• Asian equities traded with a positive bias but with gains capped following the temperamental mood on Wall St
• The S&P 500 printed a new ATH, whilst the NQ future was pressured by post-earnings losses from Intel and Snap
• The DXY remains subdued and sub-94.00 with price action in the FX space limited overnight
• BoE Chief Economist Pill warned UK inflation is likely to hit 5% and stated that the November meeting will be a live decision
• Democratic Senator Manchin does not believe Democrats will reach a deal on the reconciliation package by Friday
• Looking ahead, highlights include UK Retail Sales, Eurozone, UK, US Flash PMIs, EU Council Meeting, Fed's Williams, Daly, Powell
• Earnings: American Express, Honeywell, Renault, Air Liquide, Remy Cointreau

CORONAVIRUS UPDATE

US CDC advisers voted to recommend Moderna's (MRNA) COVID-19 vaccine booster for older adults and some high-risk individuals, while CDC advisers also unanimously recommended Johnson and Johnson (JNJ) COVID-19 vaccine as booster for all eligible individuals that received any of the authorised COVID-19 vaccines. Furthermore, Moderna estimated the authorisation of a booster dose of MRNA-1273 at 50mg dose level and subsequent approval could increase doses available next year by 1bln doses. (Newswires)

ASIA

Asian equity markets traded with a positive bias but with gains capped following the temperamental mood on Wall St amid mixed earnings results and although a late tailwind heading into the close lifted the S&P 500 to a record high and contributed to the outperformance of the NDX, futures were then pressured after hours as shares in Intel and Snap slumped post-earnings with the latter down as much as 25% on soft guidance which subsequently weighed on tech heavyweights including social media stocks such as Facebook and Twitter. ASX 200 (Unch.) was subdued amid weakness in mining names and financials but with downside cushioned after the recent reopening in Melbourne and with the RBA also conducting unscheduled purchases to defend the yield target for the first time since February. Nikkei 225 (+0.4%) recovered from opening losses with risk appetite at the whim of a choppy currency and with some encouragement heading into the easing of restrictions in Tokyo and Osaka from Monday. News headlines also provided a catalyst for individual stocks including Nissan which was subdued after it cut planned output by 30% through to November and with Toshiba pressured as merger talks between affiliate Kioxia and Western Digital stalled, while SoftBank enjoyed mild gains after a 13.5% increase in WeWork shares on its debut following a SPAC merger. Hang Seng (+0.2%) and Shanghai Comp. (+0.1%) traded with tentative gains after another respectable liquidity injection by the PBoC and news of Evergrande making the USD-bond interest payment to avert a default ahead of tomorrow’s grace period deadline. This lifted shares in Evergrande with attention now turning to another grace period deadline for next Friday, although regulatory concerns lingered after the PBoC stated that China will continue separating operations of banking, securities and insurance businesses, as well as signed an MOU with the HKMA on fintech supervision and cooperation in the Greater Bay area. Finally, 10yr JGBs were lower on spillover selling following a resumption a resumption of the curve flattening stateside where T-note futures tested the 130.00 level to the downside amid inflationary concerns and large supply from AerCap which launched the second largest IG dollar bond issuance so far this year. In addition, the gains in Japanese stocks and absence of BoJ purchases in the market today added to the lacklustre demand for JGBs, while today also saw the RBA announce unscheduled purchases valued at AUD 1bln to defend the yield target for the first time since February, although the impact on yields was only brief.

PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.20% for a CNY 90bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.4032 vs exp. 6.4030 (prev. 6.3890)

US is reportedly seeking a virtual summit between US President Biden and Chinese President Xi in November and is aiming to show responsible handling of China ties. (Newswires)

US President Biden said the US would come to Taiwan's defense and has a commitment to that, while the White House later commented that President Biden was not announcing any change to US policy on Taiwan and that there hasn't been any change in US policy. (Newswires)

• Japanese National CPI YY (Sep) 0.2% vs. Exp. 0.2% (Prev. -0.4%)
• Japanese National CPI Ex. Fresh Food YY (Sep) 0.1% vs. Exp. 0.1% (Prev. 0.0%)
• Japanese National CPI Ex. Fresh Food & Energy YY (Sep) -0.5% vs. Exp. -0.2% (Prev. -0.5%)

