, which in theory would provide tailwinds for diesel demand via generators, although this could be offset by a slowdown in economic activity due to power outages. There has also been growing noise for OPEC+ to hike output beyond the monthly plan of 400k BPD, with some African nations also struggling to ramp up production due to maintenance issues and lack of investments. Ministers recently noted that the plan would be maintained at next week's confab. As a reminder, the OPEC World Oil Outlook is set to be released at 13:30BST/08:30EDT, although the findings may be stale given the recent developments in crude dynamics. Major banks have also provided commentary on Brent following Goldman Sachs' bullish call recently, with Barclays upping its forecast for both benchmarks due to supply deficits, whilst Morgan Stanley maintained its forecast but suggested that the USD 85/bbl Brent scenario clearly exists. MS also noted that oil inventories continue to draw at high rates and suggest that the market is more undersupplied than generally perceived; the analysts see the market undersupplied into 2022 amid its expectation for further OPEC discipline. Nat gas also remains in focus, with prices +11% at one point, whilst Russia's Kremlin said Russia remains the safeguard of natural gas to Europe and Gazprom is ready to discuss new gas supply contracts with increased volumes to meet rising European demand. It's also worth being aware of the increasing likelihood of state intervention at these levels as nations attempt to save or at least cushion consumers and company margins. Elsewhere, precious metals are under pressure as the Buck remains buoyant, with spot gold still under USD 1,750/oz as it inches closer to the 11th August low of USD 1,722/oz. Spot silver remains within recent ranges above USD 22/oz. Overnight Chinese nickel and tin prices extended losses with traders citing subdued demand, whilst coking coal and coke futures leapt on tight supply.

China is said to be mulling curbing coal prices to ensure steady supply for factory output. (Newswires)

Russia's Kremlin says Russia remains the safeguard of natural gas to Europe; Gazprom is ready to discuss new gas supply contracts with increased volumes to meet rising European demand. (Newswires)

UK Transport Secretary says there is the first sign of stabilisation in fuel supply, albeit that has not improved the situation on queues. (newswires)

Barclays upgrades its 2022 Brent forecast to USD 77/bbl and WTI to USD 74/bbl; citing supply deficit. Morgan Stanley maintains its oil price forecast unchanged, but notes the scenario for USD 85/bbl clearly exists. Oil inventories continue to draw at high rates and suggest that market is more undersupplied than generally perceived. MS sees the market undersupplied into 2022 amid its expectation for further OPEC discipline. (Newswires)

GEOPOLITICAL

North Korea fired an unidentified projectile into the East Sea which Japan stated could be a ballistic missile, while the US State Department later stated that the North Korea test violates UN resolutions although the US remains committed to diplomacy and urges North Korea to return to talks. In relevant news, North Korea's UN ambassador said no one can deny North Korea's right to self defence and test weapons given hostile policies and that if US drops hostile policy, North Korea is also prepared to respond willingly at any time. Furthermore, the ambassador stated that if the US wants to end the Korea war, it should abandon hostile policies, halt military exercises and the deployment of strategic weapons. (Newswires)

Unidentified planes were reported to have struck a base run by Iranian-backed militias in Syria's Deir al Zor near the Iraqi border. (Newswires)

Iran's Vice President and Head of Atomic Energy Organisation Eslami is to visit Russia to discuss nuclear energy cooperation, according to Ria. (Newswires)

CRYPTO

US SEC Chairman Gensler said crypto markets will not end well without regulation and it is unlikely that thousands of cryptocurrencies can compete. (Newswires)

Turkish Deputy Finance Minister says will introduce regulations to minimise the negative impacts from cryptocurrencies. (Newswires)