• Asia-Pac stocks traded somewhat varied with the region indecisive at quarter-end and as participants digested a slew of data releases
• Chinese official Manufacturing PMI disappointed, whilst the Non-Manufacturing and Composite returned to expansionary territory
• In FX, the DXY remains on a 94.00 handle, whilst EUR/USD recouped 1.16 status and GBP/USD trades on a 1.34 handle
• The House passed the bill to suspend the debt ceiling to December 2022; unlikely to be passed in the Senate
• Both the House and Senate are set to take up the stopgap funding bill today in a last-ditch effort to avert a shutdown
• Looking ahead, highlights include UK GDP, EU Unemployment, German Prelim CPI, US GDP and PCE Finals, Chicago PMI, Riksbank Minutes, Banxico Policy Decision, ECB's Panetta, Centeno, Fed's Williams, Bostic, Harker, Evans, Bullard, Daly

CORONAVIRUS UPDATE

AstraZeneca (AZN LN) expects to file for US approval for its COVID-19 vaccine later this year with the vaccine 74% effective at preventing symptomatic illness in US trial. (Newswires)

NEJM published positive Phase 3 trial results for Regeneron's (REGN) REGEN-COV (casirivimab and imdevimab) for COVID-19 treatment in which the trial met primary and secondary endpoints and showed it significantly reduced risk of hospitalisation and death. (Newswires)

EMA is to decide on October 4th on the Pfizer (PFE) booster COVID-19 shot, while it is expected to give broad guidance and no precise recommendation on which age or risk groups should be eligible. (Newswires)

ASIA

Asia-Pac stocks traded somewhat varied with the region indecisive at quarter-end and as participants digested a slew of data releases including mixed Chinese PMI figures. ASX 200 (+1.7%) was underpinned by broad strength across its industries including the top-weighted financials sector and with the large cap miners lifted as iron ore futures surge by double-digit percentages, while the surprise expansion in Building Approvals also helped markets overlook the 51% spike in daily new infections for Victoria state. Nikkei 225 (+0.1%) was subdued for most of the session after disappointing Industrial Production and Retail Sales data which prompted the government to cut its assessment of industrial output which it stated was stalling. The government also warned that factory output could decline for a third consecutive month in September and that October has large downside risk due to uncertainty from auto manufacturing cuts. However, Nikkei 225 then recovered with the index marginally supported by currency flows. Hang Seng (-1.0%) and Shanghai Comp. (+0.4%) diverged heading into the National Day holidays and week-long closure for the mainland with tech names in Hong Kong pressured by ongoing regulatory concerns as China is to tighten regulation of algorithms related to internet information services. Nonetheless, mainland bourses were kept afloat after a further liquidity injection by the PBoC ahead of the Golden Week celebrations and as markets took the latest PMI figures in their strides whereby the official headline Manufacturing PMI disappointed to print its first contraction since February 2020, although Non-Manufacturing PMI and Composite PMI returned to expansionary territory and Caixin Manufacturing PMI topped estimates to print at the 50-benchmark level. Finally, 10yr JGBs were choppy with initial said amid the early losses in Japanese stocks and rebound in T-note futures, although upside was then reversed after hitting resistance at 151.50 and as Japanese stocks also recovered, with weaker results at the 2yr auction also providing a headwind for JGBs.

PBoC injected CNY 100bln via 14-day reverse repos with the rate at 2.35% for a CNY 40bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.4854 vs exp. 6.4817 (prev. 6.4662)

Pentagon officials reportedly held frank, in-depth and open discussions with a Chinese military official regarding a range of issues affecting the US-China defense relationship. (Newswires)

BoJ Governor Kuroda said Japan’s economy is gradually picking up and exports are firm but noted that Japan consumption is 'still very weak'. Kuroda added that GDP could recoup pandemic loss by late 2021 or early 2022 and the corporate sector is enjoying a firm situation that has translated into a firm pick-up in CapEx. Kuroda also stated they would further ease monetary conditions as needed and that whatever kind of fiscal and regulatory policies the new government pursues, the BoJ will stick to an extremely accommodative monetary policy to achieve the 2% price stability target as soon as possible. Furthermore, he said the central bank mandate is unlikely to change regardless of the policies from the new government. (Newswires)

Japan's government cut its assessment of industrial production which it stated is stalling and noted that the shortage of chips and other supplies from Asia is hitting production. Furthermore, an official stated that factory output could decline for a third consecutive month in September due to lower car output and October production also has large downside risk due to uncertainty regarding car output cuts. (Newswires)