UK/EU

BoE Chief Economist Pill warned UK inflation is likely to hit 5% and stated that the November meeting will be a live decision, while he declined to disclose how he would vote at that meeting and said “it is finely balanced”. Pill also commented that maybe there is a bit too much excitement in the focus on rates right now and he advised traders not to get too engrossed in the exact timing of any rate rise. (FT)

UK PM Johnson would be willing to accept a limited role for the ECJ in an attempt to unlock a deal with the EU over the Northern Ireland protocol, according to government figures. (Times)

Austria, France, Italy, Spain, UK and US reached an agreement on transition from existing digital services taxes to the new multilateral OECD-G20 tax deal. US said it commits not to impose further trade actions against Austria, France, Italy, Spain and UK with respect to existing DSTs until the interim period ends, while the US agreed to end proposed trade actions and is to withdraw punitive tariffs. (Newswires)

French PM Castex said they cannot let high energy prices slow down the economic recovery and to reduce the burden of high energy costs, the government will decide an inflation premium of EUR 100 for those earning less than EUR 2,000 net per month. PM Castex added that retired people will also benefit from the energy price premium and that 36mln in total will benefit from the payment, while most will receive in December, some will receive in January. (Newswires)

USTR Tai is optimistic of resolving disputes with EU over steel/aluminium tariffs and said negotiations with EU on steel go beyond tariffs and include the joint effort to fight overcapacity. (Newswires)

• UK GFK Consumer Confidence (Oct) -17 vs. Exp. -16 (Prev. -13)

FX

In FX markets, the DXY was steady and held on to the prior day’s gains after having tracked the upside in yields, although remained beneath the 94.00 level. There were comments from Fed's Bostic who said disruptions and high inflation will last into 2022 and suggested the Fed could be in position to raise rates late Q3 or early Q4 of 2022. EUR/USD was uneventful with the single currency despondent after losing ground to the greenback and with the 100-Hour MA around 1.1632 providing some near-term resistance. GBP/USD traded flat and was only briefly supported as activity currencies momentarily benefitted from the news of Evergrande averting a default tomorrow, with the currency also unmoved by comments from BoE’s Pill who suggested UK inflation will likely reach 5% and that the November meeting is live. USD/JPY was choppy after Japanese inflation data printed inline with expectations at 0.1% which was the first expansion in Core CPI since March last year but remained a far distance from the 2% target and antipodeans were also rangebound as the tentative risk tone in Australia and the RBA’s unscheduled government bond purchases was counterbalanced by positive Evergrande developments.

COMMODITIES

Commodities were mixed with WTI crude futures subdued after a failed attempt to break through resistance at USD 83/bbl and following the choppy price action seen during Wall Street hours where there was initial pressure alongside the early indecision in stocks and a firmer greenback, before prices eventually rebounded post-settlement after finding support around the USD 81/bbl level. Newsflow for the complex was light although there were some notable comments from Russian President that OPEC+ is raising output a bit more than agreed and that it is possible for Russia to increase gas supplies to Europe. Gold prices were contained amid recent gains in yields and a firmer greenback, while copper only partially nursed some of yesterday's losses amid the cautious gains in stocks.

Russian President Putin said OPEC+ is increasing oil output a bit more than agreed and that not all countries are able to significantly raise oil production. Putin also stated that European gas markets face shortages of 70 BCM of gas and that it is possible for Russia to increase gas supplies to Europe, while they are able to quickly start gas supplies via NS2 and are to complete filling the second line of NS2 pipeline by end of December. (Newswires)

GEOPOLITICAL

Russian President Putin said foreign military presence in Ukraine is a real threat to Russia. (Newswires)

