• European bourses are firmer shrugging off the APAC handover while US futures post gains of a smaller magnitude; ES +0.3%
• President Biden reportedly stated to progressives that the spending package needs to be between USD 1.9tln-2.2tln
• In FX, the DXY remains near 94.00 with havens lagging as sentiment recovers while core debt diverges but remains contained
• RBA kept policy settings unchanged and reiterated its dovish guidance that suggests no rate hike until 2024 at the earliest
• Final EZ/UK PMIs saw modest revisions higher and familiar commentary around supply shortages and a cooling into Q4
• Looking ahead, highlights include US Services and Composite PMIs (final), US ISM Services PMI, ECB's Lagarde

ASIA

Asia-Pac stocks were pressured following the tech sell-off in the US and amid several headwinds for global markets including US-China trade frictions, China's record incursion into Taiwanese airspace and with higher oil prices stoking inflationary concerns. ASX 200 (-0.6%) was dragged lower after the losses in tech rolled over into the region and following somewhat mixed Trade and PMI data releases, but with downside stemmed by resilience in gold miners and the energy sector, after gains in the underlying commodity prices including the rally in oil to a seven-year high. Nikkei 225 (-2.2%) slumped below the 28k level and briefly entered into correction territory as it suffered intraday losses of as much as 3% and with index heavyweights Fast Retailing and SoftBank dominating the list of worst performers, while KOSPI (-1.9%) also fell into a correction with the index at least 10% below the record highs registered earlier this year despite efforts by South Korea’s antitrust regulator to dispel fears of a harsh tech crackdown. Hang Seng (+0.3%) was pressured at the open amid tech woes and default fears after reports that Fantasia Holdings missed payments due yesterday for USD 206mln of bonds, although the Hong Kong benchmark then pared its losses with notable strength seen in Chinese oil majors as they benefit from the rising energy prices. Finally, 10yr JGBs were initially kept afloat by the risk aversion but then reversed course amid the uninspired mood in T-notes and Bund futures, as well as weaker metrics from the 10yr JGB auction which attracted a lower bid to cover despite a decline in accepted prices.

China's banking regulator said it is to ban loans for speculating on luxury goods and it was also reported that China prohibits loans for commodity speculation. (Newswires)

Taiwanese President Tsai said it would be catastrophic for regional peace if Taiwan were to fall to China and that they do not seek military confrontation but will defend themselves if democracy and way of life are threatened, while she added that Taiwan will not bend to pressure, but nor will it turn adventurist. There were earlier comments from a Taiwanese official that "this is getting close to the brink of conflict" and sources said that Chinese aircraft were simulating attacks on some of the naval vessels that had participated in weekend drills, while the White House said they are in touch and privately conveying messages through diplomatic channels when asked about China's actions regarding Taiwan. (Newswires/FT)

Japanese Foreign Minister Motegi said the geopolitical situation surrounding Japan is becoming increasingly difficult and that they will work with other countries to realise vision for a free and open Indo-Pacific, while Defence Minister Kishi said he was instructed by PM Kishida to boost deterrence in cooperation with the US. (Newswires)

Hong Kong property agencies sue Evergrande (3333 HK) to recover overdue commissions, SCMP reports. (SCMP)

• Tokyo CPI YY (Aug) 0.3% vs. Exp. -0.1% (Prev. -0.4%)
• Tokyo CPI Ex. Fresh Food YY (Aug) 0.1% vs. Exp. 0.2% (Prev. 0.0%)
• Tokyo CPI Ex. Fresh Food & Energy YY (Aug) -0.1% vs. Exp. -0.1% (Prev. -0.1%)

US

Fed said it began discussions last week with the OIG for the Fed to initiate an independent review of trading activity by officials in which the review will look into if trading was in compliance to ethics rules and the law. (Newswires)

US President Biden spoke with 12 progressive members of Congress in which they agreed to follow through on key priorities, while it was also reported that President Biden told House progressives the spending package needs to be between USD 1.9tln-2.2tln and he will meet with moderate House Democrats virtually today. (Newswires/CNN)

US Republican Senator Rounds said he would be open to allowing Democrats to increase debt ceiling by a dollar amount but plans to filibuster a suspension. (Newswires)

Fastly status page updated to 'Operational' from 'Degraded Performance' on the Fastly API under Edge Cloud Services; follows the company investigating performance issues impacting the availability of their API. (Fastly)

UK/EU

French EU Affairs Minister Beaune says in the coming days we will take measures at the EU-level to apply pressure on the UK in respect to the Brexit deal, points out that the UK relies on Europe for its energy. (Newswires)

EU Markit Composite Final PMI (Sep) 56.2 vs. Exp. 56.1 (Prev. 56.1); Services Final PMI (Sep) 56.4 vs. Exp. 56.3 (Prev. 56.3)

