• Bourses in Europe are mostly but modestly lower (ex-FTSE 100); US equity futures see broad-based losses of 0.3-0.4%
• In FX, DXY is firmer after wiping out earlier losses, USD/JPY tested 113.00, EUR/USD approaches 1.1550, and AUD outperforms
• Chinese Vice Premier Liu He exchanged views with USTR Tai on the trade agreement during a virtual discussion on Saturday
• BoE’s Saunders stated that an increase in interest rates could come “significantly earlier” than previously anticipated
• Looking ahead, highlights include ECB's Lane, Elderson, Holzmann, de Cos, Fed's Evans

CORONAVIRUS UPDATE

New Zealand reported 60 new COVID-19 infections on Sunday which is a large increase for the country and raised doubts for easing of restrictions, while New Zealand PM Ardern later announced that they need to maintain coronavirus restrictions longer with Auckland to remain on level 3 and which will be reviewed in one week. (Newswires)

Singapore PM Lee said they must press on with the strategy of living with COVID-19 and the number of COVID-19 related deaths are likely to increase in the next few months, while it could take three to six months to reach a new normal. PM Lee commented that they may have to tap on the breaks again if cases grow too fast again and stated they will tighten restrictions for unvaccinated people. Furthermore, it was also reported Singapore's vaccinated travel lanes scheme is to be extended to include an additional 9 countries which are UK, US, Canada, Denmark, France, Italy, Netherlands, Spain and South Korea. (Newswires)

ASIA

Asia-Pac stocks traded mostly positive but ended the day somewhat mixed after having shrugged off the early weakness stemming from last Friday’s lacklustre performance stateside and disappointing NFP jobs data. Note, markets in Taiwan and South Korea were closed. ASX 200 (-0.3%) was the laggard with underperformance in tech, consumer stocks and defensives overshadowing the gains in commodities and with Star Entertainment the worst hit with losses of more than 20% after media outlets alleged that it enabled suspected money laundering, organised crime, fraud and foreign interference which the Co. said were misleading reports. However, downside for the index was limited as New South Wales businesses reopened from the lockdown that lasted for over three months. Nikkei 225 (+1.6%) reversed opening losses as exporters cheered a weaker currency and with the government mulling over JPY 100bln financial support for chip factory construction. Hang Seng (+2.0%) and Shanghai Comp. (Unch) were both positive following talks between China's Vice Premier Liu He and USTR Tai on Saturday in which China was said to be negotiating for a cancellation of tariffs and sanctions. The advances in Hong Kong were led by tech stocks including Meituan despite the Co. being fined CNY 3.4bln by China’s market regulator for monopolistic behaviour, as the amount was seen to be a slap on the wrist, while the gains in the mainland were only mild as participants also reflected on the substantial liquidity drains by the PBoC totalling a net CNY 510bln since Saturday. Finally, 10yr JGBs were pressured amid the gains in Japanese stocks and lack of BoJ purchases in the market, while price action was also not helped by the continued weakness in T-note futures amid the semi-holiday conditions in US for Columbus Day in which the NYSE and the Nasdaq will open but bonds trading will remain shut.

PBoC injected CNY 10bln via 7-day reverse repos on Saturday for a CNY 320bln net drain and the central bank also injected CNY 10bln via 7-day reverse repos today with the rate kept at 2.20% for a CNY 190bln net drain. (Newswires)PBoC set USD/CNY mid-point at 6.4479 vs exp. 6.4490 (prev. 6.4604)

Chinese President Xi said the Chinese Communist Party is crucial to rejuvenation of the Chinese people and that they must strengthen the leadership of the party in all aspects, while he vowed to achieve peaceful reunification with Taiwan. (Newswires)

Chinese Vice Premier Liu He said China is negotiating cancellation of tariffs and sanctions, while he exchanged views with USTR Tai on the trade agreement during a virtual discussion on Saturday, while the USTR office also confirmed USTR Tai and Vice Premier Liu reviewed implementation of the trade deal and agreed the sides will consult on certain outstanding issues. (Newswires)

China’s NDRC proposed banning private investment in news outlets and ban on reproducing new content generated by non-China media, while it also proposed restrictions on internet, finance and agriculture. (Newswires)

Chinese Drug Regulator has launched a crackdown on online and offline sales of illegal cosmetics; will inspect medical claims made by cosmetic products, clean up sales unregistered cosmetic products. (Newswires)

Few buyers are likely to step forward to buy China Evergrande's (3333 HK) plot in the northern New Territories, according to observers cited by the SCMP. (SCMP)

