• APAC stocks were mostly higher in which the majority of indices shrugged off the negative lead from Wall St (-1.02%).
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.5% after the cash market closed down 0.2% yesterday.
• DXY pulled back from recent highs, Cable has recovered to a 1.07 handle, NZD leads FX majors.
• BoE said it is monitoring developments in financial markets very closely and it will not hesitate to change rates as much as necessary.
• Looking ahead, highlights include EZ M3, US Durable Goods, Consumer Confidence & New Home Sales, Speeches from Fed's Powell, Bullard, Evans & Kashkari, ECB's Lagarde, de Guindos, & Panetta, BoE's Pill, Supply from Netherlands, Italy, UK, Germany & US.

US TRADE

• US stocks extended their declines albeit with the selling not as pronounced as Friday, with further fallout from the UK's fiscal plans that saw Cable flash crash to new all-time lows. The BoE later released a statement noting they are monitoring developments in financial markets very closely and will not hesitate to change rates as much as necessary, while treasuries suffered another major sell-off, led by the belly with cash 10yr yield up 20bps, again, as UK yields made new peaks and angst sustained ahead of US Treasury supply in a volatility-ridden market.
• SPX -1.02% at 3,655, NDX -0.51% at 11,254, DJIA -1.11% at 29,260, RUT -1.41% at 1,656.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Mester (2022, 2024 voter) said further rate hikes will be needed and will need a restrictive stance for some time, while she added it can be better to act more aggressively in an uncertain environment and that pre-emptive action can prevent the worst-case outcome. Mester said this is the time to be decisive and the Fed policy rate may be right below the restrictive level, as well as noted that they are not at neutral yet and need to get above that. Furthermore, Mester said rates are not coming down next year and that at some point they would have done enough and it will be a case of balancing risk at some point, but this is not that moment, according to Reuters.
• Fed's Logan (2023 voter) said inflation is way too high and they are focused on reducing it to the 2% goal, according to Bloomberg.
• Fed's Bostic (2024 voter) said investor reaction to the UK fiscal plan is due to increasing uncertainty and the proposal has increased uncertainty and raised questions about the direction of the economy. Bostic also stated that there will be more volatility in financial markets until inflation is under control and that the Fed has not fully pulled the reins on the economy, according to Reuters.
• US CBO estimated the cost of outstanding student loans to the federal government will increase by roughly USD 400bln because of executive action cancelling some debt, according to Reuters.
• US Senate panel releases spending bill to avert a government shutdown which includes Manchin's plan to speed energy permits and would fund the government until December 16th, according to NYTimes's Cochrane
• US HHS Secretary declared a public health emergency for Florida in response to Hurricane Ian, while the NHC said Hurricane Ian continues to quickly intensify and conditions in western Cuba were to deteriorate with significant wind and storm surge impact expected.

APAC TRADE

EQUITIES

• APAC stocks were mostly higher in which the majority of indices shrugged off the negative lead from Wall St as the overhang from the recent FX turmoil dissipated but with the recovery somewhat contained by the higher yield environment.
• ASX 200 eked slight gains led by the commodity-related sectors as they atoned for yesterday’s underperformance.
• Nikkei 225 gained after recent comments from BoJ Governor Kuroda who reaffirmed his commitment to maintaining easy monetary policy, while the central bank also announced unscheduled purchase operations.
• Hang Seng and Shanghai Comp were mixed with the mainland underpinned amid reports that China is to ramp up financial support for new types of infrastructure, while the PBoC conducted its largest cash injection in seven months ahead of next week’s National Day holiday. However, growth concerns lingered with the World Bank forecasting China’s economic growth to lag behind the rest of Asia for the first time since 1990.
• US equity futures (e-mini S&P +0.7%) were in recovery mode after the S&P 500 closed at its lowest level since late 2020 and the DJIA dipped into a bear market.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.5% after the cash market closed down 0.2% yesterday.

FX

• DXY eased from the prior day’s highs to beneath the 114.00 level to provide some reprieve for its major peers.
• EUR/USD recouped some of the losses which coincided with the turmoil in GBP and weak German IFO data.
• GBP/USD strengthened overnight and continued to pick itself up from the recent flash crash to record lows.
• USD/JPY was rangebound but held on to most of Monday’s advances owing to widened yield differentials.
• Antipodeans were firmer with NZD/USD leading the advances across the Tasman following recent comments from RBNZ Governor Orr who noted New Zealand's tightening cycle is very mature and that there is still a little bit more to do in terms of tightening.
• PBoC set USD/CNY mid-point at 7.0722 vs exp. 7.0410 (prev. 7.0298).
• SNB's Maechler said raising interest rates was intended to send a clear signal that the SNB is determined to bring down inflation and the SNB is acting now to make sure inflation does not become entrenched, while they see a weakening in the Swiss economy but no recession. Maechler added the SNB is ready to buy foreign currencies if the CHF is too strong and buy CHF if the currency is too weak, while a set level for the exchange rate is not important and it is the impact that the exchange rate has on inflation.

