• Asian equity markets traded mixed amid the ongoing Evergrande default concerns; mainland China was away
• In FX, the DXY briefly dipped below 94.000, EUR/USD and USD/JPY were choppy around 1.1600 and 111.00 respectively
• A total of 39 Chinese military jets flew into Taiwan’s air defence zone on Saturday followed by another 16 on Sunday
• US House progressives are reportedly willing to compromise on the USD 3.5tln amount with limits but rejected Senator Manchin’s USD 1.5tln offer
• UK Brexit Minister Frost will warn the EU that the UK is prepared to trigger Article 16 unless the EU agrees to replace the Northern Ireland Protocol
• Energy Intel noted that there is no suggestion so far that OPEC+ are planning to ease cuts by more than the planned 400k bpd ahead of Monday’s meeting
• Looking ahead, highlights include EZ Sentix Index, US Factory Orders, ECB’s de Guindos, de Cos, Fed’s Bostic, Fed’s Bullard, USTR Tai, OPEC+ and Eurogroup meetings

CORONAVIRUS UPDATE

US NIH’s Dr. Fauci stated the US is turning a corner on the most recent surge of the virus. (Newswires)

BioNTech (BNTX) CEO expects the virus to likely mutate and that a new vaccine formulation could be required by the middle of next year. (FT)

FDA will not extend the life of Johnson & Johnson (JNJ) COVID vaccine doses but may extend life of millions of Moderna (MRNA) shots, while the extension for Moderna vaccine doses would likely add up to two months to the life of vaccine doses. It was also reported that FDA is to hold advisory committee meetings to discuss EUA for Johnson & Johnson (JNJ) and Moderna (MRNA) booster doses, as well as COVID-19 vaccines for younger children on October 14th and 15th. (Newswires/NBC)

UK is set to cut its red list of travel destinations to 9 from 54 which would abolish quarantine for nearly all countries and with the announcement to be made on Thursday. (Telegraph)

New Zealand PM Ardern announced that Raglan and Hamilton will be placed under a level 3 lockdown. PM Ardern later announced that Auckland will remain on alert level 3 but some restrictions will ease with groups of up 10 people allowed to meet outdoors, while early childhood education can reopen and beach visits will be permitted. Furthermore, the rest of New Zealand will remain on alert level 2 although the 100 limit cap on hospitality will be relaxed. (Newswires)

ASIA

Asian equity markets traded mixed as ongoing Evergrande default concerns clouded over the initial optimism following Friday’s rebound on Wall St where all major indices found some reprieve from last week’s downturn, although the S&P 500 still suffered its worst weekly performance since February and US equity futures also failed to hold on to opening gains with this week’s upcoming risk events adding to the cautiousness including the OPEC+ meeting later today, a bout of Asia-Pac central bank policy decisions from Tuesday and Friday’s NFP job data. The ASX 200 (+1.2%) outperformed, with the index unfazed by the absence of key market participants with mainland China away for Golden Week, South Korea closed due to National Foundation Day, and amid the quasi-holiday conditions in Australia as New South Wales observed Labour Day. Nonetheless, the local benchmark was propped up by the top-weighted financials sector with shares in Australia’s largest bank CBA boosted following a AUD 6.0bln off-market buyback and with reopening stocks, especially those in the travel industry, among the biggest gainers. The Nikkei 225 (-1.0%) wiped out its opening advances despite the lack of significant news catalyst for the reversal which was spearheaded by exporter names, while the focus in Japan turned to PM Kishida’s confirmation in parliament and for details of the new Cabinet members. The Hang Seng (-2.2%) was heavily pressured by losses in health and biotech stocks, while property names also suffered amid the current Evergrande fears after a USD 260mln note from Jumbo Fortune Enterprises matured on Sunday which was guaranteed by China Evergrande Group and its unit Tianji Holding Ltd, while there is no grace period for the payment but five days will be allowed for administrative or technical errors. Furthermore, shares of Evergrande, its property services unit and structured products have all been halted which reports circulating that Hopson Development is to acquire a 51% stake in Evergrande Property Services for HKD 40bln. Finally, 10yr JGBs tracked recent upside in T-notes and with support also from the negative mood in Japanese stocks, as well as the BoJ’s presence in the market for over JPY 1tln of JGBs mostly concentrated in 1yr-5yr maturities.

