• Major bourses in Europe have adopted somewhat of a mixed picture following on from the broad-based downbeat cash open
• 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 warned 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; in-fitting with other sources
• Looking ahead, highlights include US Factory Orders, 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)

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) Reminder, as of today the traffic light system for the UK has been simplified to just a red list

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 (+1.3%) 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 (-1.1%) 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)

USTR Tai is to say that China isn't complying with the phase one trade deal. (Newswires) Due to speak on the subject at 15:00BST/10:00EDT. USTR Tai plans frank conversations with Chinese counterparts over the coming days on the Phase 1 trade deal; will not seek a Phase 2 deal on core Chinese structural trading issues; Will start targeted tariffs exclusion process on Chinese imports. (Newswires)

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)

US

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)

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)

US Senate parliamentarians office, last week, privately provided both Democrats and Republicans with guidance about raising the debt limit via reconciliation, Punchbowl; would allow Dems. to pass a debt-limit reconciliation package with a majority vote. (Punchbowl)

US President Biden's 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)

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)

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 has warned (as touted in press) 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 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)

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. Separately, German Foreign Ministry spokesperson cannot set any further conditions for resuming nuclear talks. (Twitter/Newswires)

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)

Russian air defenses have intercepted at least one aerial target near the Hmeimim Air Base, Syria, via Intel Sky. (Twitter)

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

EQUITIES

Major bourses in Europe have adopted somewhat of a mixed picture (Euro Stoxx 50 Unch; Stoxx 600 -0.2%), following on from the broad-based downbeat cash open seen as Europe picked up the baton from APAC. US equity futures see modest losses across the board but have again drifted off worst levels. Nonetheless, the NQ (-0.5%) remains the slight laggard vs its RTY (-0.1%), ES (-0.2%) and YM (-0.4%) counterparts. Sectors are now mixed with a slight defensive tilt, with Healthcare and Food & Beverages among the top gainers, whilst financials bear the brunt of the yield decline on Friday, with Banks at the foot of the bunch. In terms of individual movers, Morrisons (-3.8%) has accepted CD&R’s takeover offer, which has left Fortress empty-handed but has fanned speculation that the group may look towards Sainsbury’s (+5.9%), Tesco (+1.7%) or Marks & Spencer (+1.5%) as potential targets, with the former being the best suitor, according to reports. Elsewhere BT (-7%) plumbed the depths with some citing reports that Sky is to partner with Virgin Media-O2 in a move set to intensify the challenge to BT’s infrastructure builder Openreach.

FX

DXY, CNH - The broader Dollar and index remain caged to a tight range, with the latter within a narrow 93.900-94.104 band after last week printing a new YTD peak at 94.504. The Dollar remains on standby as risk events are abundant this coming week, including deliberations on Capitol Hill and Friday’s NFP. 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. Over to the Fed and a story to keep on the radar - Fed’s Clarida (seen as the nucleus of the Fed) 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. A spokesperson passed this off as “pre-planned” balancing, but a similar situation led to the early resignation of Kaplan and Rosengren. Elsewhere, USTR Tai is to today unveil the China trade policy following a top-to-bottom review of the Trump admin’s tariffs and other measures. The pre-release noted that the US would begin a process to exempt certain products from tariffs on Chinese imports, with the US also seeking a meeting on Phase 1. That being said, officials noted that all tools remain on the table when asked about further tariffs. Net-net, the release was constructive and, as such, provided tailwinds to the CNH, whereby USD/CNH dipped from 6.4560 to a low of 6.4385.

AUD, NZD, CAD - The non-US Dollars somewhat vary with the Loonie attached to price action in the oil complex heading into the OPEC+ meeting later today. The NZD outperforms in the G10 bunch, with the AUD on the other side of the spectrum in what is a busy central bank week for the antipodeans. The AUD/NZD cross will likely take some focus as the RBNZ is poised to hike its OCR, whilst the RBA is seen holding policy steady. AUD/NZD has made its way back towards 1.4050 from its 1.0485 overnight high. NZD/USD meanders around 0.6950 (0.6927-53 range) whilst AUD/USD hovers around the 0.7250 mark (where AUD 1bln of OpEx resides), with the 21 DMA at 0.7295 and the 50 at 0.7311.

