• Equities are pressured with sentiment firmly risk-off after the positive US handover fizzled out in APAC hours; ES -1.3%, Euro Stoxx 50 -2.2%
• In FX, the DXY has continued to make ground with the YTD peak of 93.504 in-sight, while debt is subdued but off lows as some safe-haven premium emerges
• Global Times writes, citing analysts, that a possible summit between President's Biden and Xi may be on the Zurich meeting agenda
• US President Biden stated it 'sure seems like' Senator Manchin is moving on the spending topline
• RBNZ hiked the OCR by 25bps to 0.50% as expected and noted a further removal of monetary policy stimulus is expected over time
• Looking ahead, highlights include US ADP Employment Change, Fed's Bostic

CORONAVIRUS UPDATE

Report suggested that COVID-19 was spreading "virulently" in Wuhan as early as summer 2019 which is earlier than previously thought, according to an article citing intelligence analysis of spending on PCR testing equipment. (Telegraph)

ASIA

Asia-Pac bourses traded mostly lower after failing to sustain the initial momentum from Wall St, where all major indices gained as investors bought back into tech and with sentiment helped by better-than-expected ISM services PMI, while continued upside in oil prices and a higher yield environment also underpinned energy and financials. This initially lifted the overnight benchmark indices although gains in the ASX 200 (-0.6%) were later reversed as the strength in energy and tech was overshadowed by weakness in the broader market including underperformance in the top-weighted financials sector after the regulator announced a loan curb measure targeting mortgage lending. Nikkei 225 (-1.1%) faded its opening gains and brief foray into 28k territory with auto names among the laggards amid ongoing production disruptions and with PM Kishida’s new cabinet beginning on shaky ground as polls showed his approval rating was at just 55% heading into the upcoming election, which was also the lowest for a new leader in 13 years, while KOSPI (-1.8%) gave up initial spoils with firmer than expected CPI data supporting the case for another hike by the BoK this year. Hang Seng (-0.6%) conformed to the soured mood amid weakness in property and biotech with participants also focusing on Chief Executive Lam’s final policy address of her current term where she proposed measures to address the housing issue, although this failed to lift the property sector as Evergrande concerns lingered after Hong Kong property agencies sued the Co. to recover overdue commissions and with shares in its New Energy Vehicle unit suffering double-digit percentage losses. Finally, 10yr JGBs were lower on spillover selling from T-notes and despite the downturn in stocks, while the absence of BoJ purchases in the market today added to the lacklustre demand with the central bank instead offering to buy JPY 125bln in corporate bonds from October 11th with 1yr-3yr maturities.

US President Biden said he spoke with Chinese President Xi about Taiwan and they agreed to abide by the Taiwan agreement, while the report noted that Biden appeared to be referencing last month’s phone call with Xi. In relevant news, there were also comments from Taiwan's Defense Minister that China will have the ability to mount a full-scale invasion of Taiwan by 2025 and noted that tensions with China are the worst in over 40 years. (Newswires)

Global Times writes, citing analysts, that a possible summit between President's Biden and Xi may be on the Zurich meeting agenda; adding, tensions between China and the US are showing signs of "easing" and "fighting while talking" might be the new normal. (Global Times)

USTR is seeking public comment on whether to reinstate 549 previously extended exclusions from tariffs on Chinese imports, while it will consider if the products are only available from China and the potential economic harm from granting or denying requests. Furthermore, USTR added the Chinese imports that will be considered for exclusions include thermostats, medical equipment, industrial components, bicycles and textiles. (Newswires)

Hong Kong Chief Executive Carrie Lam said they will develop a new metropolitan area in northern Hong Kong and will move some government office to the northern metropolis, while she added they will establish listing regime for SPACs in HK after consulting the market and are looking into specific measures to enhance demand for issuance of RMB securities. (Newswires)

• South Korean CPI MM (Sep) 0.5% vs Exp. 0.3% (Prev. 0.6%)
• South Korean CPI YY (Sep) 2.5% vs Exp. 2.3% (Prev. 2.6%)
• South Korean Core CPI YY (Sep) 1.5% (Prev. 1.3%); fastest pace of growth since October 2017.

US

US President Biden said means testing will be part of the reconciliation bill and that they will get a compromise on the agenda, while he suggested he was positive and will pass both bills to build the US economy. Furthermore, President Biden stated it 'sure seems like' Senator Manchin is moving on the spending topline and the White House also noted that President Biden had a "constructive" meeting and 'productive discussion' with House Democrats on infrastructure and build back better legislation. (Newswires)

US President Biden has invited the CEOs of large US banks to the White House for a meeting today to discuss what the consequences of failing to lift the debt ceiling, sources state. (Newswires)

US Democratic Senator Manchin responded that he is not ruling things out and just knows there is enough people here that will not allow the US to default, when asked if he's open to making changes to filibuster to lift the debt ceiling, according to WSJ's Lindsay Wise. (WSJ)

