• The upside momentum seen across US and European equity futures overnight stalled, with equities losing ground heading into the US session
• In FX, DXY eclipsed 94.500, EUR/USD hit a 14-month low, USD/JPY trades on either side of 112.00
• Chinese official Manufacturing PMI disappointed, whilst the Non-Manufacturing and Composite returned to expansionary territory
• 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 German Prelim CPI, US GDP and PCE Finals, Chicago PMI, Banxico Policy Decision, 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 (+1.9%) 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 (-0.3%) 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 (-0.4%) and Shanghai Comp. (+0.9%) 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)

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%)

US

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)

UK/EU

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's Centeno says the answer to uncertainty is to keep monitoring, keep a steady hand and act flexibly. (Newswires)

• German Unemployment Chg SA (Sep) -30k vs. Exp. -33.0k (Prev. -53.0k)
• German Unemployment Rate SA (Sep) 5.5% vs. Exp. 5.4% (Prev. 5.5%)

Riksbank Minutes (Sept): Members noted that inflation had been unexpectedly higher in recent months but this was largely due to rapidly rising energy prices. All of the board members supported the decision to hold the repo rate unchanged and the forecast implying an unchanged repo rate until the third quarter of 2024. A few members discussed a rate path that could indicate a rate rise at the end of the forecast period. (Newswires)

German regional CPIs saw the Y/Y in-line with the uptick expected in the nationwide figures, whilst the M/M metrics were mixed, with the nationwide M/M also forecast to show a mild uptick.

EQUITIES

The upside momentum seen across US and European equity futures overnight stalled, with European cash also drifting from the best seen at the open (Euro Stoxx 50 Unch; Stoxx 600 +0.1%). This follows somewhat mixed APAC handover, and as newsflow remains light on month and quarter-end. US equity futures are firmer across the board, but again off best levels, although the RTY (+0.8%) outperforms the ES (+0.4%), YM (+0.4%) and NQ (+0.5%). Back to Europe, the periphery lags vs core markets, whilst the DAX 40 (-0.3%) underperforms within the core market. Sectors in Europe are mostly in the green but do not portray a particular risk bias. Basic Resources top the chart with aid from overnight action in some base metals, particularly iron, in turn aiding the large iron miners BHP (+2.2%), Rio Tinto (+3.4%) and Anglo American (+2.9%). The bottom of the sectors meanwhile consists of Travel & Leisure, Autos & Parts and Industrial Goods & Services, with the former potentially feeling some headwinds from China’s travel restrictions during its upcoming National Day holiday. In terms of M&A, French press reported that CAC-listed Carrefour (-1.3%) is reportedly looking at options for sector consolidation, and talks are said to have taken place with the chain stores Auchan, with peer Casino (Unch) also initially seeing a leg higher in sympathy amid the prospect of sector consolidation. That being said, Carrefour has now reversed its earlier upside with no particular catalyst for the reversal. It is, however, worth keeping in mind that regulatory/competition hurdles cannot be ruled out – as a reminder, earlier this year, France blocked the takeover of Carrefour by Canada’s Alimentation Couche-Tard. In the case of a successful deal, Carrefour will likely be the acquirer as the largest supermarket in France. Sticking with M&A, Eutelsat (+14%) was bolstered at the open amid source reports that French billionaire Patrick Drahi is said to have made an unsolicited takeover offer of EUR 12.10/shr for Eutelsat (vs EUR 10.35 close on Wednesday), whilst the FT reported that this offer was rejected.

FX

AUD/NZD/CAD - The non-US Dollars are taking advantage of the Greenback’s loss of momentum, and the Aussie in particular given an unexpected boost from building approvals completely confounding expectations for a fall, while a spike in iron ore prices overnight provided additional incentive amidst somewhat mixed external impulses via Chinese PMIs. Hence, Aud/Usd is leading the chasing pack and back up around 0.7200, Usd/Cad is retreating through 1.2750 and away from decent option expiry interest at 1.2755 and between 1.2750-40 (in 1.3 bn and 1 bn respectively) with some assistance from the latest bounce in crude benchmarks and Nzd/Usd is still trying to tag along, but capped into 0.6900 as the Aud/Nzd cross continues to grind higher and hamper the Kiwi.