EUR, GBP - Both European majors trade relatively flat in the European morning, but Brexit rhetoric has ramped up with UK Brexit Minister Frost warning the EU that the UK is prepared to trigger Article 16 unless the EU agrees to replace the Northern Ireland Protocol. There were separate reports that ministers will be given a deadline of the 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. EUR/GBP topped its 100 and 21 DMAs (both at 0.8566) after finding a floor at its 100 DMA (0.8546). EUR/USD is back above 1.1600 (vs 1.1588 base) with EUR 1bln options expiring at the figure. GBP/USD hovers mid-range between 1.3534-77.

JPY - The JPY narrowly lags the G10 bunch as USD/JPY reclaims 111.00-status dipping to a 110.88 intraday low, with traders also flagging 110.95 as the 38.2% fib from the 109.12-112.08 rise.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1535-40 (801M), 1.1560 (461M), 1.1570-75 (441M), 1.1600 (1BLN). 1.1625 (315M), 1.1640-50 (1BLN)
• AUD/USD: 0.7250 (1BLN)
• USD/JPY: 110.80 (389M), 111.25-30 (710M), 111.45-50 (570M), 112.20 (450M)

FIXED

A softer start to the week for the debt complex in spite of a modest bid overnight in USTs and JGBs on the mixed/softer APAC tone given Evergrande concerns and as China is away. However, as European participants entered the fray modest pressure become known seemingly without an explicit catalyst occurring though it did come amidst crude upside on OPEC sources; however, the move was fairly modest and Bunds retained the 170.00 mark in-spite of having already taken out supported touted at 170.17 and 170.05. While Bunds have now bounced from this mark the benchmark remains near unchanged for the session and still has notable ground to recuperate from the sessions 170.45 opening mark. In the event the upside does continue, and its worth highlighting at this point a busy afternoon (US morning) data/event docket, then the German contract looks to resistance at 170.68 and 170.81 before the figure itself. Away from the Bund, EGBs are by and large following this performance though their UK counterpart is faring slightly better thus far where focus lies on punchy, but familiar, rhetoric from UK Brexit Negotiator Frost. Finally, USTs remain pressured and are yet to regain ground that was lost overnight where focus lies on the US data docket and Fed speak alongside USTR Tai after the initial text release was, for the most part, in-fitting with expectations ahead of the 15:00BST/10:00EDT remarks on China.

COMMODITIES

WTI and Brent front-month futures have clambered off worst levels but remain tentative ahead of the OPEC+ confab later today (full preview in the Newsquawk Research Suite). In terms of the long and short of it, markets expect OPEC+ to stick to its plan of raising monthly oil output by +400k BPD; albeit, some look for a larger-than-planned hike. Oil journalists have said this morning that despite the noise surrounding a greater-than-planned hike, ministers expect the current plan to be maintained, although drama in the meeting cannot be omitted. Upside during the European session coincided with headlines suggesting “OPEC+ is seen keeping output policy unchanged”, citing sources, although this was poorly phrased as it incorrectly intimates production being unchanged as opposed to plans for the 400k BPD hike being unchanged. Other things to be aware of aside from OPEC, BioNTech CEO expects the virus to likely mutate and that a new vaccine formulation could be required by the middle of next year, according to the FT, whilst the Gulf of Oman has seen cyclone Shaheen hit the area, although exports are not expected to be impacted yet aside from a delay in loadings. WTI Nov resides just under 76/bbl (75.30-76.20 range) whilst Brent Dec hovers sub USD 79.50/bbl (78.75-79.50/bbl range.) Elsewhere, spot gold and silver have been drifting lower in tandem with the rise in yields seen throughout the morning, with the former briefly dipping under USD 1,750/oz whilst spot silver fell under USD 22.40/oz. Turning to base metals, LME copper posts modest gains and remains north of USD 9,000/t, with some dip-buying being cited.

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) Subsequently and in-fitting with this OPEC+ is seen keeping output policy plans unchanged with the +400k BPD hike, according to sources. (Newswires)

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)

US DoJ is probing suspected manipulation of the S&P Global Platts benchmarks, according to sources. (Newswires)