US President Biden later stated that a carve out for filibuster on debt ceiling is a real possibility and CNN's Raju tweeted that the Senate vote is set for 14:15EDT on Wednesday to break a filibuster on the bill to suspend the debt limit, but added it will fail amid opposition from the GOP. (Newswires)

Irish Foreign Minister Coveney says the final OECD corporate tax text is set to be circulated on Wednesday, hopes to sign up; separately, French Finance Minister Le Maire said we could next week sign the final agreement on corporate tax. (Newswires)

UK/EU

UK PM Johnson is to announce a significant increase in minimum wage within weeks and will accept recommendations of independent advisers that will likely increase pay for the lowest earners from GBP 8.91/hr to GBP 9.42/hr. (The Times) Note, PM Johnson's speech today will not contain any major policy announcements and insiders state it will not include an increase to the minimum wage, via Politico; note, the insider did not steer away from the Times' story facts. (Politico)

German Greens' Baerbock says the party wants to commence coalition talks with the FDP and SPD, does not mark a complete rejection of discussions with CDU/CSU and FDP. Subsequently, FDP's Lindner says the party is taking up the Green proposal for three-way discussions with the SPD and Greens. (Newswires)

EU IHS Markit Construction PMI (Sep) 50.0 (Prev. 49.5)

UK Markit/CIPS Construction PMI (Sep) 52.6 vs. Exp. 54.0 (Prev. 55.2)

EQUITIES

Stocks in Europe have extended on the losses seen at the cash open (Euro Stoxx 50 -2.4%; Stoxx 600 -1.8%) with risk aversion intensifying from a downbeat APAC session as markets grapple with the prospect of stagflation, the energy crunch, Evergrande woes, and geopolitics. US equity futures have conformed to the losses across stocks with the ES (-1.3%) RTY (-1.5%), NQ (-1.5%) and YM (-1.0%) all softer, whilst the former two dipped under 4,300 and 2,200 respectively. From a news-flow standpoint, fresh catalysts have been light. Euro-bouses see broad-based losses whilst the FTSE 100 (-1.6%) is somewhat cushioned (albeit under 7k) by a softer sterling alongside some heavyweight individual stocks including HSBC (+3.3%) following a broker move, and Tesco (+4.5%) after topping H1 forecasts, raised guidance and a GBP 500mln share buyback scheme. Sectors in Europe are all in the red. Banks are the best of the bunch amid the favourable yield environment. On this note, SocGen suggested that the banking sector should benefit from the rise in yields and limited exposure to China, higher energy and supply-chain bottlenecks, while that market consolidation offers some opportunities in the European tech and industrial sectors. Back to sectors, the downside sees some of the more cyclical sectors including Travel & Leisure and Auto names. In terms of some individual movers, Deutsche Telekom (-5.6%) is hit after a bookrunner noted a share offering of some 90mln shares priced at a discount to yesterday’s close.

EU Commission says that Nvidia (NVDA) has offered concessions to attain antitrust approval for the Arm purchase, Commission has set a October 27th deadline for its decision

FX

USD - The Dollar is firmly back in the driving seat and the index is eyeing YTD highs having reclaimed 94.000+ status amidst another sharp downturn in risk appetite just a day after what some pundits were dubbing as a ‘turnaround Tuesday’. Instead, Asia-Pacific bourses were reluctant to pick up the baton from Wall Street and the failure to keep the ball rolling against the backdrop of ongoing strength in gas and oil prices has rattled EU equities to the extent that the Dax has lost grip of the 15k handle and FTSE is down below 7k regardless of the fact that the UK benchmark has some positive impulses beyond the obvious revenue implications for the energy sector. Back to the DXY 94.448 is the best so far ahead of 94.500 for sentimental reasons and the current y-t-d peak just a fraction above at 94.504. In terms of fundamentals, next up for the Greenback is ADP as one of the usual pointers for NFP, while Fed speak comes from Bostic who is down to talk twice today.

NZD/AUD - Ironically perhaps, the Kiwi is underperforming even though the RBNZ matched market expectations with a 25 bp OCR hike overnight, and this could well be described as a classic ‘buy rumour, sell fact’ reaction given that the move was all priced in. Moreover, the accompanying statement has not altered expectations for further measured tightening and this could compound the inclination to re-position/take profit/cut longs to the detriment of the Nzd. Indeed, the Kiwi has retreated from around 0.6980 vs its US rival to circa 0.6878 and is struggling to tread water on the 1.0500 mark against the Aussie that is also losing out to its US rival on the aforementioned risk dynamic, as Aud/Usd hovers towards the bottom end of 0.7295-0.7227 parameters ahead of AIG’s services sector index.

CAD/GBP - Also somewhat perverse, though a measure of the degree that the market mood has changed since yesterday, the Loonie and Sterling are both struggling to derive much from the latest advances in WTI or Brent. In fact, Usd/Cad approached 1.2650 having breached the 50 DMA (1.2626) and pulling away from a cluster of decent option expiries that start at 1.2520-25 (1 bn) and continue through 1.2550-60 (2.1 bn) to 1.2600 (1 bn) and end between 1.2720-30 (1.5 bn, while Cable has reversed through 1.3600 and the 10 DMA (1.3592) with little assistance from a sub-consensus UK construction PMI.

