• Bourses in Europe have trimmed the gains seen at the open, albeit the region remains mostly in positive territory
• US equity futures vary, with the NQ (-0.3%) lagging as yields tick higher, whilst the RTY (+0.4%) outperforms
• In FX, the DXY eyes 93.500, EUR/USD fell below 1.1700 whilst USD/JPY inches closer to 111.00
• The German election results saw a narrow victory for the SPD, with the Greens and FDP set to play a key role in the coalition-building process
• EUR was relatively unfazed by the inconclusive German election outcome. Bunds were initially supported before following global peers
• House Speaker Pelosi opted to delay the bipartisan infrastructure vote from Monday to Thursday
• Looking ahead, highlights include US Durable Goods, ECB's Lagarde, Panetta, Fed's Evans, Williams, Brainard, BoE's Bailey, 2yr and 5yr US supply

GERMAN ELECTION

German election preliminary final result is SPD at 25.7%, CDU/CSU at 24.1%, Greens at 14.8%, FDP at 11.5%, AfD at 10.3% and Left at 4.9%, while the German Federal Returning Officer announced the seat distribution from the preliminary results which were SPD at 206 seats, CDU/CSU at 196. Greens at 118, FDP at 92, AfD at 83, Left at 39 and SSW at 1. As it stands, three potential coalitions are an option, 1) SPD, Greens and FDP (traffic light), 2) CDU/CSU, Greens and FDP (Jamaica), 3) SPD and CDU/CSU (Grand Coalition but led by the SPD). Note, option 3 is seen as the least likely outcome given that the CDU/CSU would be unlikely willing to play the role of a junior partner to the SPD. Therefore, given the importance of the FDP and Greens in forming a coalition for either the SPD or CDU/CSU, leaders of the FDP and Greens have suggested that they might hold their own discussions with each other first before holding talks with either of the two larger parties. Given the political calculus involved in trying to form a coalition, the process is expected to play out over several months. From a markets perspective, the tail risk of the Left party being involved in government has now been removed due to their poor performance and as such, Bunds trade on a firmer footing. Elsewhere, EUR is relatively unfazed due to the inconclusive nature of the result.

German SPD leader Scholz says he has won the election and has mandate to form a coalition with Greens and FDP. Scholz would like to form a coalition government with the Greens and FDP as soon as possible. (Newswires)

German SPD Secretary General Klingbeil said the SPD will not conduct talks with CDU/CSU, via TS24. (Twitter)

The detailed Newsquawk analysis piece is available here

CORONAVIRUS UPDATE

WHO is to restart its probe into the origins of the COVID-19 outbreak and will appoint a new team of experts with a mission to look for further evidence how the virus emerged in China. (The Times)

Australia's New South Wales Premier Berijiklian said she sees October 11th as start of the reopening roadmap and sees the final stage of reopening on December 1st, while New South Wales reported 787 new locally-transmitted COVID-19 cases. (Newswires)

Macau tightened COVID-19 restrictions ahead of the Golden Week celebrations with ferry services cancelled and outbound travellers will require a negative COVID-19 test result. (Newswires)

Japan is to lift State of Emergency in all regions at the end of the month, according to NHK. (Newswires)

ASIA

Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines but with gains capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger. ASX 200 (+0.6%) was led higher by outperformance in the mining related sectors including energy as oil prices continued to rally amid supply disruptions and views for a stronger recovery in demand with Goldman Sachs lifting its year-end Brent crude forecast from USD 80/bbl to USD 90/bbl. Furthermore, respectable gains in the largest weighted financial sector and details of the reopening roadmap for New South Wales, which state Premier Berijiklian sees beginning on October 11th, further added to the encouragement. Nikkei 225 (Unch) was kept afloat for most of the session after last week’s beneficial currency flows and amid reports that Japan is planning to lift emergency measures in all areas at month-end, although upside was limited ahead of the upcoming LDP leadership race which reports noted are likely to go to a run-off as neither of the two main candidates are likely to achieve a majority although a recent Kyodo poll has Kono nearly there at 47.4% of support vs. nearest contender Kishida at 22.4%. Hang Seng (+0.1%) and Shanghai Comp. (-0.8%) were varied with the mainland choppy amid several moving parts including back-to-back daily liquidity efforts by the PBoC since Sunday and with the recent release of Huawei’s CFO following a deal with US prosecutors. Conversely, Evergrande concerns persisted as Chinese cities reportedly seized its presales to block the potential misuse of funds and its EV unit suffered another double-digit percentage loss after scrapping plans for its STAR Market listing. There were also notable losses to casino names after Macau tightened COVID-19 restrictions ahead of the Golden Week holidays and crypto stocks were hit after China declared crypto activities illegal which resulted in losses to cryptoexchange Huobi which dropped more than 40% in early trade before nursing some of the losses, while there are also concerns of the impact from an ongoing energy crisis in China which prompted the Guangdong to ask people to turn off lights they don't require and use air conditioning less. Finally, 10yr JGBs were flat but have clawed back some of the after-hour losses on Friday with demand sapped overnight amid the mild gains in stocks and lack of BoJ purchases in the market. Elsewhere, T-note futures mildly rebounded off support at 132.00, while Bund futures outperformed the Treasury space amid mild reprieve from this month’s losses and with uncertainty of the composition for the next German coalition.

