• European bourses/US futures are softer in-line with the APAC handover; ES -0.4%
• 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 and GS now looks for a November hike, ~70% market pricing for this
• In FX, the DXY remains above 94.00 with peers pressured across the board, core debt subdued and the US yield curve bear-steepening
• Looking ahead, highlights include US Industrial Production, BoC's Lane, BoE's Cunliffe & Fed's Kashkari

CORONAVIRUS UPDATE

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%)

RATING AGENCY COMMENTARY

Moody's affirms Chinese real estate name Sansheng's (2183 HK) B2 rating; outlook negative - reflects expectations that Co's sales growth will weaken due to weaker consumer sentiment over the next 6-12 months.

• Downgrades Chinese residential property managers Kaisa (1638 HK) to Ba2/Ba3; on review for further downgrade amid expectations of weakening liquidity.
• Reviews Aoyuan's ratings for a downgrade; reflects uncertainty over Co's ability to refinance maturing debt or generate enough operating cash flow.
• Downgrades Jiangsu Zhongnan Construction Group to B2/B3, outlook stable

US

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)

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)

EU Financial Services Chief McGuinness said the European Commission has pledged to avoid market instability or a cliff edge on the decision allowing European banks access to UK clearing houses, FT; decision on this could arise within weeks. (Newswires)

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%)

GEOPOLITICAL

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)

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.; EU's Borrell, on upcoming EU-Iranian bilateral talks, says there is no confirmation yet but things are getting better, hopes there will be a preparatory meeting soon but cannot be sure, WSJ's Norman. (Times of Israel/Twitter)

EQUITIES

European equities (Eurostoxx 50 -0.7%; Stoxx 600 -0.4%) have kicked the week off on the backfoot as market participants digest disappointing Chinese GDP metrics, a continued rally in energy prices and subsequent inflationary concerns which has seen markets price in more aggressive tightening paths for major global central banks. Overnight, 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. Stateside, index futures have conformed to the downbeat tone with the ES softer to the tune of -0.3%, whilst the RTY narrowly lags with losses of 0.4%. In a note this morning, JP Morgan has flagged that investor sentiment remains that “the upcoming reporting season will be challenging, given the combination of the activity slowdown, significant supply distortions impacting volumes, and the energy price acceleration that is seen to be hurting profit margins and consumer disposable incomes”. That said, the Bank is of the view that investors are likely braced for such disappointments. In Europe, sectors are mostly lower with Retail names lagging post-Chinese GDP as Kering (accounts for 28.7% of the Stoxx 600 Retail sector) sits at the foot of the CAC with losses of 3.2%; other laggards include LVMH (-2.7%) and Hermes (-2.3%). To the upside, Banking names are firmer and benefitting from the more favourable yield environment, whilst Basic Resources and Oil & Gas names are being supported by price action in their respective underlying commodities. In terms of individual movers, THG (+7.6%) sits at the top of the Stoxx 600 after confirming that it intends to move its listing to the 'premium segment' of the LSE in 2022; as part of this, CEO & Executive Chairman Moulding will surrender his 'founders share' next year. Finally, Umicore (-4.5%) sits at the foot of the Stoxx 600 after cutting its FY21 adj. EBIT outlook.

Members of a US Congressional Committee are questioning whether Amazon (AMZN) executives misled them during an investigation into business practice and whether they may have lied under oath, WSJ; Five Congress members have asked the Co. to provide “exculpatory evidence” to support the testimony of officials including Bezos, who was CEO at the time. (WSJ)

FX

DXY - The broader Dollar and index has waned off its 94.174 pre-European cash open high but remains underpinned above 94.000 by risk aversion and firmer yields, with the US 10yr cash now hovering around 1.60%. Stateside, US President Biden confirmed that the reconciliation package will likely be less than USD 3.5trln, although this was widely expected in recent weeks. Aside from that, the Greenback awaits further catalysts but until then will likely derive its impetus from the yield and risk environment. From a tech standpoint, a breach of 94.000 to the downside could see a test of the 21 DMA (93.865) – which has proven to provide some support over the last two trading sessions, with Friday and Thursday’s lows at 93.847 and 93.759 respectively. The upside meanwhile sees the YTD high at 94.563, printed on the 12th of Oct.

CNH - The offshore is relatively flat on the day in a contained 6.4265-4387 range following a set of overall downbeat Chinese activity metrics. GDP growth momentum waned more than expected whilst industrial production was lower than expected, largely impacted by the electricity crisis and local COVID outbreaks during Q3. Retail sales meanwhile rebounded more than expected – albeit due to reopening effects, with inflation a concern heading forward. The Chinese National Bureau of Stats later hit the wires suggesting that major economic data are seen in reasonable ranges from Q1-Q3. The PBoC governor meanwhile downplayed the current risks of spillover from default fears.

