• Asia-Pac stocks traded cautiously after disappointing Chinese GDP and Industrial Production data
• Inflationary concerns lingered amid a continued rally in oil prices and with New Zealand CPI at a decade high
• BoE Governor Bailey cautioned that the MPC will have to act to contain inflation
• In FX, the DXY heads into the European session firmer and north of 94.00
• Looking ahead, highlights include US Industrial Production, BoC's Lane

CORONAVIRUS UPDATE

FDA official Peter Marks said they are considering the possibility of lowering the age range of recommendation for the Pfizer (PFE) and BioNTech (BNTX) COVID-19 vaccine booster shot to 40yrs+ from current 65yrs+. It was also reported that the FDA asked Moderna (MRNA) to hold off on COVID-19 vaccines for children as it looks into the risk of myocarditis, while FDA advisers unanimously voted in favour of a Johnson & Johnson (JNJ) COVID-19 vaccine booster for people aged 18yrs and older at least two months after the first dose. (Newswires/WSJ)

Australia’s most populous state of New South Wales has fully vaccinated 80% of its adult population and COVID-related curbs will be further eased on Monday, while officials in Melbourne said the city is set to lift its stay-at-home orders this week. Furthermore, it was reported that PM Morrison noted that the country is around 2.5mln jabs away from hitting a similar 80% target nationally. (Newswires)

New Zealand Director of General Health Bloomfield said a level 4 circuit breaker is being considered for Auckland amid rising COVID-19 cases, although New Zealand PM Ardern later announced the Auckland alert level 3 will be extended for two weeks. (Newswires)

Macau is to reopen some leisure venues such as cinemas, gyms, bars, beauty salons and nightclubs on October 19th. (Newswires)

Ex-FDA Commissioner Gottlieb has asked for "urgent research" into the delta plus mutation of the COVID-19 delta variant amid a pick-up in UK cases. (Newswires)

ASIA

Asia-Pac stocks traded cautiously after disappointing Chinese GDP and Industrial Production data, while inflationary concerns lingered after the recent firmer than expected US Retail Sales data, a continued rally in oil prices and with New Zealand CPI at a decade high. Nonetheless, the ASX 200 (+0.1%) bucked the trend on reopening optimism with curbs in New South Wales to be further eased after having fully vaccinated 80% of the adult population and with the Victoria state capital of Melbourne set to lift its stay-at-home orders this week. Furthermore, the gains in the index were led by outperformance in the top-weighted financials sector, as well as strength in most mining names aside from gold miners after the precious metal’s retreat from the USD 1800/oz level. Nikkei 225 (-0.3%) was subdued after a pause in the recent advances for USD/JPY and with criticism of Japan after PM Kishida sent an offering to the controversial war shrine which sparked anger from both China and South Korea. Hang Seng (-0.5%) and Shanghai Comp. (-0.4%) were subdued after Chinese Q3 GDP data missed expectations with Y/Y growth at 4.9% vs exp. 5.2% and Industrial Production for September fell short of estimates at 3.1% vs exp. 4.5%, while the beat on Retail Sales at 4.4% vs exp. 3.3% provided little consolation. There was plenty of focus on China’s property sector with PBoC Governor Yi noting authorities can contain risks posed to the Chinese economy and financial system from the struggles of Evergrande, and with its unit is said to make onshore debt payments due tomorrow. However, attention remains on October 23rd which is the end of the grace period for its first payment miss that would officially place the Co. in default and it was also reported on Friday that China Properties Group defaulted on notes worth USD 226mln. Finally, 10yr JGBs were lower amid spillover selling from T-notes which were pressured after the recent stronger than expected Retail Sales data and higher oil prices boosted the inflation outlook, with demand for JGBs is also hampered amid the absence of BoJ purchases in the market today.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 10bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.4300 vs exp. 6.4295 (prev. 6.4386)

Chinese Premier Li stated the nation is committed to expanding opening up and facilitating free trade. (Newswires)

PBoC Governor Yi stated that China is doing well but faces challenges such as default risks for certain firms due to mismanagement and authorities are keeping a close watch so they do not become systemic risks. PBoC Governor Yi also commented that he sees China’s 2021 GDP at 8% and stated that growth has moderated due to sporadic increase in infections, while he separately noted that authorities can contain risks posed to the Chinese economy and financial system from the struggles of Evergrande. (Newswires)

CNPC said it is to supply over 100bln cubic meters of natural gas for the coming winter-spring period, as part of efforts to ensure energy supply in the country. However, there were separate reports that Chinese factory owners and their customers have been told to prepare for power supply disruptions becoming part of life. (China Economic Net/FT)

