• US stocks declined on Friday to post a weekly loss; APAC stocks were mostly subdued
• DXY was firmer amid the cautious mood in stocks, USD/JPY was choppy with Japan on holiday
• 10yr UST futures were slightly lower, crude oil gained, and crypto markets were under pressure
• US President Biden said US forces would defend Taiwan in the event of a Chinese invasion
• Looking ahead, highlights include UN General Assembly, speech from ECB’s de Guindos, UK Bank Holiday (Newsquawk desk will operate as usual)

19th September 2022

• Click here for the Week Ahead preview.

US TRADE

• US stocks declined on Friday to post a weekly loss across major US indices after Tuesday's reminder that inflation is still rife and resulting in the likelihood that the Fed will have to act more aggressively in the months ahead.
• SPX -0.72% at 3,873, NDX -0.55% at 11,861, DJIA -0.45% at 30,822, RUT -1.48% at 1,798.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US President Biden said they will get control of inflation and he is more optimistic than he has been in a long time. Biden also said it "remains to be seen" if he will seek a second term and said the COVID pandemic in the US is over, according to Reuters and AFP News Agency.
• Group of regulators appointed by US President Biden are mulling new rules for dealing with a crisis for large regional banks, according to WSJ.
• Hurricane Fiona made landfall in Puerto Rico which knocked out power and threatens to cause catastrophic flooding, according to AFP. Furthermore, NHC later announced that Fiona was moving just west of Puerto Rico and heading for the eastern Dominican Republic, according to NHC.

GEOPOLITICS

RUSSIA-UKRAINE

• US President Biden warned Russian President Putin against changing the face of the war by using tactical nuclear or chemical weapons in Ukraine, while he also stated that Ukraine is not losing the war and is making progress in some areas, according to an interview on CBS’s 60 Minutes. Furthermore, President Biden said he warned Chinese President Xi of an investment chill and that it would be a gigantic mistake if China violates sanctions on Russia but noted that there has been no indication that Beijing has provided weapons to Moscow for its invasion of Ukraine.
• US Joint Chief of Staff chairman General Milley said during a visit to a military base in Poland that it is still unclear how Russia will react to the battlefield setbacks in Ukraine and now is the time for increased vigilance and preparedness, according to Reuters.
• IAEA said one of the Zaporizhzhia nuclear power plant’s regular external power lines has been repaired and the plant is receiving electricity directly from the national grid, while it added that although there has not been any recent shelling at or near the plant, it continues to occur in the wider area, according to Reuters.

CHINA-TAIWAN

• US President Biden said US forces would defend Taiwan in the event of a Chinese invasion, according to Reuters.
• Taiwan said China continued its military activities around the island and that it detected 20 Chinese aircraft and 5 Chinese ships operating around Taiwan on Saturday, according to Reuters.

OTHER

• US Secretary of State Blinken spoke with Azerbaijani President Aliyev and urged him to adhere to the ceasefire, disengage military forces and work to resolve outstanding issues with Armenia, according to Reuters.
• US House Speaker Pelosi strongly condemned ‘illegal’ attacks by Azerbaijan on Armenia and said that the attacks must stop, while she added that US influence and leverage should be used to show Armenian sovereignty is a priority, according to Reuters.
• Azerbaijan called US House Speaker Pelosi’s comments about the Azeri-Armenian conflict “unsubstantiated and unfair”, while it added that such remarks do not serve to strengthen the fragile peace in the region and instead escalate tensions, according to Reuters.
• Russian President Putin held phone talks with Kyrgyz and Tajik leaders following the border conflict and Putin called on the sides to avoid escalation, as well as take measures to resolve the situation exclusively by peaceful means, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks were mostly subdued with the region lacking firm direction amid holiday-quietened conditions and with participants cautious ahead of this week’s slew of central bank policy decisions including from the FOMC, BoE and BoJ.
• ASX 200 was indecisive after gains in the mining industry were offset by underperformance in tech and defensives, with risk appetite also contained amid further calls for the RBA to hike by 50bps next month.
• Nikkei 225 was closed due to a domestic holiday.
• Hang Seng and Shanghai Comp declined with the Hong Kong benchmark pressured by losses in tech and pharmaceuticals, while the mainland was also subdued despite the cities of Chengdu and Dalian lifting lockdowns and the PBoC conducting 14-day reverse repos for the first time since January at a lower rate. Nonetheless, the injection was likely due to the upcoming National Day holidays and the rate cut was not much of a surprise after a similar cut in the 7-day reverse repo rate last month, while geopolitical concerns also lingered following comments from US President Biden that US forces would defend Taiwan in the event of a Chinese invasion.
• US equity futures remained lacklustre after Friday's losses and as participants brace for incoming rate hikes.
• European equity futures are indicative of a slightly higher open with the Euro Stoxx 50 future +0.3% after the cash market closed down by 1.2% on Friday.

