• Bourses in Europe are attempting to claw back some ground lost yesterday; the Oil & Gas sector lags while Tech recovers
• In FX, DXY printed a new YTD high sub-94.00, EUR/USD hit fresh 2021 lows and the NZD underperforms
• Evergrande sold CNY 10bln of shares in Shengjing Bank that will be used to pay the developer’s debt owed to the company
• Japan's Kishida has been elected as the leader of the LDP Party and as the new Japanese PM
• Looking ahead, highlights include Weekly DoEs, Fed's Powell, Harker, Daly, Bostic, Williams, ECB's Lagarde, Lane, de Guindos, Elderson, BoE's Bailey and BoJ's Kuroda

CORONAVIRUS UPDATE

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)

A recent COVID-19 outbreak in East China's Fujian has basically been brought under control. The outbreak in NE China's Heilongjiang remains at a critical phase. Increasing prevention and control efforts are needed curb the virus spread, GT reports. (Global Times)

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 (-1.1%) 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 (-2.1%) 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 in which Kishida was named the new PM. KOSPI (-1.2%) 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 (+0.7%) 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)

China's FX regulator has tightened control over interbank currency trade; asked market makers to narrow the bid/ask spread, source state. Source noted that the regulator informed them that its role is to smoothen fluctuations without pushing CNY to either side. (Newswires)

Chinese Cyberspace Regulator says it will implement governance rules and a system for algorithms in approximately three years. (Newswires)

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) Evergrande investors said to still not have received USD 47.5mln bond coupon payment due Monday 27th September. (newswires)

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)

S&P affirms Hong Kong at AA+/A-1; outlook stable. (Newswires)

Japan's Kishida has been elected as the leader of the LDP Party in runoffs - defeating Kono; Kishida will be the next PM. Japan's PM Kishida says the government needs to compile a stimulus package worth tens of trillions of JPY by year-end. (Newswires)

US

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)

Roll Call's Shutt 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. (Roll Call)

UK/EU

ECB's Makhlouf said that inflation is being driven by transitory factors; ECB must be prepared to react if inflation is entrenched. Mackhlouf noted the economic outlook is optimistic and financing conditions are favourable. (Newswires)

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)

• EU Business Climate* (Sep) 1.72 (Prev. 1.75, Rev. 1.74)
• EU Cons Infl Expec (Sep) 33.1 (Prev. 31.1)

EQUITY

Bourses in Europe are attempting to claw back some ground lost in the prior session’s global stocks rout (Euro Stoxx 50 +0.9%; Stoxx 600 +0.8%). The upside momentum seen at the cash open has somewhat stabilised amid a lack of news flow and with a busy agenda ahead from a central bank standpoint, with traders also cognizant of potential month-end influence. US equity futures have also been gradually drifting higher since the reopen of electronic trade. As things stand, the NQ (+1.0%) narrowly outperforms the ES (+0.7%), RTY (+0.8%) and YM (+0.6%) following the tech tumble in the prior session, and with yields easing off best levels. Back to European cash, major regional bourses see broad-based gains with no standout performers. Sectors are mostly in the green; Oil & Gas resides at the foot of the bunch as crude prices drift lower and following two consecutive sessions of outperformance. On the flip side, Tech resides among today’s winners in what is seemingly a reversal of yesterday’s sector configuration, although ASML (+1.3%) may be offering some tailwinds after upping its long-term outlook whilst suggesting ASML and its supply chain partners are actively adding and improving capacity to meet this future customer demand – potentially alleviating some concerns in the Auto sector which is outperforming at the time of writing. Retail also stands strong as Next (+3.0%) upped its guidance whilst suggesting the longer-term outlook for the Co. looks more positive than it had been for many years. In terms of individual movers, Unilever (+1.0%) is underpinned by source reports that the Co. has compiled a shortlist of at least four bidders for its PG Tips and Lipton Iced Tea brands for some GBP 4bln. HeidelbergCement (-1.4%) is pressured after acquiring a 45% stake in the software firm Command Alko. Elsewhere, Morrisons (+1.3%) is on the front foot as the takeover of the Co. is to be decided via an auction process as touted earlier in the month.

FX

DXY/EUR/GBP - The yield and risk backdrop is not as constructive for the Dollar directly, but the index has posted another marginal new y-t-d best, at 93.891 compared to 93.805 yesterday with ongoing bullish momentum and the bulk of the US Treasury curve remaining above key or psychological levels, in contrast to other global bond benchmarks. Hence, the Buck is still elevated and on an upward trajectory approaching month end on Thursday, aside from the fact that hedge rebalancing flows are moderately positive and stronger vs the Yen. Indeed, the Euro is the latest domino to fall and slip to a fresh 2021 low around 1.1656, not far from big barriers at 1.1650 and further away from decent option expiry interest at the 1.1700 strike (1 bn), and it may only be a matter of time before Sterling succumbs to the same fate. Cable is currently hovering precariously above 1.3500 and shy of the January 18 base (1.3520) that formed the last pillar of support for the Pound before the trough set a week earlier (circa 1.3451), and ostensibly supportive UK data in the form of BoE mortgage lending and approvals has not provided much relief.

