• Asia-Pac equities kicked off the week with a downside bias; US equity futures opened with a mild negative tilt before drifting higher
• In FX, DXY dipped below 93.500, JPY lagged and the AUD outperformed
• The TRY slumped after Turkish President Erdogan ordered 10 foreign ambassadors be declared persona non grata
• China's National Health Commission spokesperson expects the number of new COVID cases to keep rising
• UK officials said The first round of new talks on the Northern Ireland Protocol was "constructive", but large gaps remain
• US President Biden had a productive discussion with Senators Schumer and Manchin regarding the Build Back Better Agenda
• Looking ahead, highlights include German IFO and BoE's Tenreyro
• Earnings: Michelin, Facebook, Restaurant Brands

CORONAVIRUS UPDATE

China's National Health Commission spokesperson said China's current COVID outbreak covers 11 provinces and expects the number of new cases to keep rising. The spokesperson said areas affected by the outbreak may expand. China said Gansu and Inner Mongolian cities are to halt bus and taxi services. (Newswires) China reported 35 new local mainland COVID cases vs 26 a day earlier. (Newswires)

The UK government is said to be paving the way to implement “plan B” measures in England. The UK Health Security Agency (UKHSA) reportedly contacted local authorities on Friday to gauge the level of support for the “immediate rollout of the winter plan – plan B”. (The Guardian)

Austria is reportedly gearing up for potential new COVID lockdown measures to apply only to unvaccinated people. (Newswires)

Australia’s Victoria State will open up further from October 29th, according to Victoria Premier Daniel Andrews. (Newswires)

Ontario is to lift capacity and distancing requirements from 25th October; resumption affects restaurants, casinos and gyms. (Newswires)

US NIH's Dr Fauci said children from ages 5 to 11 could get vaccinated by early November. (Newswires)

ASIA

Asia-Pac equities kicked off the week with a downside bias as the region adopted a similar lead from Friday’s Wall Street session, although sentiment marginally improved with the region now mixed heading into the European open. US equity futures overnight opened trade with a mild negative tilt before drifting higher, with a broad-based performance experienced across the Stateside contracts, whilst European equity contracts are marginally firmer. Back to APAC, the ASX 200 (+0.4%) was kept afloat by its energy sector as oil prices drifted higher, whilst index heavyweight Telstra was boosted after partnering with the Australian government to acquire Digicel Pacific in USD 1.6bln deal - for which Telstra contributed only USD 270mln. The Nikkei 225 (-0.9%) opened lower by around 1% with Softbank and Fast Retailing the biggest losers, although the index initially trimmed losses as the JPY remained on the backfoot. The Hang Seng (+0.1%) and Shanghai Comp (+0.4%) were mixed at the open, with the latter supported by a net PBoC injection of CNY 190bln, whilst the Hang Seng Mainland Properties Index (-2.9%) was pressured by reports China's State Council is to expand the property-tax reform trials to more areas. On the flip side, China Evergrande and Evergrande New Energy Vehicle opened higher after the chairman said the group is to complete its transition to the NEV industry from real estate within 10 years. Finally, 10yr JGBs trade subdued and in contrast to its US and German counterparts.

• PBoC set USD/CNY mid-point at 6.3924 vs exp. 6.3932 (prev. 6.4030)
• PBoC injected a net CNY 190bln via 7-day reverse repos at a rate of 2.20%

China's National Development and Reform Commission (NDRC) has reportedly pegged Chinese Q3 growth at 5.4% vs the National Bureau of Statistics (NBS) 4.9% forecast, according to sources cited by SGH Macro Advisors. (SGH Macro Advisors)

China Evergrande (3333 HK) said it had resumed work on more than 10 projects in six cities including Shenzhen. Some China Evergrande (3333 HK) bondholders received interest payments for the tranche due on Sep 23rd after the 30-day grace period expired on Oct 23rd. (Newswires)

