• Asia-Pac stocks began Q4 on the backfoot following the negative handover from Wall St.
• The S&P 500 closed the month and quarter out with its worst performance since the start of the pandemic
• In FX, the DXY maintains 94.00 status, EUR/USD trades sub-1.16 and GBP/USD remains pressured
• Congress passed the stopgap funding bill to avert a government shutdown
• The House refrained from voting on the USD 1tln bipartisan infrastructure framework on Thursday night
• Looking ahead, highlights include German Retail Sales, Eurozone CPI, US Core PCE, Personal Spending, ISM Manufacturing, Uni. of Michigan (final), Fed's Harker, Mester, ECB's Schnabel

CORONAVIRUS UPDATE

Australia is to expand its recognised COVID-19 vaccines to include Sinovac and Covishield, while it is to roll out international vaccine certificate later this month and wants to establish more quarantine-free arrangements with countries, according to sources. Furthermore, PM Morrison later confirmed that Australia is ready to take next steps to safely reopen to the world with changes coming to the international border and that states and territories are to begin the program at different times although the system is expected to commence next month. (Newswires)

ASIA

Asia-Pac stocks began Q4 on the backfoot following the negative handover from Wall St. where all major indices declined to close out the worst month and quarter in the S&P 500 since the start of the pandemic, with risk appetite in Asia also not helped by the absence of key markets including Hong Kong which was closed for an extended weekend and with mainland China observing Golden Week holidays. ASX 200 (-1.8%) was heavily pressured by broad losses across its sectors and with the declines led by the top-weighted financial industry and losses in the mining giants, although gold producers weathered the storm and were underpinned by the recent reprieve in the precious metal. Furthermore, there were headwinds from the continued substantial COVID-19 infection numbers and a slowdown in domestic PMI data, as well as the postponement of free trade negotiations with Europe as a fallout from the cancelled submarine deal. Nikkei 225 (-2.1%) suffered from the haven currency inflows and although the latest Tankan data was mostly better than expected in which the Large Manufacturers Index rose for a fifth consecutive quarter to its highest since 2018, the BoJ noted that automakers' sentiment worsened due to parts shortages caused by disruptions at Southeast Asian factories and large automakers' sentiment index was the weakest since December. The removal of Japan’s state of emergency which had been widely flagged, did little to spur risk appetite, although Rakuten was among the few that have bucked the trend as it prepares to list its unit Rakuten Bank. KOSPI (-1.6%) conformed to the broad weakness with the index dampened despite the better-than-expected trade data, while it was also reported that South Korea is to extend current social distancing measures by two weeks and North Korea announced it had conducted an anti-aircraft missile test on Thursday. Finally, 10yr JGBs traded higher with prices lifted by risk aversion in stocks which also underpinned Bunds and T-note futures overnight, while prices in the Japanese benchmark breached resistance at 151.50 and reports noted the BoJ plans to maintain the current pace and size of JGB purchases during Q4.

USTR Tai is reportedly to outline President Biden's strategy on China on Monday and it was separately reported that the US House panel will hold a hearing on October 26th regarding China listings on US exchanges. (Newswires)

Individual investors and distressed debt funds are said to be flocking to bonds issued by Evergrande (3333 HK). (FT)

Taiwan's Economy Minister commented on China's objections to Taiwan joining the CPTPP and stated they have not heard of any member opposing Taiwan's application and that if China enters first, there is certainly risk of it obstructing Taiwan's entry. (Newswires)

BoJ Summary of Opinions said they must be mindful that impact from chip shortage and Southeast Asia factory shutdowns could affect capex and corporate funding, while it noted that domestic demand remains stagnant which is mainly in the service sector. Furthermore, it stated the global economy is recovering as a trend but is seeing signs of a slowdown in China growth and the mix between fiscal and monetary policy remains important even as the economy normalises and emerges from the hit of the pandemic. (Newswires)

BoJ official said automakers' sentiment worsened due to parts shortages caused by disruptions at Southeast Asian factories and large automakers' sentiment index was the lowest since December 2020. (Newswires)