CENTRAL BANKS

Fed’s Daly (2021, 2024 voter) said the job market will have ups and downs and it is too early to say it is stalling, while she added the Delta variant has taken its toll but has not derailed them. Daly also stated that everyone is feeling the rise in prices which is painful and that inflation is directly related to COVID, but doesn’t see this as a long-term phenomenon. (Newswires)

BoE Governor Bailey stated that inflation will be higher than forecast and is concerned of above target inflation, while he added that they have to prevent inflation expectations from becoming embedded and noted there are some large unwanted price changes. (Newswires/Yorkshire Post)

BoE’s Saunders stated that an increase in interest rates could come “significantly earlier” than previously anticipated. Markets have priced an earlier rate rise than previously which, he thinks is appropriate, while he noted that a hike in February is fully priced in and that an increase in December is half priced in. Saunders notes that it looks to him as if the labour market is tight in many sectors and that will likely push up pay growth. (Telegraph)

ECB's Villeroy reiterated the Council view that expects inflation in the euro zone to peak in the approaching months. (Newswires)

ECB's Knot said investors need to be aware of risks of structurally higher inflation; the effect of rising energy prices on inflation temporary by nature; rise in inflation is still expected to be temporary Current valuations only sustainable at low inflation and low interest rates. (Newswires)

US

US Treasury Secretary Yellen said once Congress and the White House agree on spending plans, it is their responsibility to raise the debt limit and she is confident Congress will be able to raise the debt ceiling on December 3rd, while she added there is an argument to make some proposed benefits in the Biden spending plan to subject to income limits. Yellen also said she is confident that Congress will pass global corporate minimum tax and stated that minimum tax will likely be included in a reconciliation package. (Newswires)

US Senate Minority Leader McConnell sent a letter to President Biden stating that he will not provide assistance again to the Democrats for raising the US debt limit and Democrats now have time until December to address the debt limit through reconciliation. In relevant news, there were comments on Friday from Democrat Senator Warner that the reconciliation plan will be around USD 2tln. (Newswires)

Goldman Sachs lowered its 2021 US GDP growth forecast to 5.6% from 5.7% and lowered 2022 GDP growth forecast to 4.0% from 4.4%, while it noted that consumption and fiscal slowdown are key challenges. (Newswires)

UK/EU

UK Brexit Minister Frost is expected to tell Brussels on Tuesday that a significant change to the Northern Ireland Protocol is vital to restore genuinely good UK-EU relations, while it was separately reported that the EU offered to scrap many Northern Ireland border controls to ease tensions. (Newswires/FT)

Irish Foreign Minister Coveney says that whenever the EU makes a new proposal, they are dismissed by the UK before they are even released, any dismissals are more serious this week given compromise proposals are being put forward by the EU. Coveney said they are very near to the point where the EU will say enough is enough and there cannot be further compromises, and is of the view that , ultimately, the UK wants a deal but it needs to compromise too. (Newswires)

UK Chancellor Sunak and Business Secretary Kwarteng reportedly clashed regarding a possible bailout for British companies struggling with surging energy costs with the Kwarteng stating he was working very closely with Sunak after having promised industrial energy users to explore practical solutions, although the Treasury denied that it had been in such talks. (FT)

UK manufacturers of steel, glass, ceramics and paper warned the government that they could shutdown production unless action is taken on rising wholesale gas prices. In other news, there were reports that BP-backed energy supplier Pure Planet is close to a collapse and are in talks with the energy regulator. (Newswires/Sky News)

Austrian Chancellor Kurz stepped down following pressure from coalition partner the Greens amid investigations of corruption, while he proposed Foreign Minister Schallenberg as next PM and will remain as the party leader. (Newswires)