The US said it is concerned with China's increased military activity near Taiwan and stated that China's military pressure on Taiwan is undermining peace and stability in the region, while the US urged for China to halt its military, diplomatic and economic pressure, as well as coercion against Taiwan. In relevant news, a total of 39 Chinese military jets flew into Taiwan’s air defence zone on Saturday which was the largest incursion so far by China and another 16 of its fighter jets entered Taiwan's ADIZ on Sunday. (Newswires/BBC)

White House will begin unveiling its China trade policy this week following a top-to-bottom review of import tariffs and other measures imposed by the Trump administration, while reports also noted that USTR is to say that China isn't complying with the phase one trade deal. (Newswires/WSJ)

Evergrande (3333 HK) and Evergrande Property Services (6666 HK) shares were halted for trading in Hong Kong, while all structured products related to the company have also been halted and it was later reported that Hopson (754 HK) is to buy a 51% stake in Evergrande Property Services (6666 HK) for HKD 40bln. In relevant news, a USD 260mln note from Jumbo Fortune Enterprises matured on Sunday which is guaranteed by China Evergrande Group and its unit Tianji Holding Ltd, while there is no grace period for this payment but five days will be allowed for administrative or technical errors. (Newswires)

Hong Kong Financial Secretary Chan said the Hong Kong’s exposure to the unfolding debt crisis at Evergrande (3333 HK) is very minimal at 0.05% of assets and doesn’t pose a threat to financial stability. (SCMP)

Japanese LDP’s Secretary General Amari that Japan will compile a large extra budget immediately following the election. In relevant news, Japan's lower house elected Kishida as PM, while he reportedly to retain Foreign Minister Motegi and Defense Minister Kishi in his new cabinet. Furthermore, Kishida is planning to hold a general election on October 31st. (Newswires/Kyodo)

UK/EU

UK PM Johnson said the petrol problem is now largely driven by demand and that the way forward is not just to pull the big lever marked uncontrolled immigration. PM Johnson added they will not return to the old model of low wages and low skills, while he vowed that the Conservatives will "change and improve" the economy after the pandemic and stated that he does not want to raise taxes again if he can avoid it. It was also separately reported that PM Johnson and Chancellor Sunak struck a secret agreement to lower taxes before the next general election in exchange for spending restraint now. (Newswires/BBC/Sunday Times) Sources cited by the Times suggest that ministers are reluctant to impose tax increases. (Times)

UK Chancellor Sunak is planning an extension of COVID-19 business loans amid concerns the economic recovery could be hampered by labour shortages and increased cost pressures. (Telegraph)

UK Chancellor Sunak will set aside GBP 500mln to help people look for employment amid acute labour shortages in some sectors. (FT)

UK government confirmed plan for around 100 military fuel tanker drivers to begin delivering fuel to petrol stations from Monday, while it is also planning to allow up to 300 foreign tanker truck drivers to come to the UK to help ease the fuel issue which will be part of a larger plan to bring in as many as 5,000 fuel truck drivers on a temporary basis. (Newswires)

UK Foreign Secretary Truss said a trade deal with the US is not the be all and end all of trade deals, while she added there are lots of fast-growing parts of the world that want deals with the UK and she is not worried about the future relationship with the US at all. (Newswires)

UK Brexit Minister Frost will warn the EU that the UK is prepared to trigger Article 16 unless the EU agrees to replace the Northern Ireland Protocol and he has reportedly drawn up proposals to replace the protocol. There were separate reports that ministers will be given a deadline of end of next month to decide on whether to suspend the Northern Ireland Brexit deal unilaterally and senior sources warned that unless the EU was prepared to engage in a “serious negotiation” during the coming weeks, the government would have no choice but to suspend the deal by December. (Telegraph/The Times) Article 16 provides both the UK and the EU with a unilateral power to take action should the application of the Protocol give rise to ‘serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade.’

