• Asian equity markets were pressured on spillover selling from global peers which saw the S&P 500 suffer its worst day since May
• Tech losses were magnified as yields climbed and with sentiment also dampened by weak data
• Evergrande sold CNY 10bln of shares in Shengjing Bank that will be used to pay the developer’s debt owed to the company
• In FX markets, the USD held on to most of the prior day’s gains, EUR/USD and GBP/USD remain on 1.16 and 1.35 handles respectively
• Senate GOP blocked Senate Majority Leader Schumer’s unanimous consent effort to suspend the debt limit
• Looking ahead, highlights include EZ Economic Sentiment, Weekly DoEs, Fed's Powell, Harker, Daly, Bostic, Williams, ECB's Lagarde, Lane, de Guindos, Elderson, BoE's Bailey and BoJ's Kuroda, supply from Italy and Germany

CORONAVIRUS UPDATE

White House COVID Coordinator Zients said they have made a 'strong start' to the COVID booster campaign with 400k Americans getting the booster at pharmacies last weekend. (Newswires)

US FDA is reportedly leaning towards authorising the Moderna (MRNA) booster at half dose, while other reports noted that the Pfizer's (PFE) COVID-19 vaccine for kids may not be FDA authorized before November. (Newswires/WSJ)

ASIA

Asian equity markets were pressured on spillover selling from global peers which saw the S&P 500 suffer its worst day since May after tech losses were magnified as yields climbed and with sentiment also dampened by weak data in the form of US Consumer Confidence and Richmond Fed indexes. ASX 200 (-1.0%) was heavily pressured by tech and with mining-related stocks dragged lower by weakness in underlying commodity prices, with the mood also clouded by reports that Queensland is on alert for a potential lockdown and that Australia will wind down emergency pandemic support payments within weeks. Nikkei 225 (-2.2%) underperformed amid the broad sell-off and as participants awaited the outcome of the LDP leadership vote which saw no candidate win a majority (as expected), triggering a runoff between vaccine minister Kono and former foreign minister Kishida to face off in a second round vote. KOSPI (-1.5%) was heavily pressured by the tech woes and after North Korea confirmed that yesterday’s launch was a new type of hypersonic missile. Hang Seng (-0.6%) and Shanghai Comp. (-1.8%) conformed to the broad risk aversion with tech stocks hit in Hong Kong, although the losses were milder compared to regional peers with Evergrande shares boosted after it sold CNY 10bln of shares in Shengjing Bank that will be used to pay the developer’s debt owed to Shengjing Bank, which is the Co.’s first asset sale amid the current collapse concerns although it still faces another USD 45.2mln in interest payments due today. In addition, the PBoC continued with its liquidity efforts and there was also the absence of Stock Connect flows to Hong Kong with Southbound trading already closed through to the National Holidays. Finally, 10yr JGBs were slightly higher as risk assets took a hit from the tech sell-off and with T-notes finding some reprieve overnight. Furthermore, the BoJ were also in the market for nearly JPY 1tln of JGBs mostly in 3yr-10yr maturities and there were notable comments from Japan’s GPIF that it is to avoid investments in Chinese government bonds due to concerns over China market.

PBoC injected CNY 100bln in 14-day reverse repos with the rate at 2.35% for a CNY 40bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.4662 vs exp. 6.4653 (prev. 6.4608)

Evergrande (3333 HK) sold 1.75bln shares in Shengjing Bank (2066 HK) to Shenyang Shengjing Finance Investment Group for CNY 10bln with the proceeds to be used to payback debt owed to Shengjing Bank. (SCMP)

China's NDRC said it is to strengthen transportation of recently released thermal coal and asked railway companies to strengthen such deliveries, while it will closely monitor coal consumption and inventories at power plants. There were also reports suggesting that China is mulling a power rate hike for industrial users to ease the energy crunch. (Newswires)

US Commerce Secretary Raimondo said China needs to play by the rules and if it does not, there needs to be aggressive measures, while she added that they want to do business in China and needs to be given access, but also noted that the Chinese government is blocking Chinese airlines from buying tens of billions of dollars of Boeing (BA) jets. In relevant news, USTR Tai and EU Trade Chief Dombrovskis discussed challenges posed by non-market economies including China. (Newswires)