AUD/JPY - A rather odd couple in many ways given their contrasting characteristics as a high beta or activity currency vs traditional safe haven, but both are benefiting from an element of corrective trade, consolidation and short covering relative to their US counterpart. Aud/Usd is clinging to 0.7250 in advance of Aussie building approvals on Thursday and Usd/Jpy is retracing from its new 111.68 y-t-d pinnacle amidst the less rampant yield environment and weighing up the implications of ex-Foreign Minister Kishida’s run-off win in the LDP leadership contest and the PM-in-waiting’s pledge to put together a Yen tens of trillion COVID-19 stimulus package before year end.

CHF/CAD/NZD - All relatively confined vs their US rival, as the Franc continues to fend off assaults on the 0.9300 level with some impetus from a significant improvement in Swiss investor sentiment, while the Loonie is striving to keep its head above 1.2700 ahead of Canadian ppi data and absent the recent prop of galloping oil prices with WTI back under Usd 75/brl from Usd 76.67 at best on Tuesday. Elsewhere, the Kiwi is pivoting 0.6950 pre-NZ building consents and still being buffeted by strong Aud/Nzd headwinds.

SCANDI/EM - Not much purchase for the Sek via upgrades to Swedish GDP and inflation forecast upgrades by NIER as sentiment indices slipped across the board, but some respite for the Try given cheaper crude and an uptick in Turkish economic confidence. Conversely, the Cnh and Cny have not received their customary fillip even though the PBoC added liquidity for the ninth day in a row overnight and China’s currency regulator has tightened control over interbank trade and asked market makers to narrow the bid/ask spread, according to sources.

FIXED INCOME

The mood is much brighter in debt markets, or considerably less gloomy than it has been recently, but not entirely by any means given the tepid reception for Eur 4 bn 2031 German issuance that was technically uncovered with a near 25% retention rate vs less than 10% previously. Hence, contra trend traders, jobbers and dip buyers would do well to keep stops tight and profit targets achievable rather than too ambitious, while maintaining discipline with a nimble approach to establishing and exiting positions as Bunds nudge up to 170.22, Gilts hover some 20 ticks above par and the 10 year T-note just under 131-25+ ahead of US pending home sales and a full complement of the global Central Bank community appearing at Sintra, including 4 big heads.

COMMODITIES

WTI and Brent front month futures have been trimming overnight losses in early European trade. Losses overnight were seemingly a function of profit-taking alongside the bearish Private Inventory Report – which showed a surprise build in weekly crude stocks of 4.1mln bbls vs exp. -1.7mln bbls, whilst the headline DoE looks for a draw of 1.652mln bbls. Further, there have been growing calls for OPEC+ to further open the taps beyond the monthly 400k BPD hike, with details also light on the White House’s deliberations with OPEC ahead of the decision-making meeting next week. Despite these calls, it’s worth bearing in mind that OPEC’s latest MOMR stated, “increased risk of COVID-19 cases primarily fuelled by the Delta variant is clouding oil demand prospects going into the final quarter of the year, resulting in downward adjustments to 4Q21 estimates. As a result, 2H21 oil demand has been adjusted slightly lower, partially delaying the oil demand recovery into 1H22.” Brent Dec dipped back under USD 78/bbl (vs low 763.77/bbl) after testing USD 80/bbl yesterday, whilst WTI Nov lost the USD 75/bbl handle (vs low USD 73.37/bbl). Over to metals, spot gold and silver have seen somewhat of divergence as real yields negate some effects of the new YTD peak printed by the Dollar index, whilst spot silver succumbs to the Buck. Over to base metals, LME copper trade is lacklustre as the firmer dollar weighs on the red metal. Shanghai stainless steel meanwhile extended on losses, notching the fourth session of overnight losses with desks citing dampened demand from the Chinese power crunch.

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)

China's State Planner said coal imports will be increased in an orderly way and will boost domestic natural gas production as much as possible. China will keep Nat Gas imports via central Asian pipeline stable, will firmly safeguard power supply for residents, will effectively control unreasonable energy demand and will let power tariffs reflect changes in electricity supply/demand. (Newswires) Russia's Interrao says received request from China to increase electricity supplies, says discussing 'significant increase' of electricity supplies to China. (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)