• Japanese Tankan Large Manufacturing Index (Q3) 18 vs. Exp. 13 (Prev. 14)
• Japanese Tankan Large Manufacturing Outlook (Q3) 14 vs. Exp. 15.0 (Prev. 13.0)
• Japanese Tankan Large All Industry Capex (Q3) 10.1% vs. Exp. 9.1% (Prev. 9.6%)
• Korea (Republic of) Trade Balance Prelim* (Sep) 4.20B (Prev. 1.65B)
• Korea (Republic of) Export Growth Prelim* (Sep) 16.7% vs. Exp. 16.3% (Prev. 34.8%)
• Korea (Republic of) Import Growth Prelim* (Sep) 31.0% vs. Exp. 27.0% (Prev. 44.0%)

UK/EU

UK Business Secretary Kwarteng said data suggests there are continuing signs that the situation at fuel pumps is stabilising. (Newswires)

About 15 million households in England, Wales and Scotland face a rise in energy bills as a new and higher energy price cap takes effect from Friday. (BBC)

The EU Commission is prepared to approve recovery funds for Poland as early as November, subject to Warsaw agreeing to certain legally binding milestones to restore the rule of law. (Politico)

FX

In FX markets, the DXY was flat and held on to the 94.00 status following yesterday’s choppy performance whereby it initially extended on YTD highs to around 94.50 before reversing course. Asides from yesterday's slew of Fed rhetoric, attention has also been on Washington where Congress passed the stopgap funding bill to avert a government shutdown and keep the government funded to December 3rd, although the House refrained from voting on the USD 1tln bipartisan infrastructure framework on Thursday night which points to insufficient votes and instead will continue its attempts today. EUR/USD was lacklustre after retreating below 1.1600 with SocGen warning yesterday of a final selling flurry in EUR/USD tied to month/quarter-end USD rebalancing, while GBP/USD languished near YTD lows and failed to benefit from reports that suggested a stabilisation in the fuel issue. USD/JPY and JPY-crosses were lacklustre due to the risk aversion and antipodeans also flatlined amid the downbeat mood and softer Australian data, while Rabobank suggested that a dovish RBA will restrict upside in AUD/USD and it targets the pair at 0.7100 by year-end.

Mexican Central Bank raised its interest rate by 25bps as expected to 4.75% vs. Exp. 4.75% (Prev. 4.5%), while the decision was not unanimous (4-1) as one voted to maintain rates at 4.50%. It also raised inflation forecasts for 2021 and 2022, while it sees core inflation ending 2021 at 5.3% (prev. 5.1%) and core inflation is seen ending 2022 at 3.4% (prev. 3.3%). (Newswires)

Australia's New South Wales Premier Berejiklian resigned which followed reports that she is to be investigated by the Independent Commission Against Corruption. (Newswires)

• Australian AIG Manufacturing Index (Sep) 51.2 (Prev. 51.6)
• Australian Manufacturing PMI (Sep F) 56.8 (Prev. 57.3)
• Australian Home Loans MM (Aug) -4.3% (Prev. 0.2%)
• Australian Owner-Occupied Housing Finance (Aug) -6.6% vs. Exp. -2.0% (Prev. -0.4%)

COMMODITIES

Commodities were lacklustre overnight as price action was contained by the broad risk aversion and with WTI crude futures indecisive after the prior day's temperamental performance. Oil prices whipsawed yesterday with initial downside due to the risk averse mood although then rallied on news that China ordered top energy firms to secure supplies for winter at all costs, before pulling back again after sources suggested OPEC+ was considering option to release more oil to the market at the upcoming meeting, while reports also noted President Biden's National Security Adviser was to discuss oil prices with Saudi Arabia in meeting where he stressed the importance of creating supportive condition for the economic recovery. Elsewhere, gold took a breather after yesterday's rebound with the precious metal kept steady by support at USD 1750/oz and copper was pressured by the risk aversion and the absence of its largest purchaser China for the National Day holiday.

