• Bourses in Europe kicked off the first trading day of Q4 on the back foot, although the selling has somewhat stabilised
• US equity futures have also succumbed to the risk aversion; Chinese markets commenced the Golden Week holiday
• In FX, the DXY maintains 94.00 status, EUR/USD trades sub-1.16 and GBP/USD attempts to reclaw losses
• The House refrained from voting on the USD 1tln bipartisan infrastructure framework on Thursday night
• Looking ahead, highlights include 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)

Merck (MRK) and Ridgeback’s investigational oral antiviral Molnupiravir reduced the risk of hospitalization or death by around 50% vs placebo in Positive Interim Analysis of Phase III study. (Business

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 (-2.0%) 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 (-2.3%) 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%)

US

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)

UK/EU

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)

Eurogroup President Donohoe says " at Eurogroup next week, we will be discussing macroeconomic developments including recent energy price increases and the implications for growth, inflation and budgetary planning.". (Twitter)

EU Markit Manufacturing Final PMI (Sep) 58.6 vs. Exp. 58.7 (Prev. 58.7): "theme of supply issues and rising prices run well into 2022.”

UK Markit/CIPS Manufacturing PMI Final (Sep) 57.1 vs. Exp. 56.3 (Prev. 56.3): "The confident outlook was attributed to recoveries in both domestic and global markets, reduced difficulties from supply chains, COVID-19 and Brexit and planned new product launches."

EU HICP-X F&E Flash YY (Sep) 1.9% vs. Exp. 1.9% (Prev. 1.6%)

EU HICP Flash YY (Sep) 3.4% vs. Exp. 3.3% (Prev. 3.0%)

EQUITIES

Bourses in Europe kicked off the first trading day of the month on the back foot (Euro Stoxx 50 -0.8%; Stoxx 600 -0.9%), although the selling has somewhat stabilised following the downside momentum experienced heading into and around the cash open. This followed on from a downbeat APAC session and as Chinese markets entered a week-long hibernation due to Golden Week. US equity futures have also succumbed to the risk aversion, with the cyclical RTY (-0.9%) narrowly lagging its ES (-0.6%), NQ (-0.6%) and YM (-0.6%) peers. Back to Europe, the morning saw the final release of the manufacturing PMIs all highlighted the theme of intense supply-side imbalances, with some also noting of the follow-through to consumer demand, whilst IHS suggested that the theme of supply issues and rising prices could continue "well into 2022". The core and periphery equity cash markets are experiencing broad-based losses. Sectors are predominantly in the red and show a somewhat broad performance with no clear bias nor theme. Travel & Leisure opened as the marked underperformer but has since made its way up the ranks. Banks are hit amid the pullback in yields after the European close yesterday – with the US 10yr cash yield back under 1.50% and the 20yr sub-2%. Utilities, however, buck the trend as EDF (+4.2%) shares extend on gains and reside at the top of the Stoxx 600 – with desks citing an element of relief from the French announcement on energy which left electricity tariffs untouched; E.ON (+1.8%), National Grid (+1.6%) and Engie (+1.6%) follow suit. In terms of individual movers, BMW (+1.8%) nursed the losses seen at the open after the German automaker upped its auto revenue guidance despite the ongoing semiconductor shortage, adding that "the continuing positive pricing effects for both new and pre-owned vehicles will overcompensate these negative sales volume effects in the current financial year." ING (-0.8%) meanwhile has trimmed the losses seen at the open following the announcement of a EUR 1.7bln share buyback programme.

FX

DXY/JPY/EUR/CHF/XAU - Having held just above 94.000 on Thursday when the final position squaring for month end culminated in a loss of bullish momentum, the Dollar and index have firmed up again amidst a risk-off start to October. However, sentiment has gradually improved and US Treasuries have reverted to a more pronounced bull-flattening trajectory to keep the Buck capped ahead of yesterday’s new cycle peaks as the DXY straddles 93.300 within a narrow 94.201-395 band vs its 94.109-504 prior session extremes in the run up to a busy slate of data, surveys and yet more Fedspeak. Elsewhere, the Yen is also benefiting from a degree of safe-haven demand and eyeing 111.00 vs its US peer after containing losses through 112.00 when negative rebalancing flows were peaking, and with some traction from an encouraging Japanese Tankan survey on balance overnight, while the Franc and Gold are both underpinned around 0.9300 and Usd 1750/oz respectively, but the Euro remains heavy after losing 1.1600+ status and deriving no real support from rather mixed Eurozone manufacturing PMIs, below forecast German retail sales or even y/y HICP marginally topping consensus.