UK and Japan have agreed to begin formal negotiations on a reciprocal access agreement (RAA) to deepen the defence relationship between them, while the UK Defence Minister said talks with Japan send a clear message regarding determination to deeper bilateral defence cooperation. (Newswires)

UK/EU

France accused the UK of starting a new fishing war after the government rejected around three quarters of applications from small French boats to fish in British waters. (Telegraph) Separate reports note that the UK and EU are set to enter into weeks of intense negotiations on how to resolve issues related to Northern Ireland. (Newswires)

UK troops are set to start driving fuel lorries to petrol stations later this week. (Sky News) Separate reports suggest that petrol stations in the UK could face disruptions for up to a month even if people stop panic buying. (Times)

Italy is to cut 2021 budget deficit target to 9.5% of GDP from the previous goal of 11.8% set in April and is to hike 2021 GDP growth forecast to 6.0% (vs. prev forecast of 4.5%), according to government sources. (Newswires)

• UK BRC Shop Price Index YY (Sep) -0.5% (Prev. -0.8%)

FX

In FX markets, the USD held on to most of the prior day’s gains amid the risk aversion in stocks and higher yields which lifted the DXY to fresh YTD highs. There was further Fed commentary including from Chairman Powell who said that even with tapering, accommodation will be added until mid-2022 and warned about severe potential effects of not raising the debt ceiling. As for the latest developments in Washington, Senate GOP blocked Senate Majority Leader Schumer’s unanimous consent effort to suspend the debt limit that would have allowed passage through a simple majority vote, although the Democrats are preparing a measure for today to fund the government and avert a shutdown with the continuing resolution and debt limit now said to be moving forward on separate paths. EUR/USD remained lacklustre beneath 1.1700 as it took a backseat to the recent strengthening of USD and with the recent comments from ECB officials not providing much to spur the single currency, while GBP/USD was despondent after yesterday’s underperformance with price action stuck near the prior day’s lows after having slipped from the 1.3700 handle to trade south of 1.3550 and print its lowest level since the start of the year. USD/JPY partially retraced some of its recent gains but remained at the 111.00 status with focus on the LDP leadership race, and antipodeans were lacklustre amid the broad risk aversion, as well as softness in commodities and a pullback in oil.

COMMODITIES

Commodities were lacklustre overnight amid the broad risk aversion in which oil prices continued on from the prior day's profit taking after prices Brent crude briefly topped the USD 80/bbl level for the first time in around three years. Nonetheless, prices are off their multi-year highs with the Brent November contract testing USD USD 78/bbl to the downside and with WTI crude firmly below USD 75/bbl after bearish private sector inventory data which showed a surprise build in headline crude stockpiles. In relevant news, there were recent comments from OPEC Secretary General Barkindo who noted that calls to keep oil in the ground are not realistic and that OPEC+ will focus on keeping the market in balance, while it was also reported that the White House is continuing to speak with OPEC on prices and are looking at every means to address oil prices. Gold prices were contained after the recent rise in yields and as the greenback held on to its gains, while copper was subdued by the damped global sentiment.

US Private Energy Inventory Data (bbls): Crude +4.13mln (exp. -1.7mln), Cushing +0.36mln, Gasoline +3.56mln (exp. +1.4mln), Distillate +2.48mln (exp. -1.6mln). (Newswires)

White House said it is continuing to speak with OPEC on prices and is continuing to monitor prices, while it added it is not just engaged with OPEC, but looking at every means they have to address the cost of oil. (Newswires)

GEOPOLITICAL

US reached out to China diplomatically about reducing Chinese imports of Iranian oil, according to US and European officials. (Newswires)

North Korea confirmed it tested a new type of hypersonic missile and reports separately noted that North Korea convened its Supreme People’s Assembly meeting without leader Kim. (Yonhap/KCNA)