US

The Treasury curve bear flattened as inflation breakevens widened which lead to more aggressive rate hike pricing, while the USD 21bln AerCap issuance and a solid 5yr TIPS auction only helped the move lower in bonds. By settlement, 2s +6.1bps at 0.436%, 3s +7.2bps at 0.774%, 5s +7.0bps at 1.217%, 7s +5.8bps at 1.512%, 10s +4.1bps at 1.676%, 20s +2.0bps at 2.101%, 30s +1.6bps at 2.127%. 5yr TIPS -3.6bps at -1.750% 10yr TIPS -3.4bps at -0.983% 30yr TIPS -3.3bps at -0.308%. 2s5s -0.1bps at 77.8bps 2s10s -3.1bps at 127.0bps 2s30s -5.8bps at 174.8bps 5s10s -3.0bps at 49.0bps 5s30s -5.7bps at 96.8bps 10s30s -2.8bps at 47.7bps. The Treasury curve bear flattened today with major curve spreads all lower by settlement with the shorter end notes seeing pronounced selling with yields settling around Monday highs. Bonds were offered throughout the session amid widening inflation breakevens, which led to Red and Green Eurodollars start to price in a higher chance of aggressive rate hikes. The selling pressures continued throughout the day with a solid 5yr TIPS auction (1bp stop through) and high non-dealer participation expressing demand for inflation protected notes as investors become more concerned about inflation. Adding to the downside again, was the second largest issuance this year from Aercap (AER) who launched a USD 21bln 9-parter across 2yr FXD/FRN, 3yr FXD, 3NC1, 5yr, 7yr, 10yr, 12yr and 20yr paper. On supply, the US is to sell USD 60bln in 2yr notes, USD 61bln in 5yr notes and USD 62bln in 7yr notes next week, as expected. T-note (Z1) futures settled 14+ ticks lower at 130-06.

Fed's Williams (voter) said longer run inflation expectations are in line with the Fed's 2% goal and stated that if inflation expectations are anchored at a level that is too low, then that will then bring down actual inflation over time. Furthermore, he added that there is a great deal of uncertainty regarding the economy today. (Newswires)

Fed's Bostic (2021, 2024 voter) said disruptions and high inflation will last into 2022 but is not seeing signs of damage and will keep watching closely. Bostic also stated that trimming asset purchases is the first step and will watch to see how the economy and markets respond, while he added that they could be in position to raise rates late Q3 or early Q4 of 2022. (Newswires)

Fed banned top officials from buying individual stocks and bonds, while it also announced a broad set of restrictions to limit active trading. In relevant news, reports also noted that a Fed ethics memo from March 2020 stated officials were encouraged to observe a trading blackout for several months as the Fed contemplated emergency measures. (Newswires)

US President Biden said he is considering using National Guard to help with the trucking shortage and assist with the supply chain situation, while he added that he does not believe inflation will last and sees gasoline prices declining in 2022. There were later comments from the White House that the request of the National Guard at the state level is under purview of Governors and that they are not actively pursuing the use of the National Guard on a federal level. (Newswires)

US President Biden said he thinks he is close to a deal and that he would not support a work requirement for child tax credit, while it would be a reach for reconciliation bill to include hearing aids, dental and vision care together. President Biden added that he doesn't need a broad corporate tax hike to pay for the reconciliation bill and does not expect a broad corporate tax increase to be included in the bill, but noted that a minimum corporate tax proposal could help pay for the bill. Furthermore, he stated that Democrat Senator Sinema is very supportive of his environmental agenda and they are down to four or five issues in negotiations. (Newswires)

US Senate Majority Leader Schumer said Democrats working hard to get deal on Biden package but there are 'outstanding issues', while it was separately reported that Moderate Democratic Senator Manchin told reporters he does not believe Democrats will reach a deal on reconciliation package by Friday, despite the goal set by Senate Majority Leader Schumer earlier in the week and stated there is a lot of fine print to review but added that negotiators are making good progress. (Newswires/The Hill)

US Moderate Democrat Senator Sinema "has agreed to provisions in each of President Biden's four proposed revenue categories -- international, domestic corporate, high net worth individuals, and tax enforcement" to pay for reconciliation bill, according to Politico citing sources. It was also separately reported that Democrats are considering taxing mark to market gains. (Politico)

US Deputy Treasury Secretary Adeyemo said future sanctions are planned in the crypto space. (Newswires)