• European bourses & US futures are contained in pre-FOMC trade; ES -0.1%
• China's most recent COVID-19 outbreak is reportedly the most widespread since Wuhan
• DXY is pressured and briefly lost 94.00 but held above yesterday's trough with peers deriving modest gains; TRY lags in EMs
• ECB's Lagarde said despite the current inflation surge, the outlook for inflation over the medium term remains subdued, three ECB conditions for hike unlikely to be satisfied next year
• Looking ahead, highlights include US ADP, Composite/Services PMI (Final), ISM Services, FOMC Policy Announcement & US Quarterly Refunding

CORONAVIRUS UPDATE

China's most recent COVID-19 outbreak is reportedly the most widespread since Wuhan with infection in 19 of 31 provinces, according to a major newswires article. (Newswires) About half the flights to and from Beijing city’s two airports were cancelled Tuesday, according to aviation industry data site VariFlight. (CNBC)

ASIA

Asian equity markets traded mixed despite another encouraging handover from Wall Street where all major indices notched fresh record closing highs for the third consecutive day, and the DJIA breached the 36k level amid a slew of earnings and absence of any significant catalysts to derail the recent uptrend. Gains in APAC were also capped by holiday-thinned conditions with Japan away for Culture Day and as the FOMC announcement draws closer (full Newsquawk preview available in the Research Suite). The ASX 200 (+0.9%) outperformed amid a resurgence in the top-weighted financials sector as AMP shares were boosted after it announced to divest a 19.1% stake in Resolution Life Australasia for AUD 524mln and with CBA also higher as Australia’s largest bank is to offer customers the ability to conduct crypto transactions via its app. Conversely, the KOSPI (-1.3%) lagged after its automakers posted weak October sales stateside and following comments from South Korean PM Lee that they cannot afford additional cash handouts right now, while there was also attention on Kakao Pay which more than doubled from the IPO price on its debut. The Hang Seng (-0.3%) and Shanghai Comp. (-0.2%) were lacklustre and failed to benefit from the improvement in Chinese Caixin Services and Composite PMI data, amid ongoing concerns related to the energy crunch and with tech subdued after Yahoo pulled out of China due to a challenging business and legal environment. Furthermore, reports also noted that the Chinese version of Fortnite will close in mid-November, while a slightly firmer PBoC liquidity operation failed to spur Chinese markets as its efforts still resulted in a substantial net drain. Aussie yields continued to soften after the RBA affirmed its dovish tone at yesterday’s meeting and with the central bank also present in the market today for AUD 800mln in semi-government bonds which is in line with its regular weekly purchases, while a softer b/c at the 10yr Australian bond auction failed to unnerve domestic bonds and T-notes futures were steady overnight amid the looming FOMC.

• PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 150bln net daily drain. (Newswires)
• PBoC set USD/CNY mid-point at 6.4079 vs exp. 6.4041 (prev. 6.4009)

China's MIIT China urged the US to withdraw its decision regarding revoking China Telecom's (728 HK) licence to operate in the US and treat Chinese telecom firms with a fair, non-discriminatory attitude. (Newswires/Global Times)

PBoC Governor Yi said China attaches great importance to data protection legislation and that they will improve the legal framework for personal data protection in the financial sector, while he added that countries should join hands to set standards for personal data protection. (Newswires)

PBoC's Mu said e-Yuan transactions during trials reached CNY 62bln, with around 1.55mln merchants accepting digital Yuan. (Newswires)

• Chinese Caixin Services PMI (Oct) 53.8 vs Exp. 53.1 (Prev. 53.4)
• Chinese Caixin Composite PMI (Oct) 51.5 (Prev. 51.4)

Jiangsu Hengshung (600305 CH) and Haixin Foods (002702 CH) will be hiking prices by 5-15% and 3-10% respectively. (Newswires)

• Australian Building Approvals (Sep) -4.3% vs. Exp. -2.0% (Prev. 6.8%, Rev. 7.6%)
• New Zealand HLFS Job Growth QQ* (Q3) 2.0% vs. Exp. 0.4% (Prev. 1.0%)
• New Zealand HLFS Unemployment Rate* (Q3) 3.4% vs. Exp. 3.9% (Prev. 4.0%)
• New Zealand HLFS Participation Rate* (Q3) 71.2% vs. Exp. 70.6% (Prev. 70.5%)