FIXED INCOME

• 10yr UST futures were off the prior day’s after bouncing off support at the 111.00 level although the recovery was contained with yields steady overnight and after the slew of hawkish Fed rhetoric including from Fed’s Mester who said further rate hikes will be needed and a restrictive stance is required for some time.
• Bund futures remained subdued around 138.00 as recent commentary from ECB officials alluded to the risks of a de-anchoring of inflation expectations.
• 10yr JGB futures traded lower with the 10yr JGB yield at the BoJ's cap and as the 20yr yield rose above 1.00% for the first time since 2015, while the BoJ’s unscheduled purchases in 5yr-25yr maturities did little to support prices and results of the 40yr auction were also weaker than previous.

COMMODITIES

• Crude nursed some of the prior day's declines but upside limited with the outlook dampened by lingering global growth concerns.
• Iraq's oil minister said they don't want a sharp increase in oil prices and want balance in oil markets, according to Reuters.
• At least 12 countries have signed a letter which calls on the EU to propose a gas price cap at this week's Energy Ministers meeting via Politico citing a letter; proposals will be discussed on Friday, September 30th
• US President Biden said companies running gas stations need to bring down gasoline prices at the pump now, according to Reuters.
• Nord Stream AG operator said pressure dropped on two branches of the Nord Stream 1 pipeline and it is looking into the cause of the decline in pressure, while the German network regulator later stated that it did not know the cause of the Nord Stream 1 pressure drop but didn't see any impact on the security of supply, according to Reuters.
• BP (BP/ LN) halted production and evacuated staff at two offshore oil platforms in the US Gulf of Mexico ahead of Hurricane Ian.
• Intercontinental Exchange is reportedly planning to accept allowances generated by the carbon market as collateral in its European futures market to ease the pressure on utilities and traders amid the energy crisis, according to FT.
• Spot gold traded marginally higher on the back of a softer dollar.
• Copper was rangebound but was kept afloat amid the improved risk sentiment.

GEOPOLITICS

RUSSIA-UKRAINE

• US Congress negotiators on the spending bill agreed to about USD 12bln in new aid to Ukraine, according to a source familiar with talks cited by Reuters.

OTHER

• US State Department Spokesman Price said the US does not see an Iran deal coming together soon.

CRYPTO

• Bitcoin strengthened overnight and reclaimed the 20,000 level.

ASIA

NOTABLE APAC HEADLINES

• PBoC injected CNY 113bln via 7-day reverse repos with the rate kept at 2.00% and injected CNY 62bln via 14-day reverse repos with the rate kept at 2.15% for a CNY 173bln net injection.
• Some Chinese fund managers and brokers were called by regulators to help stabilise the stock market ahead of the 20th party congress and regulators asked institutions to avoid trading activities that could cause large fluctuations, according to sources cited by Reuters.
• China’s growth will lag behind the rest of Asia for the first time since 1990, according to FT citing forecasts by the World Bank.
• World Bank lowered its East Asia and Pacific region 2022 growth forecast to 3.2% from 5.0% and sees 2023 growth at 4.6%, while it sees China's economy to expand 2.8% this year and 4.5% next year, according to Reuters.

DATA RECAP

• Chinese Industrial profit YTD (Aug) -2.1% (Prev. -1.1%)
• Japanese Services PPI YY (Aug) 1.9% (Prev. 2.1%)

EU/UK

NOTABLE HEADLINES

• BoE said it is monitoring developments in financial markets very closely in light of the significant repricing of financial assets and it will not hesitate to change rates as much as necessary.
• UK opposition Labour Party surged to its largest poll lead over the Conservatives in more than two decades with a YouGov poll showing a 17-point lead against the Tories, according to The Times.
• ECB's Nagel said decisive ECB rate hikes are required as the risk is high that inflation expectations get de-anchored, according to Reuters.
• ECB's de Cos said Q3 Eurozone data points to a sharp economic downturn slowdown and ECB is to stay extremely vigilant of inflation expectation, while he added the ECB needs to be vigilant over possible de-anchoring, according to Bloomberg.