• Chinese NBS Manufacturing PMI (Sep) 49.6 vs. Exp. 50.1 (Prev. 50.1)
• Chinese NBS Non-Manufacturing PMI (Sep) 53.2 (Prev. 47.5)
• Chinese Composite PMI (Sep) 51.7 (Prev. 48.9)
• Chinese Caixin Manufacturing PMI (Sep) 50.0 vs. Exp. 49.5 (Prev. 49.2)
• Japanese Industrial Production MM (Aug P) -3.2% vs. Exp. -0.5% (Prev. -1.5%)
• Japanese Retail Sales YY (Aug) -3.2% vs. Exp. -1.0% (Prev. 2.4%)

UK/EU

BoE Governor Bailey said he does not pre-judge what the BoE will do in November, while he added that the UK recovery is uneven and they are seeing bottlenecks in supply where some are global. However, he said supply shocks will be temporary and expects output to be back to pre-pandemic levels early next year, maybe a month or two later than they thought in the summer. (Newswires)

UK Finance Ministry said the UK chaired a productive G7 FinMin discussion on international tax reform, where a common understanding was reached on some crucial remaining issues. (Newswires)

UK will not introduce visa schemes for any other sectors facing staff shortages except for HGV drivers and poultry workers. (BBC)

Fuel in the UK is being diverted from large companies to petrol stations to ease the crisis but which threatens to disrupt deliveries and industry sources claimed this was on government orders, although senior Whitehall sources said the decision was made by fuel companies themselves and not on government instructions. (Telegraph)

ECB President Lagarde said the Euro area will be back at pre-crisis levels at year-end and said the sea of uncertainty has receded but uncertainty remains, while she added that bottlenecks should fade in H1 2022 and that price increase is largely attributable to reopening. (Newswires)

FX

In FX markets, the DXY took a breather from the prior day’s outperformance after having notched a 4th consecutive gain and printed a fresh YTD high above the 94.00 level. There was another bout of Fed rhetoric although nothing particularly ground-breaking with Fed Chair Powell noting the outlook is quite positive in the medium term but highly uncertain and noted that inflation will run well above target for coming months before it eases. In addition, Fed's Daly said there has been quite a bit of progress and momentum on employment and she expects the bar for taper to be met by the end of the year, while Fed's Harker also suggested it will soon be time to taper asset purchases. Plenty of attention remained on Congress where the House passed the bill to suspend the debt ceiling to December 2022 which goes to the Senate although this is unlikely to pass due to stern opposition by the Republicans who want Democrats to go it alone on the debt ceiling through reconciliation, which House Speaker Pelosi has ruled out. Nonetheless, both the House and Senate are set to take up the stopgap funding bill today in a last-ditch effort to avert a shutdown and Pelosi is also planning to proceed with the infrastructure bill vote although there was plenty of doubts whether she has the sufficient votes. EUR/USD gave way to the advances in the greenback which briefly dragged the single currency beneath 1.1600 and with price action unaffected by comments from ECB President Lagarde that the Euro area will be back at pre-crisis levels at year-end. GBP/USD attempts to nurse some of its recent wounds but with the recovery limited by cross-Channel tensions with France looking to retaliate against the UK over post-Brexit fishing licences. USD/JPY and JPY-crosses were choppy overnight amid the indecision in Japanese stocks and antipodeans were off the prior day’s lows with AUD mildly supported after the surprise expansion in Building Approvals.

• Australian Building Approvals (Aug) 6.8% vs. Exp. -5.0% (Prev. -8.6%)
• Australian Private House Approvals (Aug) 3.5% (Prev. -5.8%)

COMMODITIES

Commodities were mostly rangebound overnight with WTI crude contained amid the cautious risk tone and following the recent bearish EIA inventory report which was relatively inline with the private sector data. There were also some recent OPEC comments with SecGen Barkindo stressing the need to remain cautious and attentive to an ever evolving oil market situation, while source reports noted that OPEC+ is seen sticking to November output plans despite USD 80/bbl oil prices. Gold nursed some of the prior day's losses as the greenback took a breather from its four-session win streak and copper prices kept rangebound amid the soft Official Manufacturing PMI data from China and despite the early surge in iron ore futures which jumped around 10% near the open which was attributed to increased buying from China heading into the Golden Week holidays.