NZD/AUD/GBP/CAD - Somewhat contrasting fortunes for the high beta, activity, cyclical and commodity bloc, as the Kiwi continues to pivot 0.6900 against its US rival and defend the psychological 1.0500 mark vs the Aussie that has overcome disappointment on the back of softer PMIs and considerably weaker than expected housing finance data to extend beyond 0.7200 where hefty 1.7 bn option expiry interest resides. Meanwhile, the Pound is hovering just under 1.3500 following a healthy looking upward revision to the final UK PMI, but the Loonie is lagging between 1.2739-1.2674 parameters pre-Canadian monthly GDP and the official manufacturing PMI.

SCANDI/EM - Rather perverse price action in Eur/Nok and Eur/Sek as the former retreats beneath 10.1000 after a slowdown in Norway’s manufacturing PMI, but the latter rebounds around a 10.1500 axis irrespective of faster growth in Sweden. Similarly, EM currencies are mixed with the Rub underperforming as Brent reverses through Usd 78/brl, but the Mxn firmer post-Banxico’s rate hike regardless of a downturn in WTI and the Try happy with lower oil prices rather than rattled by another bank predicting that the CBRT will slash benchmark rates by a further 300 bp before year end.

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

FIXED INCOME

Stocks are well off worst levels that saw several key EU indices tumble some way below big figure levels (such as the Dax under 15k, E-Stoxx 50 sub-4k and FTSE beneath 7k), but Bunds and their Eurozone debt peers have lead a stronger rebound in debt futures that has pushed the 10 year German benchmark up to a new Eurex high for the day so far, at 170.49 (+67 ticks vs +10 ticks at the low). No obvious catalyst for the latest recovery rally, but the scale of recent losses may well be a factor that has also helped Gilts to regroup after a deeper retreat to 125.21 (+6 ticks vs +57 ticks at best) and USTs hover just shy of overnight session peaks before a packed 1st agenda of October and Q4.

COMMODITIES

WTI and Brent front month futures have been drifting lower throughout the European session with no clear catalyst aside from the overall risk environment. Markets are gearing up OPEC-related headlines ahead of the confab on Monday, with sources yesterday noting that OPEC+ is considering options for releasing more oil to the market at next week's meeting. However, oil analysts caveat that this is just the nature of their meetings whereby "all options are on the table". Recent sources also suggested that despite prices hitting a three-year high above USD 80/bbl for the November Brent contract, the ministers are unlikely to deviate from current plans. All signs currently point towards a smooth meeting – with no pushback seen from any members, although surprises cannot be omitted. On that note, it'll be interesting to see if the meeting provides commentary surrounding the troubles among some African nations to ramp up production amid maintenance problems and low investments. Nonetheless, there is no question that OPEC+ is facing outside pressure to up its production volumes: The 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. As a reminder, unanimity among OPEC+ members is required for any tweaks to the Declaration of Cooperation (DoC). WTI Nov resides around USD 74.50bbl (74.23-75.57/bbl range), whilst Brent Dec trades on either side of USD 78/bbl (vs 77.55-78.87/bbl range). Elsewhere, spot gold and silver are in a holding pattern awaiting the next catalyst, with prices somewhat consolidating following yesterday's run. The yellow metal has re-established support at USD 1,750/oz, whilst spot silver drifts higher after printing a floor around the USD 22/oz mark. Over to industrial metals, LME copper is attempting to claw back some of its recent losses whereby prices fell under USD 9k/t in the prior session – a level the red metal has reclaimed, although the absence of China in the market over the next week may provide some headwinds to the overnight demand. For the nickel watchers, BHP said its Kwinana nickel sulphate plant outside Perth had yielded its first nickel sulphate crystals, with the Co. aiming to produce 100k tonnes per annum of nickel sulphate. Finally, it's worth being cognizant of a sources piece via SGH Macro (dated yesterday), which suggested that due to the current power shortages, China's MIIT will "severely" restrict the output of heavy electricity-consuming sectors going forward, such as copper, steel, cement, aluminium.

A White House spokesperson noted that President Biden's National Security Adviser stressed the importance of creating conditions to support economic recovery in the meeting with Saudis. (Newswires)

SGH Macro Advisors sources (in a piece dated yesterday) note that due to the current power shortages, China's MIIT will "severely" restrict the output of heavy electricity-consuming sectors going forward, such as copper, steel, cement, aluminium. (SGH Macro)

GEOPOLITICAL

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