FX

• DXY was firmer to start the week amid the cautious mood in stocks and as the focus remained on Wednesday’s FOMC where another 75bps hike is expected and where attention will also be on the latest dot plot projections.
• EUR/USD slightly softened and struggled to hold on to parity but with downside stemmed after comments from central bank officials in which ECB's Lane and Nagel continued to point to further rate hikes ahead.
• GBP/USD tested 1.1400 to the downside with price action subdued amid the holiday for the Queen’s Funeral.
• USD/JPY was choppy with Japanese participants also away due to Respect for the Aged Day.
• Antipodeans were lacklustre owing to the subdued risk tone, lack of data releases and with early upside in NZD/USD thwarted by resistance at the 0.6000 level.
• PBoC set USD/CNY mid-point at 6.9396 vs exp. 6.9488 (prev. 6.9305).

FIXED INCOME

• 10yr UST futures were slightly lower with positioning ahead of the FOMC offsetting the impulse from Friday’s softer University of Michigan Sentiment and Inflation surveys.
• Bund futures were contained with a floor at the 143.00 level and demand capped after hawkish ECB rhetoric.

COMMODITIES

• Crude gained but remained within Friday's ranges as participants digested the lifting of lockdowns in some Chinese cities and lingering growth concerns, while China's NDRC noted the foundation of the economic recovery is still weak.
• OPEC+ output in August fell 3.58mln bpd short of the quota, according to delegates cited by Argus.
• Iraq’s Basrah Oil Company said oil exports returned to normal after being halted on Friday due to a terminal spillage, according to Reuters.
• Kuwait produces more than 2.8mln bpd and has plans to increase oil output whenever the market needs it, while Kuwait currently produces 650mln cubic feet of gas per day and plans to raise it to 1bln cubic feet, according to Kuwaiti Petroleum Corporation’s CEO, cited by Reuters.
• Spot gold was subdued amid a firmer dollar and ahead of another widely anticipated 75bps Fed rate hike.
• Copper traded rangebound amid the cautious risk tone and ongoing economic slowdown concerns.
• Chinese copper tycoon He Jinbi’s Maike Metals International is reportedly suffering a liquidity crisis that threatens his empire which handles one of every four tons of copper imported into China, according to Bloomberg.

CRYPTO

• Bitcoin was pressured with prices beneath the 19,000 level and Ethereum briefly tested 1,300 to the downside.
• PBoC is working to promote the interconnection between the digital yuan and other electronic tools to enable payments via QR codes, according to Bitcoin Dynamic.

NOTABLE APAC HEADLINES

• PBoC injected CNY 2bln via 7-day reverse repos with rate kept at 2.00% and injected CNY 10bln via 14-day reverse repos with the rate cut to 2.15% (prev. 2.25%) in its first 14-day reverse repo operation since January.
• China’s Chengdu lifted the lockdown for the entire city and Dalian will also lift the citywide lockdown effective this Monday, according to Bloomberg.
• China NDRC is seeking to promote an acceleration of the recovery in domestic consumption and speed up the injection of funds to start project construction ASAP. NDRC said the foundation of the economic recovery is still weak despite positive changes in main economic indicators and that external environment for utilising foreign capital is increasingly complex and severe, while it added there remains some factors affecting foreign investment confidence.
• UBS cut its China 2022 GDP growth forecast to 2.7% from 3.0% due to a weak Q3 recovery, according to Bloomberg.
• China’s Global Times stated that economists urged US regulators to serve market fairness and not let their work be trained with political factors as they are about to begin reviewing audit files of Chinese companies.
• US tsunami warning system issued a tsunami threat in Taiwan on Sunday morning following a magnitude 7.2 earthquake.
• Japan’s weather agency issued a special typhoon warning for the Kagoshima prefecture in southern Japan on Saturday, according to Reuters. It was later reported that the typhoon made landfall and millions were told to evacuate homes, according to FT.

EU/UK

NOTABLE HEADLINES

• UK PM Truss will conduct a bilateral meeting with US President Biden at the UN General Assembly on Wednesday instead of meeting in Downing Street on Sunday, according to a statement cited by Reuters.
• UK PM Truss agreed with Irish PM Martin that an opportunity exists for the UK and the EU for a negotiated Brexit resolution to the Northern Ireland protocol, according to RTE.
• UK PM Truss’s chief of staff Fullbrook said he is cooperating with the FBI regarding an investigation into a Conservative Party donor charged with illegally providing campaign donations to a former Puerto Rico governor, although Fullbrook denied any wrongdoing, according to FT.
• ECB’s Lane said there will probably be several more rate hikes this year and early next year, while he noted signs that inflation will come down but not just yet and said that a recession cannot be ruled out, according to Reuters.
• ECB’s Nagel said the ECB are ‘a good way off’ from where rates should be and rates will need to rise a lot more to get inflation under control, although is confident that inflation rates will fall after a tough winter, according to Bloomberg.
• EU is set to withhold EUR 7.5bln of funding from Hungary due to rule of law violations regarding corruption in awarding public contracts, according to FT.