China National Bureau of Statistics said they are seeking to ensure annual economic targets are reached and noted that the domestic recovery is unsolid and unbalanced, although they see major economic data in a reasonable range for Q1-Q3. Furthermore, it said that China still faces structural employment pressures and that China has policy space in which it will roll out policies inline with the economic situation. (Newswires)

• Chinese GDP QQ SA (Q3) 0.2% vs. Exp. 0.5% (Prev. 1.3%, Rev. 1.2%)
• Chinese GDP YY (Q3) 4.9% vs. Exp. 5.2% (Prev. 7.9%)
• Chinese Industrial Production YY (Sep) 3.1% vs. Exp. 4.5% (Prev. 5.3%)
• Chinese Retail Sales YY (Sep) 4.4% vs. Exp. 3.3% (Prev. 2.5%)

UK/EU

BoE Governor Bailey stated that the recovery in the UK economy is slowing like the world economy and that UK labour demand continues to be stronger than expected but he has concerns about labour supply and growth. Bailey said energy will lift inflation higher although he continues to believe higher inflation will be temporary. Bailey noted "Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." (Newswires/FT/Telegraph)

UK government insiders said the Northern Ireland Protocol will need to be renegotiated in the future even if a new Brexit deal is struck in the coming weeks. (Telegraph)

UK Chancellor Sunak is reportedly mulling reducing VAT on household energy bills, while it was separately reported that the UK Treasury is preparing to launch an online sales tax. (FT/Telegraph)

UK Trade Secretary Trevelyan stated that China is welcome to continue investing in the non-strategic parts of the UK economy. (FT)

The number of businesses that failed in England and Wales during September was the largest since the pandemic began in which insolvencies rose 56% Y/Y to 1,446. (BBC)

ECB is examining raising the limit on purchases of EU-issued bonds, in a move which would enhance the flexibility in asset-purchase schemes and boost the status of the joint debt programme. (FT)

ECB President Lagarde said the current spike in inflation is unlikely to last and vowed to continue aiding the euro-area economy as the fallout from the pandemic lingers. (Newswires)

ECB’s Knot said rates will inevitably start to edge up once central banks begin unwinding their most important stimulus programs in H1 of next year. (Newswires)

The EU could trigger a new tool which would allow it to withhold budget payments to member nations in the event that they don't adhere to its democratic standards. (Newswires)

• UK Rightmove House Price Index MM (Oct) 1.8% (Prev. 0.3%)

FX

In FX markets, the DXY was initially indecisive and traded both sides of the 94.00 level despite last Friday’s rebound in yields as the firmer than expected Retail Sales supported rate hike bets. Thereafter, the greenback eventually gained amid the cautious mood. On the political front, President Biden commented on reconciliation in which he acknowledged they won't get USD 3.5tln but will get less than that and then will come back to get the rest. Furthermore, a White House official also noted discussions with Democratic lawmakers on the Build Back Better agenda are picking up pace and that negotiations may conclude soon. EUR/USD was lacklustre with early pressure after the single currency failed to sustain a footing at the 1.1600 level and following reports over the weekend that the ECB is mulling raising the limit on purchases of EU-issued bonds. There were also comments from ECB officials with President Lagarde reiterating that the current spike in inflation is unlikely to last and vowed to continue aiding the euro-area economy as the fallout from the pandemic lingers, while GBP/USD was lacklustre and largely ignored comments from BoE Governor Bailey who suggested a slowdown in the UK recovery and that they will have to act to curb inflationary pressure. USD/JPY took a breather after its recent rally to three-year highs but with the pullback cushioned by support at 114.00 and antipodeans were choppy with early upside seen amid strength in oil prices and with NZD/USD briefly underpinned by firmer than expected CPI data which rose at its fastest pace in a decade, although the gains were later reversed amid the cautious risk tone and following disappointing Chinese GDP data.

• New Zealand CPI QQ (Q3) 2.2% vs. Exp. 1.4% (Prev. 1.3%)
• New Zealand CPI YY (Q3) 4.9% vs. Exp. 4.1% (Prev. 3.3%)
• New Zealand RBNZ Sectoral Factor Model Inflation (Q3) 2.7% (Prev. 2.2%)

COMMODITIES

Commodities were varied with outperformance in oil prices from the reopen as Brent crude reclaimed the USD 85/bbl level before climbing throughout the session for a brief attempt at USD 86/bbl and WTI crude futures rose above the USD 83/bbl level to print a fresh seven year high. There weren't many fresh catalysts for the early gains which seemed to be a continuation of the recent upside on oil prices as they zeroed in on the aforementioned levels and amid reopening stories from Asia-Pac, while there were some comments over the weekend from Iraq's Oil Ministry which noted that prices above USD was a positive indicator. Conversely, gold remained subdued after last week's pullback from resistance at the USD 1800/bbl level with the precious hampered amid higher yields and copper gained and extended on this month's advances with prices unfazed by the Chinese data miss.