China's state planner NDRC to meet with property developers on Tuesday, including many with USD debt. (Newswires)

China's State Council is to expand the property-tax reform trials to more areas, according to Xinhua. (Newswires)

Goldman Sachs cuts China's 2022 GDP growth forecast to 5.2% from 5.6%; citing a longer-term push for property deleveraging and decarbonisation. (Newswires)

UK/EU

EU is mulling terminating Brexit trade deal if the UK rift deepens. The EU has told the UK that British legal texts cannot be a legal basis for talks. EU preparing response if the UK triggers Article 16 of Northern Ireland protocol. (Newswires)

UK officials said the first round of new talks on the Northern Ireland Protocol was "constructive", however, large gaps remain, particularly on the role of the European Court of Justice (ECJ). UK Brexit Negotiator Frost and European Commission VP Sefcovic, are expected to meet at the end of next week. (BBC)

UK Chancellor Sunak said there must not be a return to significant economic restrictions. Sunak added that bringing back the furlough scheme was not on the cards. The Chancellor warned against the impact of inflation on national debt servicing and said they can see the risk of inflation and interest rates. (Newswires) UK Chancellor Sunak is to raise the minimum wage and unfreeze public sector pay in the upcoming budget on Wednesday. (The Sun)

S&P affirmed the UK at AA; outlook stable. (Newswires)

S&P affirmed Italy at BBB; raises outlook to positive. (Newswires)

Fitch affirmed Austria at AA+; outlook stable. (Newswires)

FX

In FX, DXY erred higher in the first half of the session before easing to briefly dip below 93.500 as overnight sentiment marginally improved, and with the Fed also observing its blackout period ahead of next week’s meeting. EUR/USD and GBP/USD initially experienced a mild divergence after UK officials said the first round of new talks on the Northern Ireland Protocol was "constructive", however, large gaps remain. GBP/USD extended above 1.3750 whilst EUR/USD topped 1.1650 ahead of Thursday’s ECB meeting. Traditional haven FX narrowly underperformed with the JPY the laggard ahead of the BoJ confab this week. Antipodeans outperformed with gains in the AUD spear-headed by iron ore prices, whilst Westpac also maintained its AUD/NZD year-end forecast at 1.06, with the fair value model sitting around 1.10. in the EM FX space, the TRY again slumped to a new low after Turkey's President Erdogan ordered 10 ambassadors - including those from the US, Germany and France - be declared persona non grata, with the pair hitting a new high of around 9.8500 from Friday’s 9.5750 close, although, before that, S&P affirmed Turkey’s rating with a stable outlook.

Turkey's President Erdogan has ordered 10 ambassadors, including those from the US, Germany and France, be declared persona non grata. (BBC)

Turkish state banks are said to cut borrowing costs in lockstep with the CBRT, sources state. (Newswires)

S&P affirmed Turkey's long-term foreign currency rating at "B+" and long-term local currency rating at "BB-," with a stable outlook. (Newswires)

COMMODITIES

WTI and Brent Dec contracts were grinding higher throughout the overnight session, with Brent topping USD 86/bbl and WTI mounting USD 84.50/bbl, whilst US nat gas futures gapped higher. On the demand side, participants are eyeing COVID developments in China, whereby National Health Commission spokesperson said the number of new COVID cases are expected to keep rising. On the supply side, Nigeria has joined Saudi in signalling opposition to any immediate production increase beyond the current OPEC+ quotas, and suggested the producers need to wait before raising output faster. Elsewhere, spot gold and silver were flat with the former around its 100 and 200 DMAs at 1,790/oz and USD 1,792/oz respectively. Meanwhile, Chinese Zhengzhou thermal coal futures fell over 4% in early trade after China's State Planner said China is to strengthen credit supervision over medium/long-term thermal coal contracts and urges coal firms to strictly perform contractual obligations.