UK Markit/CIPS Services PMI Final (Sep) 55.4 vs. Exp. 54.6 (Prev. 54.6); Composite PMI Final (Sep) 54.9 vs. Exp. 54.1 (Prev. 54.1)

GEOPOLITICAL

US official said the US and Israel are to share intelligence and come up with a baseline assessment on how far Iran's nuclear program has advanced, while the official added that the time for Iran to achieve a nuclear breakout has narrowed from 12 months to a few months since Trump abandoned the nuclear deal. Furthermore, Biden officials will tell Israeli counterparts on today that the US is committed to diplomacy with Iran but will pursue other avenues if talks fail. (Newswires)

EU Commission President von der Leyen says supply of gas is not increasing alongside demand, Norway is stepping up but Russia 'not so much'. (Newswires)

EQUITIES

European equities (Euro Stoxx 50 +0.9%; Stoxx 600 +0.7%) have extended on the marginal gains seen at the open as indices attempt to claw back some of yesterday’s losses. Incremental macro newsflow since the close has not provided much cause for optimism and therefore it remains to be seen how durable any recovery will be. Overnight, the APAC session was mostly downbeat as the region contended with the negative US lead, ongoing US-China trade frictions, China's record incursion into Taiwanese airspace and higher oil prices stoking inflationary concern. Final PMIs for the Eurozone saw the composite revised very modestly higher to 56.02 from 56.1 with IHS Markit noting “the current economic situation in the eurozone is an unwelcome mix of rising price pressures but slower growth”. Stateside, futures are exhibiting gains of a similar magnitude to their European counterparts with the ES +0.2% and no real discernible theme across the US majors as traders await further progress in Washington. Sectors in Europe are mostly higher with clear outperformance in banking names with JP Morgan bullish on the sector; Credit Agricole sits at the top of the CAC after launching a new EUR 500mln share repurchase scheme. To the downside, laggards include Construction & Materials and Autos. Individual movers include Greggs (+8.7%) at the top of the Stoxx 600 after raising its profit outlook for the FY despite concerns over supply chain disruptions and staffing issues. Elsewhere, Infineon (+2.8%) has provided some support for the IT sector after confirming its FY 21 forecasts and being confident about the FY22 outlook. Finally, Melrose (-2.2%) is a notable laggard after the Co. cautioned on the fallout of the global chip shortage which has prompted a surge in client cancellations.

PepsiCo Inc (PEP) Q3 2021 (USD): EPS 1.79bln (exp. 1.73), Revenue 20.19bln (exp. 19.39bln); upgrades organic revenue growth guidance to +8% from +6%; does not expect share buybacks for the rest of the year.

Wacker Chemie (WCH GY) is to raise prices for silicones by an average of 30% or more, effective October 15th. (Newswires)

FX

DXY - The broader Dollar and index remain firmer on the session, with the latter on either side of 94.000 from a 93.804 overnight base, but still within yesterday’s 93.675-94.104 range which marks the first immediate points of support/resistance. State-side, US President Biden spoke with 12 progressive members of Congress in which they agreed to follow through on key priorities, while it was also reported that President Biden told House progressives the spending package needs to be between USD 1.9tln-2.2tln. Biden will meet with moderate House Democrats virtually today. It is also worth keeping an eye on the Fed’s review of trading activities which could lead to a shift in the balance between hawks and doves, following the parting of hawks Rosengren (2022 voter) and Kaplan (2023 voter), who were set to be voters during the projected rate hike period. Ahead, the US ISM Services PMI will likely be the focal point from a state-side data standpoint.

EUR, GBP - The EUR and GBP continue to diverge. Sterling extends on earlier gains, seemingly a function of the EUR/GBP cross topping out just before its 50 DMA (0.8546) before taking out yesterday’s 0.8529 low on its way towards 0.8500. The Sterling strength has helped Cable regain 1.3600+ status from a 1.3585 low. EUR/USD meanders around 1.1600 in a relatively narrow 1.1591-1.1622 current intraday band – with yesterday’s low at 1.1586 ahead of the 200 WMA at 1.1572. Europe saw the release of final Services and Composite PMIs, which continue to highlight the theme of rising prices and spillover into demand.

AUD, NZD, CAD - he non-US Dollars see mild losses but trade off worst levels as the Dollar recedes and as market sentiment holds an upside bias. The AUD/NZD cross meanwhile remains in focus amid this week’s RBA/RBNZ central bank standoff. The RBA overnight provided no surprises and did not contain any significant new observations, with the currency experiencing choppiness upon the release. The RBNZ, meanwhile, is poised for a 25bps OCR hike at its announcement at 02:00BST/21:00EDT tomorrow. The AUD/NZD cross resides around session lows near 1.0455, whilst OpEx sees some AUD 2.1bln at strike 1.0410. The Loonie sees an underlying bid from crude prices, with USD/CAD back under its 50 DMA at 1.2600 ahead of Canadian trade data.