Irish Foreign Minister Coveney said triggering Article 16 to override parts of the Northern Ireland Protocol would be a "hugely problematic backward step", but noted it was unlikely the UK government would take such a step. It was also reported that France is increasing pressure for the EU to take a tougher line against the UK in negotiations regarding the Northern Ireland Protocol as it escalates its fishing row with Britain. (BBC/Telegraph)

ECB's Schnabel said the central bank will continue to adapt its tools as appropriate going forward as the economy enters calmer waters. (Newswires)

ECB’s Visco said recent price increases are being driven by commodity inflation and suggested that supply-chain snags should only be temporary, while he added they are aware of the dangers from withdrawing stimulus too soon. (Newswires)

Germany’s top political parties began exploratory coalition discussions with both SPD and CDU/CSU separately aiming to woo the Greens and FDP for a coalition, while SPD co-leader stated that a coalition led by their party is doable by year-end. There were also prior reports that German FDP leader had talks with the Greens on Friday and that it was a good atmosphere. (Newswires/FT)

S&P affirmed France at AA, Outlook Stable. (Newswires)

FX

In FX, the major currencies were indecisive ahead of upcoming Asia-Pac central bank meetings and this week's risk events culminating with the latest NFP jobs day on Friday. The DXY briefly dipped below 94.000 after Friday’s pullback. In terms of the developments in Washington, congressional leaders set a new unofficial month-end deadline to pass the infrastructure bill and USD 3.5tln spending package, and House progressives were reported to offer to reduce spending to save the bill and are willing to compromise on the USD 3.5tln amount with limits, but rejected moderate Democrat Senator Manchin’s USD 1.5tln offer. EUR/USD was choppy around the 1.1600 level where there is a EUR 1.0bln OpEx rolling off on Monday, while GBP/USD lacked firm direction as cross-Channel tensions festered including the fishing dispute with France and with UK Brexit Minister Frost set to warn the EU on Monday that the UK is prepared to trigger Article 16 unless the EU agrees to replace the Northern Ireland Protocol. USD/JPY was choppy around 111.00 and antipodeans were also indecisive amid the cautious risk tone and ahead of the central bank meetings beginning with the RBA which is expected to maintain policy settings tomorrow and with OIS pricing in 97% chance of a 25bps hike by the RBNZ on Wednesday.

COMMODITIES

WTI crude futures marginally pulled back after Friday's gains as focus turns to today's JMMC and OPEC+ meeting with Energy Intel noting that there is no suggestion so far that OPEC+ are planning to ease cuts by more than the planned 400k bpd (full preview available in the Newsquawk Research Suite and headline feed). There were comments from Iraq's Oil Minister who noted that oil prices at USD 100/bbl would not be sustainable and that OPEC wants stable markets, while it was also reported that a cyclone entered the Gulf of Oman although a senior official noted that oil exports are not expected to be affected although has delayed loadings. Elsewhere, gold prices were little changed amid an uneventful greenback and with participants looking towards this week's key US jobs data, while copper prices are contained by the cautious risk mood and absence of its largest purchaser China.

US Baker Hughes Rig Count (w/e October 1st): Oil +7 at 428, Nat Gas unch. at 99, and Total +7 at 528. (Newswires)

Iraq’s Oil Minister said oil prices at USD 100/bbl would not be sustainable and that OPEC wants stable markets, while he added they are working to raise their nation’s output capacity to 8mln barrels. (Newswires)

Energy Intel noted that there is no suggestion so far that OPEC+ are planning to ease cuts by more than the planned 400k bpd ahead of Monday’s meeting. (Twitter)

Cyclone Shaheen entered Gulf of Oman which will likely move along the path of Oman tank terminals, although a senior official stated that there is no impact expected for the country’s oil exports although there is a delay in loadings, according to Energy Intel. (Twitter)

GEOPOLITICAL

North Korea warned the UN Security Council against criticising its missile program in a statement Sunday which contained unspecified threats against the international body, although it was also reported that North Korea restored the inter-Korean hotline today. (Newswires/AP)

Iran urged for the US to unfreeze USD 10bln as a show of good will, according to an Iranian official. (Twitter)

EU top diplomat Borrel said he briefed his partners of prospects of restoring Vienna discussions on the Iran nuclear deal and he stated they exchanged views with Saudi officials regarding Afghanistan and Yemen. Furthermore, Borrel also stated that they are ready to pursue trade deals with GCC countries and are putting all diplomatic and political pressure for a ceasefire and to stop attacks on Saudi Arabia, while he added they are going to support Afghan people by providing humanitarian assistance but also noted that the Afghan’s government behaviour has not been very encouraging. (Newswires)