EQUITIES

Bourses in Europe are mostly but modestly lower (Euro Stoxx 50 -0.1%, Stoxx 600 -0.2%) whilst the FTSE 100 (+0.2%) bucks the trend, owing to firm performances in its heavyweight sectors. US equity futures meanwhile trade within tight ranges with broad-based losses of some 0.3-0.4%. Fresh fundamental catalysts have remained light, although inflation and stagflation remain on traders' minds heading into this week's US and Chinese inflation metrics and against the backdrop of rising energy prices. Thus, the sector configuration sees Basic Resources, Oil & Gas and Banks at the top of the bunch, whilst the downside sees Travel & Leisure, Real Estate and Retail, with no overarching theme to be derived. Basic Resources is the marked outperformer as base metals are bolstered in what seems to be a function of the coal shortage in Asia, with iron ore contracts also surging overnight and copper following suit, in turn boosting the likes of Rio Tino (+3.2%), Antofagasta (+3.1%), Glencore (+3.1%), BHP (+2.8%). The top of the Stoxx 600 is dominated by metal names. In terms of individual movers, Carrefour (-2.2%) is softer after sources stated that exploratory talks over a Carrefour-Auchan tie-up ended due to the complexity of the deal. Evotec (+0.7%) holds onto gains as it seeks a Nasdaq listing. Roche (+0.6%) and Morphosys (+3.7%) underpin the health sector after the Cos received Breakthrough Therapy Designation from the US FDA for gantenerumab for the treatment of Alzheimer's disease.

Tesla (TSLA) CEO Musk tweets "Beta 10.2 now rolling out to cars with 100/100 safety score over 100 miles". (Twitter)

FX

AUD/NZD/JPY/DXY - The Aussie has secured a considerably firmer grip of the 0.7300 handle vs its US rival as COVID-19 restrictions are relaxed in NSW and base metals tread water after a mostly positive APAC equity session overnight. However, Aud/Usd is also firmer on the back of ongoing Greenback weakness and long liquidation from what some are calling ‘stretched’ levels of IMM positioning going in to Friday’s NFP release, while the Aud/Nzd cross has rebounded further above 1.0550 in wake of a rise in NZ virus cases that has prompted the PM to keep Auckland on level 3 alert for another week pending review. Hence, Nzd/Usd is capped around 0.6950 and continues to lag on the unwinding of Kiwi longs built up in advance of last week’s universally anticipated 25 bp RBNZ hike. Back to the Buck, but looking at the index in relation to where it was before and after the latest BLS report, 94.000 is providing some underlying support on Columbus Day that is not a full US market holiday, but will see cash Treasuries remain closed. Moreover, the DXY is gleaning momentum within a narrow 94.028-214 range via marked Yen underperformance amidst the latest rout in bonds and more pronounced technical impulses as Usd/Jpy extends beyond 112.50 and sets yet another 2021 peak around 112.95.

GBP - Sterling is taking up post-payrolls Dollar slack as well, but firmer in its own right too as comments from BoE Governor Bailey and MPC member Saunders add to the growing expectation that rate hikes may be delivered sooner than had been expected before the former revealed that policy-setters were evenly divided at 4-4 in August on the subject of minimum criteria being achieved for tightening. Cable is hovering under 1.3650 and Eur/Gbp is sub-0.8500 in response, with the latter not really fazed by the UK-EU rift on NI protocol.

CAD/NOK - The Loonie remains firm against its US peer after the stellar Canadian jobs data and Usd/Cad continues to probe support/bids at 1.2450 against the backdrop of strength in oil prices that is also keeping the Norwegian Krona afloat and Eur/Nok eyeing deeper sub-10.0000 lows irrespective of marginally mixed vs consensus inflation metrics.

CHF/EUR/SEK - All rather rangy, aimless and looking for inspiration or clearer direction as the Franc straddles 0.9275 vs the Greenback, but remains firmer against the Euro above 1.0750 following only a faint rise in Swiss domestic bank sight deposits. Meanwhile, the Euro is pivoting 1.1575 vs the Buck and looks hemmed in by decent option expiry interest just outside the range given.1 bn rolling off between 1.1540-50 and 1.6 bn from 1.1590-1.1600 at the NY cut. Elsewhere, the Swedish Crown is slipping on risk-off grounds towards 10.1250 having tested resistance circa 10.1000.

EM - The Rub is drawing impetus from Brent breaching Usd 84/brl, but the Mxn looks less impressed with WTI eyeing Usd 81.50, while the Cnh and Cny are deriving support from a firmer PBoC midpoint fix for the onshore Yuan and more constructive talks between China and the US over the weekend when Vice Premier Liu He exchanged views with USTR Tai on the trade agreement during a virtual discussion, reviewed its implementation and agreed that both sides will consult on certain outstanding issues. Conversely, the Try appears to have staved off another attack on 9.0000 or survived to keep fighting for a while longer with the aid of Turkey’s current account beating expectations and positing a surplus.