JPY, CHF - The traditional havens are at the foot of the G10 bunch in what is seemingly a risk-influenced move. USD/JPY within a tight 110.88-111.25 band vs yesterday’s 110.50-112.07 range. USD/CHF, meanwhile, has popped above its 21 DMA (0.9250) and trades towards the top of its current 0.9238-70 parameter.

RBA maintained its Cash Rate Target and 3yr Yield Target at 0.10%, while it also keeps bond purchase plan unchanged at AUD 4bln per week through to at least mid-February 2022, as expected. RBA reiterated that the central scenario is that the condition for a rate increase will not be met before 2024 and it is committed to maintaining highly supportive monetary policy. RBA added tge the Delta outbreak interrupted the recovery of the economy and GDP is expected to have declined materially in the September quarter, although the setback to the economic expansion is expected to be temporary and economy will grow again in the December quarter. Furthermore, it noted that the economy is expected to bounce back as vaccination rates increase further and restrictions are relaxed, but also commented that wage and price pressures remain subdued. (Newswires)

• Australian Trade Balance (AUD)(Aug) 15.1B vs. Exp. 10.3B (Prev. 12.1B)
• Australian Goods/Services Exports (Aug) 4% (Prev. 5%)
• Australian Goods/Services Imports (Aug) -1% (Prev. 3%)

Notable FX Expires, NY Cut:

• AUD/NZD: 1.0410 (2.1BLN)
• USD/CAD: 1.2615-25 (2.1BLN), 1.2675-85 (570M), 1.2800-15 (1.1BLN)
• USD/JPY: 110.50 (334M), 110.80-85 (405M), 110.95-111.00 (753M), 112.00 (845M)

FIXED

Overall, a contained start to the European session for EGBs as core counterparts see modest divergence but remain near opening levels while USTs are softer but again within recent parameters. Bunds are firmer but the high thus far of 170.39 remains shy of yesterday’s 170.55 peak with little impetus or drive behind the flurry higher to today’s best. Thus far, main events this morning for the EZ have compromised of final PMIs which saw modest revisions higher but were accompanied by familiar commentary around supply shortages and a cooling into the final quarter of the year’ releases which prompted little if any movement in EGBs. Elsewhere, ECB’s Holzmann, one of the more hawkish members, was scheduled but nothing pertinent was aired while President Lagarde is due later today at a Frankfurt based event. Technically, if we do surpass yesterday’s high resistance is cited at 170.81 while support below today’s trough (170.03) and the figure is not present until the September 28th low at 169.48. Leaving the continent and turning to Gilts which are essentially unchanged on the session with the PMIs revised higher in a similar vein to the aforementioned EZ equivalents but again no reaction and relatively well-received supply not promoting any movement. From a UK perspective, the docket is empty for the remainder of today, but we remain attentive to Brexit developments after Frost’s rehashing of Article 16 threats yesterday. Finally, USTs are softer but remain comfortably within overnight parameters and haven’t really looked as if they were setting up to mount a test of either end of this range. The benchmark is likely awaiting Tier 1 US data via ISM Services PMI and how broader sentiment fares on the arrival of US participants given the constructive start for European equity bourses and US futures. Seemingly shaking off the overnight pressure following a softer US handover. For reference, the yield curve is elevated across the board, but this is most evident towards the belly of the curve; as such, there is no overt flattening/steepening bias.

COMMODITIES

WTI and Brent front month futures are choppy but ultimately hold an upside bias in the aftermath of the OPEC+ meeting yesterday. Nonetheless, the benchmarks remain near yesterday’s highs which saw Brent Dec test USD 82.00/bbl to the upside. Brent resides around USD 81.50/bbl at the time of writing whilst WTI Nov hovers just under USD 78/bbl. With OPEC out of the way and until the next meeting, traders will be eyeing developments (if any) regarding the Iranian nuclear talks, alongside the electricity situation in China. Furthermore, traders must be cognizant of potential intervention by governments in a bid to control rising energy prices. As a reminder, the White House held talks with Saudi counterparts before the recent OPEC+ meeting and expressed concern on prices. Aside from that, news flow for the complex has been light during the European morning. Elsewhere, precious metals are softer on the day but spot gold and silver trade off worst levels with the yellow metal still holding into USD 1,750/oz-status and spot silver back above USD 22.50/oz. Over to base metals, LME copper remains pressured in what seems to be a continuation of the lacklustre trade seen during APAC hours amid a lack of demand as China remains on holiday.