US

NBC projects that Republican Youngkin won the Virginia governor race where the incumbent was a Democrat, while the New Jersey governor race is said to be too close to call with Republican Ciattarelli at 50% vs Democrat incumbent Murphy at 49% with 95% of votes reported. (Newswires)

UK/EU

ECB's Lagarde says despite current inflation surge, the outlook for inflation over the medium term remains subdued, three ECB conditions for hike unlikely to be satisfied next year; even after the pandemic support will be needed. (Newswires)

French Transport Minister says the UK has shown a constructive spirit in fishing licence discussions. (Newswires)

UK Markit/CIPS Services PMI Final (Oct) 59.1 vs. Exp. 58.0 (Prev. 58.0); Composite PMI Final (Oct) 57.8 vs. Exp. 56.8 (Prev. 56.8)

EQUITIES

European majors have adopted a similarly mixed performance (Euro Stoxx 50 -0.1%; Stoxx 600 Unch) as seen during the APAC session, as markets and participants count down to the FOMC policy decision, with the BoE and NFPs also on the docket for the rest of the week. US equity futures are also mixed but have been drifting mildly higher in European trade thus far, vs a flat overnight session. Back to Europe, there isn’t anything major to report in terms of under/outperformers among European majors, although Spain’s IBEX (-0.7%) lags in the periphery amidst losses in sector heavyweights. Sectors in Europe are mixed with no overarching theme. Basic Resources top the charts in a slight reversal of yesterday’s underperformance and amid a bounce in base metal prices. Travel & Leisure is propped up by Deutsche Lufthansa (+5.0%) post-earnings. Oil & Gas names are pressured by the decline across the crude complex in the run-up to tomorrow’s OPEC+ confab, whilst Banks are lacklustre as yields lose ground. In terms of individual movers, Vestas Wind System (-9.0%) is at the bottom of the Stoxx 600 after cutting guidance. BMW (+0.4%) is choppy after-earnings which saw EBIT top forecasts and targets confirmed, although the group noted that the rise in raw material prices have also had an impact on earnings, but they do not expect short-term magnesium shortage to affect production. Finally, Pandora (+0.8%) reported improvements on their metrics but warned that APAC performance, including China, remains weak and heavily impacted by COVID-19, with China expected to remain a drag on performance for the remainder of the year.

FX

NZD/AUD/CHF - Far from all change, but the Kiwi has reclaimed 0.7100+ status against the Greenback and a firmer grasp of the handle in wake of significantly stronger than expected NZ labour market metrics via Q3’s HLFS update overnight, including jobs growth coming in five times higher than forecast and the unemployment rate falling sharply irrespective of a rise in participation. Nzd/Usd is hovering around 0.7135 and the Aud/Nzd cross is under 1.0450 even though the Aussie has regained some composure after its post-RBA relapse to retest 0.7450, albeit with assistance from the Buck’s broad pull-back rather than mixed PMIs and much weaker than anticipated building approvals. Indeed, the Franc has also rebounded from circa 0.9150 with no independent incentive and cognisant that the SNB will be monitoring moves as Eur/Chf meanders within its 1.0604-1.0548 w-t-d range.

DXY/JPY/EUR/GBP/CAD - The Dollar index has drifted back down from a fractional new high compared to Tuesday’s best between 94.144-93.970 parameters vs a 94.136-93.818 range yesterday, and for little apparent reason aside from pre-FOMC tinkering and fine-tuning of positions it seems. Nevertheless, DXY components are mostly taking advantage of the situation, albeit in typically tight ranges seen on a Fed day, with the Yen holding above 114.00 on Japanese Culture Day, the Euro just under 1.1600 and amidst more decent option expiry interest (1.1 bn from 1.1585 to the round number), Sterling still trying to retain 1.3600+ status and also close to a fairly big option expiry (821 mn at the 1.3615 strike) and the Loonie striving to contain declines beneath 1.2400 against the backdrop of retreating oil prices. Note, some upside in the Pound via upgrades to UK services and composite PMIs, but limited and Eur/Gbp remains over 0.8500 in advance of the showdown between Britain and France on fishing tomorrow when the BoE also delivers its eagerly anticipated November policy verdict.