DXY/GBP/JPY/EUR/CHF - It’s far too early to call time on the Buck’s impressive rally and revival from recent lows and saw another leg higher in recent trade that propelled the index to eclipse 94.500. The index awaits residual rebalancing flows for the final day of September, Q3 and the half fy that Citi is still classifying as Dollar positive, albeit with tweaks to sd hedges for certain Usd/major pairings. Also ahead, the last US data and survey releases for the month including final Q2 GDP, IJC and Chicago PMI before another raft of Fed speakers. Meanwhile, Sterling has gleaned some much needed support from upward revisions to Q2 UK GDP, a much narrower than forecast current account deficit and upbeat Lloyds business barometer rather than sub-consensus Nationwide house prices to bounce from the low 1.3600 area vs the Greenback and unwind more of its underperformance against the Euro within a 0.8643-05 range. The latter was initially keeping tabs on 1.1600 vs its US peer in wake of firmer German state CPI prints and with the aforementioned Citi model flagging a sub-1 standard deviation for Eur/Usd in contrast to Usd/Jpy that has been elevated to 1.85 from a prelim 1.12. Although the recent traction in the Dollar took Eur/Usd to a 14-month low. Nevertheless, the Yen is deriving some traction from the calmer yield backdrop rather than disappointing Japanese data in the form of ip and retail sales to contain losses under 112.00, and the Franc is trying to do the same around 0.9350.

SCANDI/EM - The tables have been turning and fortunes changing for the Nok and Sek, but the former has now given up all and more its post-Norges Bank hike gains and more as Brent consolidates beneath Usd 80/brl and the foreign currency purchases have been set at the same level for October as the current month. Conversely, the latter has taken heed of a hawkish hue to the latest set of Riksbank minutes and the fact that a few Board members discussed a rate path that could indicate a rise at the end of the forecast period. Elsewhere, the Zar looks underpinned by marginally firmer than anticipated SA ppi and private sector credit, while the Mxn is treading cautiously ahead of Banxico and a widely touted 25 bp hike.

FIXED INCOME

Bonds may be more than content to see the back of the month, quarter and H1 fiscal year given the magnitude of losses incurred, but in truth October could be just as painful as cash is put to work and seasonal factors favour riskier assets, like stocks. Moreover, Q4 seems set for more global Central Banks to start or lay the foundations for policy normalisation. However, Bunds, Gilts and US Treasuries are dusting themselves down for now, with the former back above 170.00 from a 169.77 low, its UK counterpart just shy of 125.50 and a marginal new 125.55 Liffe high (-11 ticks vs -51 ticks at worst) and the 10 year T-note nearer 131-23+ than 131-14 vs Wednesday’s 131-15 close. Ahead, plenty of data and Central Bank commentary to see out September.

COMMODITIES

WTI and Brent futures are choppy but trade with modest gains heading into the US open and in the run-up to Monday’s OPEC+ meeting. The European session thus far has been quiet from a news flow standpoint, but the contracts saw some fleeting upside after breaking above overnight ranges, albeit the momentum did not last long. Eyes turn to OPEC+ commentary heading into the meeting, which is expected to be another smooth affair, according to Argus sources. As a reminder, the group is expected to stick to its plan to raise output by 400k BPD despite outside pressure to further open the taps in a bid to control prices. Elsewhere, as a mild proxy for Chinese demand, China’s Sinopec noted that all LNG receiving terminals are to be operated at full capacity. WTI trades on either side of USD 75/bbl (vs low USD 74.54/bbl), while its Brent counterpart remains north of USD 78/bbl (vs low USD 77.66/bbl). Turning to metals, spot gold and silver continue to consolidate after yesterday’s Dollar induced losses, with the former finding some support around the USD 1,725/oz mark and the latter establishing a floor around USD 21.50/oz. Over to base metals, Dalian iron ore futures rose to three-week highs amid pre-holiday Chinese demand and after Fortescue Metals Group halted mining operations at a Pilbara project. Conversely, LME copper is on a softer footing as the Buck holds onto recent gains.

China's Sinopec (600028 CH) is to operate its LNG receiving terminals at full capacity this winter. (Newswires)

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)

Chinese Commerce Ministry says China has carried out a comprehensive assessment on CPTPP rules and identifies reforms required to enter the partnership. (Newswires)

Turkey President Erdogan proposed to Russian President Putin further joint defence industry steps including plane engines, fighter jets and submarines; Erdogan is to hold talks with US President Biden regarding Turkey-US relations and the F-35 jets issue. (Newswires)

China-US economic and trade teams are maintaining regular communication, according to a MOFCOM official cited by Global Times. (Global Times)