FIXED INCOME

It looks like Bunds and US Treasuries are taking turns to try and stop the rot after Gilts succumbed to more downside a lost 123.50+ status temporarily, at 123.44 (-56 ticks on the day), but the 10 year UK debt future may also have drawn some encouragement from the equivalent yield testing, though not firmly vaulting the 1.20% level and feeling somewhat safe in the knowledge that US cash players will be out of action today due to the semi market holiday to mark Columbus Day. However, the new/latest Liffe high is only fractionally above the prior one at 123.72, while the core Eurozone bond has retested 169.00 and the 10 year T-note has been within a whisker of 131-00 within a 131-01+/130-25+ range ahead of employment trends and pretty packed pm line up of global Central Bank speakers culminating with Fed’s Evans an hour before midnight in Europe.

Poland is planning to issue CNY-denominated bonds in the Chinese market. (Newswires)

COMMODITIES

WTI and Brent front-month futures continue the upward trajectory seen during the APAC session, with the complex underpinned heading into the winter period and against the backdrop of higher gas prices. The gains have been more pronounced in the US counterpart vs the global benchmark with no clear catalysts behind the outperformance, although this may be a continuation of the unwind seen after reports suggested a release of the US SPR (Strategic Petroleum Reserve) is unlikely. For context, reports of such a release last week took the WTI-Brent arb to almost USD 4.2/bbl vs USD 2.7/bbl at the time of writing. Furthermore, there have also been reports of lower US production under President Biden's "build back better" initiative, which puts more weight on renewable energy, with some energy analysts also suggesting that OPEC+ sees less of a threat from a "shale boom" as a result. Back to price action, WTI has been in the limelight after topping the USD 80/bbl overnight and extending gains to levels north of USD 81.50/bbl (vs low 79.55/bbl), whilst the Brent Dec contract topped USD 84.00/bbl (vs low USD 82.50/bbl). In terms of other news flow, sources suggested the fire at Lebanon's Zahrani fuel tank has been put out after the energy minister suggested the fire was contained – the cause of the fire is not yet known. Gas prices also remain elevated with UK nat gas futures relatively flat on the day but still north of GBP 2/Thm vs GBP 1/Thm mid-August and vs GBP 4/Thm last week, whilst the Qatari Energy Minister said he is unhappy about gas prices being high amid negative follow-through to customers. Over to metals, spot gold and silver are somewhat lacklustre, but with magnitudes of price action contained, with the former meandering just north of USD 1,750/oz and the latter above USD 22.50/oz heading into this week's key risk events. Overnight, iron ore futures were bolstered some 10% in Dalian and Singapore Exchanges amid fears of coking coal supply shortages - coking coal is an essential input to produce iron and steel. Traders should also be cognizant of the Chinese metrics released this week as another elevated PPI metric could see the release of more state reserves, as had been the case over the recent months. Using the Caixin PMIs as a proxy for the release, the PMI suggested sharp increases in both input costs and output prices – largely owed to supply chain delays, with the "rate of inflation was the quickest seen for four months, amid reports of greater energy and raw material costs. This, in turn, led to a solid increase in prices charged". The measure for output prices its highest in three months, whilst "the pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak."

US Baker Hughes Rig Count (w/e October 8th): Oil +5 at 433, Nat Gas unch. at 99, and Total +5 at 533. (Newswires)

China's NDRC said that power plants significantly raised their coal reserves, although there were also reports of flooding and landslides affecting China’s major coal producing province of Shanxi. (Newswires)

Blockade in Sudan’s main port by tribal protestors is causing shortages of wheat and fuel oil for power generation. (Newswires)

GEOPOLITICAL

German Chancellor Merkel said they are in very decisive weeks regarding the future of the nuclear deal with Iran and want to send a message to Iran that they must quickly return to the negotiating table. (Newswires)

US State Department said talks in Doha with the Taliban were candid and professional, while the US reiterated that the Taliban will be judged on its actions and not just words. It was also separately reported that UK and US warn citizens of threat to hotels in Kabul, Afghanistan. (Newswires/AFP)

China’s PLA Western Theater Command said India insists on unreasonable and unrealistic demands which adds difficulties to negotiations after the sides held the 13th round of corps commander-level talks on Sunday, while India’s government stated that talks with China on border have ended in deadlock and that China did not provide any forward-looking proposals. (Newswires/Global Times)

Iranian Foreign Ministry says we are in constant contact with the Saudi side and the negotiations have reached a more serious stage. (Twitter)

Chinese Foreign Ministry says it has lodged stern representations with Australia on "inappropriate" comments made by former PM Abbott. (Newswires)

Five Indian Army soldiers were killed in a gun battle that took place near the Pakistani border, according to a statement. (Newswires)