SCANDI/EM - Not much adverse reaction to a slowdown in Sweden’s services PMI for the Sek, while the Nok is taking the latest downturn in Brent crude largely in stride on the eve of the Norges Bank meeting that is widely seen cementing rate hike guidance for next month. However, scant respite or solace for the Try from sub-consensus Turkish CPI as the near 20% y/y print means more divergence relative to the CBRT’s 1 week repo, and PPI accelerated again to heighten the build up of pipeline price pressures. Conversely, the Cnh and Cny are nudging back above 6.4000 after an encouraging Chinese Caixin services PMI and the Zar is on a firm footing awaiting results of SA local elections.

RBNZ said the financial system is well placed to support economic recovery despite uncertainty and risks, while the more recent Delta outbreak is creating stress for some industries and regions, particularly in Auckland. RBNZ also noted that with the risk of global inflation heightened, already stretched asset prices are facing headwinds from rising global interest rates and that supply chain bottlenecks and inflation are adding to stresses in some sectors. Furthermore, they intend to increase the minimum CFR requirement to its previous level of 75% on 1st January 2022, subject to no significant worsening in economic condition, while capital requirements for banks are to progressively increase from 1st July 2022 and it is encouraging to see them increasing ahead of these requirements. (Newswires)

RBNZ Governor Orr said the financial system is resilient to the effects of the COVID-19 pandemic and that financial institutions are in a strong position to help New Zealanders. Governor Orr added that the labour market data is highly volatile for the time being and GDP figures are becoming increasingly difficult to understand given COVID-19 volatility, while he added that supply of space and land are the main drivers for house price volatility. (Newswires)

FIXED INCOME

Dovish remarks from ECB President Lagarde via another reminder that rate hike criteria will not be satisfied in all likelihood until 2023, gave Bunds and their Eurozone counterparts another fillip to register new intraday highs, at 169.70 for the former. However, Gilts are lagging below their Liffe peak (125.46) after the latest DMO auction came with a relatively lengthy tale and US Treasuries are also off best levels in advance of a packed pre-FOMC docket including ADP, final Markit services and composite PMIs and the non-manufacturing ISM. Also to come, plenty more from the ECB’s GC.

COMMODITIES

WTI and Brent front month futures are softer and in proximity to USD 82/bbl and USD 83/bbl respectively with losses today also potentially a function of the downbeat China COVID updates seen overnight. As a reminder, China's most recent COVID-19 outbreak is reportedly the most widespread since Wuhan with infection in 19 of 31 provinces, according to a major newswires article. It was also reported that around half the flights to and from Beijing city’s two airports were cancelled Tuesday, according to aviation industry data site VariFlight. Further, yesterday’s Private Inventory data was also bearish, printing a larger-than-expected build of 3.6mln bbl vs exp. +2.2mln, ahead of today’s DoEs which will take place 1hr earlier for those in Europe. Looking ahead to tomorrow’s OPEC+, markets expect a continuation of the current plan to ease output curbs by 400k BPD/m. Outside calls have been getting louder for the producers to open the taps more than planned amid inflationary feed-through to consumers and company margins, although ministers, including de-factor heads Saudi and Russia, have been putting weight behind current plans, with no pushback seen from members within OPEC+ thus far. Further, the COVID situation in China is deteriorating, hence ministers will likely express a cautious approach. Elsewhere, spot gold and silver are flat within overnight ranges, as is usually the case before FOMC. Base metals are staging a recovery with LME copper back above USD 9,500/t, whilst Chinese thermal coal futures rose some 10% following 10 days of declines

US Private Energy Inventories (bbls): Crude +3.6mln (exp. +2.2mln), Cushing -0.9mln, Gasoline -0.6mln (exp. -1.3mln), Distillate +0.6mln (exp. -1.4mln). (Newswires)

Peru community will suspend its blockade against Glencore (GLEN LN) and BHP's (BHP LN) Antamina copper mine on Wednesday. (Newswires)

GEOPOLITICAL

Iran claims US seized a tanker carrying Iran's oil in the Sea of Oman and transferred its oil to another tanker, subsequently Iran moved it back to their waters, journalist Khaasteh. (Twitter) Link to full report

Syrian Ministry of Defence announced that Israel conducted a missile attack on the outskirts of Damascus, although no casualties were reported so far. (Newswires)

Iran's top security official Shamkhani says if the US refuses to give guarantees on the nuclear deal, then the result of negotiations is clear. (Newswires)