"Chinese magnesium producers and traders in Yulin, N.China's Shaanxi, which produces over 50% of global supply, predict up to 10% cut in exports, which could affect many business overseas.", China's Global Times tweeted. (Global Times) Miners in Shanxi, Shaanxi, and Inner Mongolia have cut spot coal prices by CNY 100-360/t, according to the NDRC. (Newswires) China's State Planner says China is to strengthen credit supervision over medium/long-term thermal coal contracts; urges coal firms to strictly perform contractual obligations. (Newswires)

The Nigerian oil minister said OPEC+ needs to be very cautious and needs to wait before raising output faster. He added the country is producing 1.4mln BPD, with the aim of 3.0mln BPD in three years. (Newswires)

Ukraine offers Russia's Gazprom a 50% tariff discount for additional gas transit to Europe. (Newswires)

Saudi Arabia is committed to net-zero emissions by 2060. (Newswires)

GEOPOLITICAL

Chinese legislators passed a decision to temporarily adjust the application of relevant statutory provisions during the reform of the national defense mobilization system, which expert said is important in the face of strained US-China ties, Global Times. (Global Times) Chinese President Xi opposes unilateralism, protectionism and zero-sum games.

US intelligence officials have launched a campaign to warn US firm over dealings with China in five sectors: artificial intelligence, quantum computing, biotechnology, semiconductors and autonomous systems. (FT)

Russia called Iran's demands to revise the JCPOA deal "logical and justifiable". (Newswires)

US

The Treasury curve flattened on Friday with all major curve spreads lower after a choppy week of price action dictated by supply, positioning, Fed speak and rate hike expectations amid a rise in inflation expectations, but Fed Chair Powell attempted to cool any fears in his speech today. The 5-year TIPS breakeven inflation rate hit 3% on Friday (the first time since January). The move had pared as trade progressed however as Fed Chair Powell attempted to downplay rate hike expectations and cool inflation fears reiterating the Fed still see inflation as transitory and would be premature to raise rates which also supported the bid in the longer end alongside comments that he wants to give the economy time to fully recover before restraining demand, Powell suggested there is a possibility that there could be full employment by the end of next year, but it is not a certain; note, the Fed currently sees max employment occurring in 2023, according to the latest SEP’s. There were some jitters around Powell’s inflation remarks, where he did reiterate if the Fed sees high inflation it will use its tools and that risks are clearly tilted towards bottlenecks and higher inflation, adding he does not know how long it will take for inflation to abate. The front-end of the curve remained lower at settlement after remarks from Powell, but well off the lows with 2yr yield finding a high just shy of 0.5% - which occurred the same time as the rise in the rise in the TIPS breakevens. Note, desks also spoke of a large block trade, 9k in five year options (expiry November 5th) in what the desk suggests is a bet on a big move through the FOMC meeting. T-Note (Z1) futures settled 5+ ticks higher at 130-11.

US President Biden had a productive discussion with Senators Schumer and Manchin regarding the Build Back Better Agenda, according to a statement. (Newswires) US Senator Manchin signalling he’s open to USD 1.75trl for social safety net bill, per sources, "but it’s unclear where the price tag will end up and what they’ll settle on after today’s meeting.", according to CNN's Raju. (Twitter)

US House Speaker Pelosi said she believes they are close to an agreement now and in the coming weeks, there will have a vote on both the infrastructure and the Build Back Better deals. (Newswires)

Democrats have moved to finalize a new ‘billionaire’ tax plan, targeting 700 wealthiest Americans as a key source of revenue for the spending plan, Sinema reportedly on board. (Washington Post)

The goal among Democratic leaders is to have a vote Wednesday or Thursday on the infrastructure package and send it to President Biden’s desk, according to CNN's Raju. (Twitter)

US Treasury Secretary Yellen does not think inflation will be out of control. Inflation is expected to remain high until next year and improve in H2 2022. (Newswires)

CRYPTO

Twitter (TWTR) is working on bringing Bitcoin (BTC) Lightning Tip Jar support to Android, via tech blogger Wong. (Twitter)