GEOPOLITICAL

North Korean leader Kim expressed willingness to restore inter-Korean hotline beginning in October but also stated North Korea is stepping up development on new weapons and that US military threats and hostile policy is unchanged under new administration. Furthermore, Kim was reported to reject US dialogue offer and stated that it is up to South Korea to continue standoff or foster new relations, while he added that North Korea has no reasons to provoke or hurt South Korea. In relevant news, the UN Security Council will meet today regarding North Korea, according to diplomats. (Newswires)

US State Department said the US will not normalise or upgrade diplomatic relations with Syrian President Al-Assad, nor does it encourage others to do so. (Newswires)

White House rejected a request from Palestinian President for a meeting on the sidelines of the UN General Assembly last week, according to US and Palestinian sources. (Axios)

US

Treasuries were bid, but off their best levels after NY trade saw the O/N rally faded, while month-end buying keeps sales limited. By settlement, the curve was mixed, with 2s -1.0bps at 0.297%, 3s -2.1bps at 0.535%, 5s -1.4bps at 1.010%, 7s -0.4bps at 1.342%, 10s +0.3bps at 1.539%, 20s +1.4bps at 2.034%, 30s +1.7bps at 2.087%. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. Treasuries recovered losses through APAC and Europe on decent volume, but not as strong as Wednesday, where T-Note Z1 contracts saw their record-high volume Tuesday, just shy of 2.5mln – outside the roll, that's the highest on the front-month since June. There weren't any fresh catalysts for the recovery in bonds, with the overhang of Evergrande and the Debt Limit still present, with the paring from peaks in yields much rather seeming a natural retracement. T-Notes hit session highs of 131-25+ (cash 10s just sub 1.50%) heading into the NY handover, before selling pressure emerged. Flows were two-way however heading into the NYSE afternoon, with month-end buyers keeping the lid on sustained selling. By settlement, the curve was mixed, with longer-dated Treasuries tilting negative, while 2s through 7s were around flat. T-note (Z1) futures settled unchanged at 131-15.

Fed Chair Powell said the outlook is quite positive in the medium term but is highly uncertain and that supply constraints are really holding back the US economy at this time. Powell added that household and business balance sheets in the US are quite strong, while he noted that inflation will run well above target for the coming months before it eases. (Newswires)

Fed's Daly (2021, 2024 voter) said there has been quite a bit of progress and momentum on employment, while she expects the bar for taper to be met by the end of the year but noted they are a long way from raising rates and she does not think they will meet the rate hike criteria next year. (Newswires)

US CBO projects that if the debt limit remains unchanged, the Treasury’s ability to borrow using extraordinary measures will be exhausted and it will most likely run out of cash near the end of October or the beginning of November. (Newswires)

US House voted (219-212) to pass the debt ceiling bill which would suspend the debt ceiling to December 2022 to send the bill to the Senate where it is unlikely to pass. (Newswires)

US House Speaker Pelosi said the Senate will send a stopgap funding bill to the House today, while she ruled out reconciliation for the debt ceiling. Furthermore, she plans to proceed with the infrastructure bill vote but responded that she is taking it one hour at a time when questioned if she had enough votes regarding the infrastructure bill. It was also separately reported that two Democratic Senators said they expect House Speaker Pelosi to cancel a scheduled vote on Thursday regarding the USD 1trln bipartisan infrastructure as she will not have the votes to get it passed. (Newswires/The Hill)

US Senate will conduct a series of votes on Thursday at 10:30EDT including on a stopgap bill to fund government through to early December, while other reports noted that Senate Majority Leader said the Senate reached a deal to avert a government shutdown. (Newswires/NBC)

US Senator Manchin said it is going to take a while to negotiate a large domestic investment bill which will unlikely to be done in 'a week or two or three' and Manchin was also reported to reject pleas by other Democrat Senators that have cited extreme weather in their home states to try get him to back core climate provisions in President Biden’s USD 3.5tln reconciliation package. (Newswires/Axios)

US President Biden, Senate Majority Leader Schumer and House Speaker Pelosi committed to the infrastructure bill at their meeting. There were also comments from the White House that they knew it would be a compromise regarding the topline amount for the budget bill and they sense that moderate Democrat Senator Sinema wants a reconciliation package. (Newswires)

US Treasury said G7 understanding on taxes will support reaching a final agreement within OECD framework in October and that G7 finance ministers reached a common understanding on some important issues in talks for overhauling the international tax system. (Newswires)