Baker Hughes US rig count (w/e Oct 15th): Oil +12 at 445, Nat Gas -1 at 98, Total +10 to 543. (Newswires)

Iraq’s Oil Ministry spokesman stated oil prices above USD 80/bbl is a positive indicator although long term stability is needed and stated there are still challenges for the oil market as COVID-19 is not fully contained. (Newswires)

Russian Deputy PM Novak stated that Russian gas consumption is at a record high although they are still ready to increase supplies to Europe if it is requested. (Newswires)

GEOPOLITICAL

Saudi Foreign Minister said the region is entering a "dangerous space" with Iran accelerating nuclear activities and that talks between the two sides have been "cordial" but have not made substantial further progress. (Newswires)

US military said a US and Canadian warships sailed through the Taiwan Strait last week, while China condemned the US and Canada for sending their warships through the Taiwan Strait and stated that the actions seriously jeopardised peace and stability. (Newswires)

China tested a nuclear-capable hypersonic missile in August, in a move that has taken US intelligence by surprise. (FT)

Russian Defence Ministry summoned the US military attaché over last week's incident with the US destroyer in the Sea of Japan where a Russian vessel reportedly intercepted a US ship and chased it out of territorial waters. (Newswires/RIA)

China and Russia are said to be working together on a new weapons alliance. In other news, China and India reportedly remain in a deadlock following unsuccessful border talks and both are blaming each other. (Newswires)

France’s ambassador to Belarus left the country after being ordered out although it was not stated why the ambassador was expelled. (Newswires)

Iran is to resume nuclear negotiations on October 21, an Iranian lawmaker said Sunday. (Times of Israel)

US

Treasuries were sold on Friday, with the bear-steepener O/N turning into a flattener post solid US retail sales, bolstering the inflation outlook. TYZ1 volume was below average. By settlement, 2s +4.5bps at 0.399%, 3s +6.6bps at 0.696%, 5s +7.2bps at 1.122%, 7s +6.7bps at 1.411%, 10s +5.6bps at 1.576%, 20s +3.7bps at 2.015%, 30s +2.3bps at 2.048%. 5yr TIPS +3.5bps at -1.681%, 10yr TIPS +2.6bps at -0.984%, 30yr TIPS +0.8bps at -0.325%. 5yr BEI +2.5bps at 2.836%, 10yr BEI +2.2bps at 2.539%, 30yr BEI +0.8bps at 2.384%. A surprise rise in Sep retail sales saw the belly of the curve hit the hardest, reversing earlier steepening; the simultaneously released NY Fed Mfg. miss didn't garner much market attention. The pro-inflationary retail sales print saw TIPS hold their bid as inflation breakevens broke out higher to test cycle peaks from May. Traders also baked in further rate hike odds with Eurodollars and Fed Funds futures extending their downside momentum – Fed Funds have almost completely priced in a rate hike by September 2022, which would theoretically be three months after tapering would be complete (going off current guidance/expectations). The prelim. UoM survey was released later in the session, which saw a surprise fall in October, but Prices Paid sub-index rose while the 1yr ahead consumer inflation expectations rose again to 4.8% from 4.6%, echoing the NY Fed survey on Monday. One desk noted that there had been come chunky sales from hedge funds in the long-end in wake of the release, but not enough to meaningfully extend the trading range. T-Notes modestly edged out session lows of 130-30 into late trade (perhaps driven by a chunky 131-00 strike put expiry in the weekly options) after it made interim lows at 131-01+ in wake of the retail sales print. On the curve, 5s30s fell beneath the September lows 93.80, to hit new lows of 92.20 at pixel time, the lowest since May 2020 when yields were bouncing back from the COVID lows. Rates traders now look to next week's 20yr bond auction on Tuesday, otherwise, the US data is rather light, with a few regional Fed surveys and Flash PMIs Friday the highlight. Chinese activity data on Monday is likely to set the tone going into the week. T-note (Z1) futures settle 17 ticks lower at 130-31.

US President Biden commented on reconciliation in which he noted that they are not going to get USD 3.5tln and that it will be less than that, but they are going to get it and will come back to get the rest, according to FBN’s Lawrence. (Fox Business News)

US Democrat Senator Manchin told the White House child tax credit must include a firm work requirement and family income cap in the USD 60k range, according to Axios. In relevant news, three Democrats were reportedly urging the House to pause overseas tax hike plans and first wait to see how other countries implement the global tax agreement, which was said to add additional hurdles to infra/reconciliation negotiations, according to Politico. (Axios/Politico)