EUR/CHF/JPY - All unable to escape the Buck’s clutches, with the Euro down to a minor new 2021 low and probing barriers at 1.1550, while the Franc is treading water around 0.9300 and the Yen is thriving to keep tabs on 111.50 due to its renowned safe-haven properties, and with the prop of JGB yields reaching multi-month peaks, albeit in catch-up trade with US Treasuries and other global bonds.

SCANDI/EM - Little solace for the Nok via Brent almost touching Usd 83.50/brl at one stage, though it is holding a firm line following its ascent beyond 10.0000 vs the Eur, while the Sek has largely taken mixed Swedish data and Riksbank rhetoric from Skingsley in stride (caution warranted and now is not the time to change monetary policy), but EM currencies are all floundering with the Try sliding to yet another record trough and on course to hit 9.0000. Ahead, the Zar will be looking for something supportive from SARB Governor Kganyago via a webinar on the economy, jobs and growth.

RBNZ hiked the OCR by 25bps to 0.50% as expected and the committee noted further removal of monetary policy stimulus is expected over time. RBNZ added that it is appropriate to continue reducing the level of stimulus and that future moves are contingent on the medium term outlook for inflation and employment, while policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term. Furthermore, it noted that cost pressures are becoming more persistent and capacity pressures are still evident, but added that demand shortfalls are less of an issue than the economy hitting capacity constraints and that economic activity will rebound quickly as alert level restrictions ease. (Newswires)

Notable FX Expiries, NY Cut:

• AUD/USD: 0.7200 (548M), 0.7300 (741M), 0.7315-30 (1BLN)
• NZD/USD: 0.7000 (2.2BLN)
• USD/CAD: 1.2520-25 (1BLN), 1.2550-60 (2.1BLN), 1.2600 (1BLN), 1.2720-30 (1.5BLN)

FIXED

Cash buyers remain somewhat reticent as evident at today’s German Bobl and 8 year UK auction, but there are tentative indications that core bonds are recovering poise in the face of heightened selling pressure in stocks that also appears to be spilling over to oil. Indeed, Bunds have pared losses from a deeper 169.12 Eurex low (54 ticks under par), albeit perhaps also for psychological reasons as the equivalent yield tested -15 bp, but did not make a clean break higher. Likewise, Gilts held just above 124.00 at 124.05 (-61 ticks on the day) before rebounding to a minor new 124.35 high and the 10 year T-note has bounced from its worst levels within a 131-13/24 band as attention turns to the US open, ADP and a couple of scheduled appearances by Fed’s Bostic to see if he adds anything new to the post-FOMC narrative.

COMMODITIES

WTI and Brent front month futures are choppy in early European trade with a downside bias amid the risk tone, but ultimately, prices remain near recent highs with the WTI Nov contract north of USD 78.50/bbl (78.25-79.78/bbl) and Brent Dec around 82/bbl (vs USD 81.92-83.47/bbl range) at the time of writing. Nat gas has once again been the focus in the energy complex, with the UK Nat Gas future surging some 40% intraday at one point, although its US counterpart has lost some steam. A lot of attention has been the Nord Stream 2 pipeline to alleviate some of the supply/demand imbalances in the gas market heading into the winter period. Yesterday, an EU lawmaker suggested that the pipeline does not comply with EU rules, although an EU court adviser noted that Nord Stream 2 could challenge the energy rule and the decision is not final. European natural gas futures climbed to a fresh all-time high. Back to crude, it’s worth being cognizant of the underlying demand that could be fed via the higher gas prices as other energy sources are more sought after, including diesel generators for electricity usually produced by Nat Gas. Over to metals, spot gold and silver are pressured by the firmer Buck with the former back under USD 1,750/oz and at session lows at the time of writing. The downbeat tone has also taken a toll on the base metals complex, with LME copper again dipping below the USD 9,000/t from a USD 9,135/t intraday peak.

US Private Energy Inventory Data (bbls): Crude +1.0mln (exp. -0.4mln), Cushing +2.0mln, Gasoline +3.7mln (exp. -0.3mln), Distillate +0.3 (exp. -1.0mln). (Newswires)

Spain, Czech Republic, France, Romania and Greece have called on the EU to investigate the gas market. Separately, Gazprom has reportedly been fulfilling its sales requirement under long-term contracts but has not added more and therefore, has drawn allegations by EU lawmakers it is pushing up gas prices. (Newswires)

Kremlin notes that Russia has no role in the European gas crisis, Gazprom has met requests for additional gas supplies; Russia has repeatedly said it is ready to discuss long-term contracts for gas delivery to Europe. (Newswires)

EU Energy Commissioner Simson says gas underground storage is above 73% across Europe, below the 10-year average but adequate for winter demand; will propose a reform of the gas market by end-2021 and review, within this context, issues around the storage and security of supply. (Newswires)

EU court adviser says Nord Stream 2 can challenge EU energy rule. (Newswires)