OPEC+ is considering options for releasing more oil to the market at next week's meeting, according to four OPEC+ sources. (Newswires)

White House said the National Security Adviser plans to discuss oil prices with Saudi Arabia, while it noted oil price remains a concern and they have been in touch with OPEC. Furthermore, a White House spokesperson later noted that President Biden's National Security Adviser stressed the importance of creating conditions to support economic recovery in the meeting with Saudis. (Newswires)

French Finance and Energy Ministers said in a letter to Eurogroup that European countries must coordinate responses to the energy price spike. It was also reported that French PM Castex said the government will put in place a "tariff shield" to ease the cost of rising bills and to halt gas price hikes, while they see gas prices declining again from April. In relevant news, Turkey raised natural gas prices by 15% for businesses. (Newswires)

GEOPOLITICAL

US and Russian joint statement stated the two sides held intensive and substantive discussions during the strategic stability dialogue on Thursday. (Newswires/Interfax)

US Department of Defense said the latest North Korea missile launch is not a threat to the US and they have not determined whether it was hypersonic. (Newswires)

North Korea said it conducted an anti-aircraft missile test on Thursday. (Yonhap)

US

Treasuries settled bid in the belly with the wings little changed, although all off worst levels amid month-end flows and broader risk aversion. By settlement, 2s -0.8bps at 0.289%, 3s -1.4bps at 0.524%, 5s -2.1bps at 0.991%, 7s -2.1bps at 1.320%, 10s -1.5bps at 1.524%, 20s -0.4bps at 2.032%, 30s +0.1bps at 2.088%; TYZ1 volumes were lighter than 5/10d averages but inline with the 20d. 5yr TIPS -2.0bps at -1.623% 10yr TIPS -0.4bps at -0.855% 30yr TIPS -0.1bps at -0.178%. Eurodollars were mixed/slightly firmer on lighter volumes, with EDZ1 +1bp at 99.855, H2 +0.5bp at 99.85, U2 +1bp at 99.685, Z2 +0.5bps at 99.50, Z3 +1.5bps at 98.855, Z4 +2bps at 98.40, Z5 +2.5bps at 98.13. SOFR and EFFR both unchanged at 5bps and 8bps respectively, although Thursday's readings (released Friday) are expected to see month-end pressure. Yields began clawing back higher through into the European morning, only to reverse lower again, before back higher as NY participants arrived and some spillover from the strong UK data and European energy price surges. T-Notes hit their lows for the day just before the NY stock open at 131-11. Bidders, linked to month-end, then dominated into the afternoon, taking T-Notes back to their 132-23+ APAC highs, before paring slightly into the month-end settlement. Friday's ISM looms. T-note (Z1) futures settled 4+ ticks higher at 131-19+.

Fed Chair Powell said no one should assume Fed could do much if there was a US debt default, while he also commented that inflation expectations are broadly consistent with the 2% inflation goal over the medium term and that if expectations drifted higher, the Fed would use tools to fight inflation. Furthermore, Powell also commented that the Fed has no plans to ban cryptocurrencies. (Newswires)

Fed's Evans (2021,2023 voter) said the recent increase in prices has been eye-popping and there is no way to sugar-coat how higher prices are affecting people, while he added that a burst of higher inflation now will give way to lower numbers ahead and that watching expectations will be crucial. Furthermore, he assumes the tapering of asset purchases will start late this year or January and end middle of next year or the fall. Evans later commented that the Fed is moving to tapering before long and there will be a time when Fed raises rates but patience is required and the next six months will be very important to assess the view on inflation. (Newswires)

Fed's Daly (2021, 2024 voter) said economic activity is picking up despite the Delta COVID variant. (Newswires)

US Senate and House approved the stop-gap government funding bill to avert a government shutdown and fund the government through to December 3rd which President Biden signed into law. (Newswires)

US House did not vote on USD 1tln bipartisan infrastructure bill on Thursday night and will return on Friday to try to vote on the bill, according to a House leadership aide. There were also comments from the White House that they are closer to an agreement than ever but noted that additional time is needed to broker a deal on Biden's agenda, while House Speaker Pelosi stated that 'discussions continue between the House, Senate and White House to reach a bicameral framework agreement to build back better through a reconciliation bill'. (Newswires)

US Democratic Senator Manchin (moderate) proposed a USD 1.5tln topline number to Senate Majority Leader Schumer this summer. It was later reported that Manchin said the top line for the bill amount is USD 1.5tln and that Democrats should first agree on the tax part of the reconciliation bill, while President Biden wants a lot more than USD 1.5tln. (Newswires/Politico)

US Democrat Senator Sinema (moderate) said her talks with the White House have been 'productive' and stated they are making progress. (Newswires)