US

Treasuries bear-steepened (2s30s +7bps) Tuesday, but yields are off their peaks after the data misses and oil rally reversal. By settlement, 2s -0.2bps at 0.307%, 3s +0.3bps at 0.556%, 5s +2.8bps at 1.026%, 7s +4.3bps at 1.336%, 10s +5.3bps at 1.537%, 20s +7.5bps at 2.020%, 30s +7.7bps at 2.072%; TYZ1 volumes were above recent averages. 5yr TIPS -0.2bps at -1.602%, 10yr TIPS +2.5bps at -0.850%, 30yr TIPS +3.9bps at -0.202%. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. Decent volumes again in Eurodollars, EDU2, Z2, and H3 all +0.5bps at 99.665, 99.48, and 99.34, respectively; Z3 -1bp at 98.80; Z4 -4bps at 98.34; Z5 -6.5bps at 98.09. There was additional pressure as Europe arrived, with a chunky 5s/ultra 10s block steepener at work. No doubt part of the pressure was stemming again from the oil complex where Brent topped USD 80/bbl. That inflationary tone led to the widening in inflation breakevens as TIPS failed to sell-off to the same degree. The selling in USTs hit its peak amid the rocky NY cash equity open, with stocks not liking the surge in oil and yields. T-Notes hit lows of 131-07, with cash 10yr yields touching above 1.55%, and 2.07% for 30s. IFR touted the selling stocks and USTs was part tied to risk parity types having to unwind in both assets. The nadir was made for govvies around the 10:00ET data dump, which saw both disappointing US Consumer Confidence (Sept) and a dive lower in the Richmond Fed Mfg. Composite (Sept). Yields pared modestly off their highs into the 7yr note auction. There were a few ticks of selling seen in T-Notes after the 0.8bps tail (vs avg. 0.5bps) and B/C ratio of 2.24x (avg. 2.31x), although the 19.0% Dealers takedown was smaller than the avg. 21.3%, taking some of the sting out of the USD 62bln offering –hard to infer that investors were out in droves to buy the recent dip in Treasuries, however. T-note (Z1) futures settled 10+ ticks lower at 131-15.

Fed's Bostic (2021, 2024 voter) said there will be uncertainty while COVID disrupts the economy and that they are trying to keep track of labour choices, childcare, automation, and other issues to understand how the economy has changed. Furthermore, he is confident that as the economy heals the yield curve will steepen and stated a taper is warranted if current trends continue, but added they are still are in a pandemic-driven economy. (Newswires)

Fed's Bullard (2022 voter) said he sees upside risks to inflation and noted the Fed has indicated tapering will begin very soon, while he believes they are past the point for any kind of taper tantrum and sees the Fed beginning to taper in November. (Newswires)

White House said President Biden has given lawmakers a range but no top line number for budget reconciliation bill, while there were also comments from Commerce Secretary Raimondo that President Biden is prepared to compromise on the USD 3.5tln spending bill. White House also announced that President Biden's scheduled trip to Chicago on Wednesday was cancelled so he can lead negotiations on his legislative agenda. (Newswires)

US Senate Majority Leader Schumer ruled out using reconciliation step to raise the debt limit which he noted was "risky" and a "non-starter", while he instead sought unanimous consent to hold a vote to raise the debt limit which would have allowed the debt limit to be increase without votes from the Republicans. However, Senate Republicans blocked the vote sought by the Democrats to suspend the debt limit, although Congress Democrats were preparing a measure for today to fund the government and avert shutdown on Wednesday, while Democrats were also reported to offer a bill that would give the Treasury power over the debt limit. Furthermore, Roll Call's Shutt later tweeted that Democrat Senator Tester stated a continuing resolution and debt limit were moving forward on separate paths, while Shutt also noted that House Rules will take up stand alone debt limit bill at 10:00EDT on Wednesday. (Newswires/Twitter/Roll Call)

US Senate Minority Leader McConnell repeated that it is on the Democrats and Schumer to raise the debt limit via reconciliation, while he predicts that Democrats will do it, while there were earlier comments from GOP Senator Cruz that Republicans will object to Democrats raising debt limit via a simple majority vote and said that Democrats need to use reconciliation. (Newswires/Politico)

US Treasury Secretary Yellen is looking for a political agreement on global minimum corporate tax at G20 summit in October and believes the Senate Finance Committee is looking at a US overseas minimum tax rate slightly higher than the 16.5% proposed by the House Ways and Means panel. (Newswires)