AUD, NZD, CAD - The overall cautiousness across the market has pressured high-betas. The AUD fails to glean support from the firmer base metal prices and the surge in coal prices overnight, with overall downbeat Chinese data proving to be headwinds for the antipodean. The NZD is more cushioned as inflation topped forecasts and reinforced the RBNZ’s hawkishness, whilst AUD/NZD remains capped at around 1.0500. AUD/USD fell back under its 100 DMA (0.7409) from a 0.7437 peak, whilst NZD/USD hovers around 0.7050 (vs high 0.7100), with the 100 DMA at 0.7021. The Loonie narrowly lags as a pullback in oil adds further headwinds. USD/CAD aims for a firmer footing above 1.2400 from a 1.2348 base.

EUR, GBP- The single currency and Sterling are relatively flat on the day and within tight ranges of 1.1572-1.1605 and 1.3720-65 respectively. The latter was unreactive to weekend commentary from the BoE governor, sounding cautious over rising inflation but ultimately labelling it temporary, although suggesting that monetary policy may have to step in if risks materialise. From a Brexit standpoint, nothing major to report in the runup to negotiations on the Northern Ireland protocol. Across the Channel, FT sources suggested that four ECB GC members would support upping the PSPP share of APP from the current 10% - with the plan to be discussed across two meetings next month and requiring a majority from the 25 members. All-in-all, the EUR was unswayed ahead of a plethora of ECB speakers during the week and as the clock ticks down to flash PMIs on Friday.

JPY, CHF - The traditional safe-havens have fallen victim to the firmer Buck, with USD/JPY extending on gains north of 114.00 as it inches closer towards 114.50 – which also matches some highs dating back to 2017. The Swiss Franc is among the laggards after USD/CHF rebounded from its 50 DMA (0.9214) as it heads back towards 0.9300, with the weekly Sight deposits also seeing W/W increases.

• 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%)

FIXED

A subdued start to the week for core debt as yields continue to climb amid ongoing focus on the inflation narrative, heightened by Kiwi CPI, and central bank commentary. Broadly speaking, core EZ debt remains pressured following the APAC handover where JGB’s were hampered amid the absence of BoJ market purchases and on the aforementioned inflation narrative. Thus far, Bunds have dropped convincingly below the 168.92 figure which was the high from October 14th however, the benchmark is yet to test support at the October 12th low of 168.21 before the 168.00 mark itself. On the central bank theme, the most interesting update stemmed from BoE Governor Bailey who sent ‘another’ signal that they will have to take action, commentary which heightens focus around the November meeting; particularly given recent chatter around an MPC member downplaying the likelihood of policy action at this point. On the subject, Goldman Sachs now looks for a November hike out of the BoE and market pricing is 70% for a November hike while December now has 25bp fully priced. Given both Bailey and the broader tone Gilts are subdued, but no-more so than their EZ peers, and focus returns to the yield narrative in the absence of near-term support with last week’s 1.21% peak the YTD high and a level not eclipsed since early-2019. However, as it stands the measure is holding steady just above the 1.15% mark. Out of Europe, USTs are portraying a similar pattern with little by way of fresh newsflow for the area and the sessions scheduled Fed speakers not, at the time of writing, providing anything pertinent post-Minutes. For reference, interim support is touted just below the current session low of 130.17+ at 130.15 and the yield curve is bear-steepening.

COMMODITIES

WTI and Brent front-month futures have drifted from best levels as the cautious risk tone weighs on prices, but nonetheless, the complex remains overall firmer with the former within a USD 82.55-83.06 range and the latter in a 84.93-85.31 intraday parameter. Fresh catalysts remain quiet for the complex, while there were some comments over the weekend from Iraq's Oil Ministry which noted that prices above USD 80/bbl are a positive indicator. Elsewhere on the supply-side, Iran is to resume nuclear negotiations on October 21, an Iranian lawmaker said Sunday, although it is unclear how far talks will go as the US and Iran affirm their stances. It is also worth noting that a fire was reported at Kuwait's Mina al-Ahmadi (346k BPD) refinery, but refining and export operations are unaffected. UK nat gas futures meanwhile are relatively flat in a tight range, although prices remain elevated on either side of GBP 2.5/Thm. Elsewhere, spot gold and silver trade sideways amid a lack of catalysts, although the firmer found some support at 1,760/oz - matching its 21 DMA. Over to base metals, LME copper remains supported around USD 10,250/t. Overnight, Shanghai zinc and Zhengzhou coal hit a record high and limit up respectively, with some citing supply constraints.

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)

Gazprom has partially booked volumes offered for additional gas transit capacity via the Yamal-Europe pipeline for November, has not booked additional gas transit capacity for Sokhranovka crossing into Ukraine for November. (Newswires)

Fire reported at Kuwait's Mina al-Ahmadi (346k BPD) refinery, refining and export operations are unaffected. (Newswires)