French army confirmed that Algeria shut its airspace to French military planes. (Newswires)

US

Treasuries were well bid again on Friday in more month-end related flows in lack of supply next week. By settlement, 2s -2.3bps at 0.266%, 3s -3.7bps at 0.487%, 5s -6.2bps at 0.933%, 7s -6.6bps at 1.259%, 10s -6.0bps at 1.467%, 20s -5.3bps at 1.981%, 30s -5.0bps at 2.041%; TYZ1 volumes decent again. 5yr TIPS -5.4bps at -1.670%, 10yr TIPS -6.3bps at -0.915%, 30yr TIPS -6.3bps at -0.236%. Eurodollars tracked the cash curve flatter in decent volumes: EDZ1 unch. at 99.825, Z2 +2.5bps at 99.53, Z3 +5.5bps at 98.91, Z4 +8bps at 98.475, Z5 +8.5bps at 98.21. SOFR unch. at 5bps while EFFR fell to 6bps from 8bps due to month-end. T-Notes hugged resistance at 132-00 before seeing a bout of selling alongside EGBs into the European open to no clear catalyst, and despite disappointing German Retail Sales data. The contracts hit lows of 131-24 before gradually paring back to just beneath the 132-00 highs for the NY handover. IFR noted passive indexers were on the bid, particularly long-end cash, given they match their benchmarked portfolios on the first day of the month. There wasn't any reaction to the firmer-than-expected Core PCE data, although T-Notes did break above 132-00 into the NY cash equity open with indexers again linked to the move. There were some brief sales into the ISM Mfg. which saw a surprise rise in Prices Paid, although the dip was seized to take USTs higher into the NY afternoon – perhaps that inflation gauge was why the long-end was relatively weaker than the belly. It was then a gradual grind higher into the settlement, leaving T-Notes higher than where they opened the week after three prior, consecutive W/W declines. Indeed, given there is no coupon supply next week, the tailwinds have been even greater for bulls this Friday. T-note (Z1) futures settled 18 ticks higher at 132-05+.

Fed’s Clarida (voter) reportedly shifted out of a bond fund into a stock fund last year which occurred a day prior to Fed Chair Powell issuing a statement of potential policy action due to the pandemic, while a Fed spokesman noted that the financial disclosure represented a pre-planned rebalancing which was similar to a rebalancing Clarida conducted in April 2019. (Newswires)

Fed's Mester (2022, 2024 voter) said she expects inflation will start to come back down once supply side and pent up demand factors ease, while she added the Fed is not going back to pre-recession levels of the balance sheet and that the Fed would want to have a plan for letting the balance sheet get down to a certain level but need to do more studying to know what that level should be. (Newswires)

US Senate Majority Leader Schumer said the goal would be to get both the infrastructure bill and multi-trillion-dollar bill passed in the month ahead and House Speaker Pelosi also set a revised deadline of October 31st to pass the infrastructure bill. There were also previous reports that President Biden would work with Congress throughout the weekend on infrastructure and spending bills after they failed to reach an agreement, while the new unofficial deadline for discussions is October 31st. (Newswires)

US House progressives were reported to offer to reduce spending to save the bill and are willing to compromise on the USD 3.5tln amount with limits, but rejected moderate Democrat Senator Manchin’s USD 1.5tln offer. (Newswires)

White House and top Democrats negotiating the reconciliation bill agreed to boost carbon capture tax credits to USD 85 per tonne for industries such as steel and concrete plants, according to sources. (Newswires)

US President Biden’s administration is said to be looking to regulate stablecoin issuers as banks, while it was also reported that the Biden administration plans a summit of 30 countries to combat cybercrime and ransomware, according to a White House official. In other news, crypto exchange Coinbase (COIN) disclosed that a threat actor stole cryptocurrency from 6,000 customers after using a vulnerability to bypass the company's SMS multi-factor authentication security feature. (Newswires/WSJ)

US Commerce Secretary Raimondo warned that protecting American steel is a matter of national security, taking a similar position as the former administration as European and US officials race to avoid an escalation in tariffs later this year. (FT)