PBoC injected CNY 100bln via 14-day reverse repos on Sunday with the rate at 2.35% for a CNY 50bln net injection and injected CNY 100bln via 14-day reverse repos on Monday with the rate at 2.35% for a net daily injection of CNY 100bln. (Newswires)PBoC set USD/CNY mid-point at 6.4695 vs exp. 6.4696 (prev. 6.4599)

Chinese cities seized Evergrande (3333 HK) presales to block the potential misuse of funds and it was also reported that Evergrande New Energy Vehicle Group (708 HK) terminated plans of issuing CNY shares in the STAR Market of the Shanghai Stock Exchange. (Newswires/FT)

China's Banking and Insurance Regulator has issued a notice to mainland Chinese insurance firms regarding the issuance of disaster bonds in Hong Kong. (Newswires)

China's Guangdong has asked people to turn off lights they don't require and use air conditioning less as the energy crisis spreads from factories to homes. (Newswires) Multiple semiconductor suppliers for Tesla (TSLA), Apple (AAPL) and Intel (INTC), which have manufacturing plants in the Chinese mainland, recently announced they will suspend their factories' operations to follow local electricity use policies. (Global Times)

India and Taiwan are in talks on an agreement that could bring chip manufacturing to South Asia along with tariff reductions on components for producing semiconductors by year-end, sources state. (Economic Times)

US

US House Speaker Pelosi suggested she was confident that the USD 1tln bipartisan infrastructure bill will pass this week and said she will never bring a bill to the floor that doesn’t have sufficient votes, while she later announced that the House will vote on the bipartisan infrastructure bill on Thursday. Furthermore, Pelosi said she will build a consensus on President Biden’s USD 3.5tln social agenda although reportedly suggested that the final figure for the package could be less than USD 3.5tln. (Newswires/abcNEWS)

"Senate to take test vote today on bill to avert gov’t shutdown & suspend debt limit. Needs 60 yeas. GOPers expected to successfully filibuster", according to Fox's Pergram. (Twitter)

UK/EU

UK government is reportedly planning a temporary visa scheme for three months to make it easier for foreign lorry drivers to work in the UK. However, business leaders have warned that the UK government’s plan to issue 10,500 temporary visas to foreign lorry drivers and food industry workers to tackle labour shortages does not go far enough to fix Britain’s supply chain crisis. (BBC/FT)

European Commissioner for Financial Stability, Financial Services and the Capital Markets Union McGuinness stated that threats are not helpful and that Britain should pursue solutions as she thinks Article 16 is used in very extreme circumstances. (Newswires)

Bundesbank expects domestic inflation to peak between 4-5% by the end of the year and still expects inflation to remain above 2% above the middle of next year. (Newswires)

EQUITIES

Bourses in Europe have trimmed the gains seen at the open, albeit the region remains mostly in positive territory (Euro Stoxx 50 +0.4%; Stoxx 600 +0.2%) in the aftermath of the German election and amid the looming month-end. The week also sees several risk events, including the ECB's Sintra Forum, EZ CPI, US PCE and US ISM Manufacturing – not to mention the vote on the bipartisan US infrastructure bill. The mood in Europe contrasts the mixed handover from APAC, whilst US equity futures have also seen more divergence during European trade – with the yield-sensitive NQ (-0.3%) underperforming the cyclically-influenced RTY (+0.4%). There has been no clear catalyst behind the pullback since the Cash open. Delving deeper into Europe, the DAX 40 (+0.6%) outperforms after the tail risk of the Left party being involved in government has now been removed. The SMI (-0.6%) has dipped into the red as defensive sectors remain weak, with the Healthcare sector towards to bottom of the bunch alongside Personal & Household Goods. On the flip side, the strength in the price-driven Oil & Gas and yield-induced Banks have kept the FTSE 100 (+0.2%) in green, although the upside is capped by losses in AstraZeneca (-0.4%) and heavy-weight miners, with the latter a function of declining base metal prices. The continued retreat in global bonds has also hit the Tech sector – which resides as the laggard at the time of writing. In terms of individual movers, Rolls-Royce (+8.5%) trades at the top of the FTSE 100 after winning a USD 1.9bln deal from the US Air Force. IWG (+6.5%) also extended on earlier gains following reports that founder and CEO Dixon is said to be mulling a multibillion-pound break-up of the Co. that would involve splitting it into several distinct companies. Elsewhere, it is worth being cognizant of the current power situation in China as the energy crisis spreads, with Global Times also noting that multiple semiconductor suppliers for Tesla (Unch), Apple (-0.4% pre-market) and Intel (Unch), which have manufacturing plants in the Chinese mainland, recently announced they would suspend their factories' operations to follow local electricity use policies.

Polestar has confirmed intentions to go public via a SPAC deal with Gores Guggenheim (GGPI) in a USD 20bln deal. (Newswires)

Tesla (TSLA) CEO Must says the this week will be the "most intense delivery week ever", according to Electrek. (Electrek)

FX

AUD/CAD - The Aussie is holding up relatively well on a couple of supportive factors, including a recovery in commodity prices overnight and the Premier of NSW setting out a timetable to start lifting COVID lockdown and restrictions from October 11 with an end date to completely re-open on December 1. However, Aud/Usd is off best levels against a generally firm Greenback on weakness and underperformance elsewhere having stalled around 0.7290, while the Loonie has also run out of momentum 10 pips or so from 1.2600 alongside WTI above Usd 75/brl.

DXY/EUR/CHF - Although the risk backdrop is broadly buoyant and not especially supportive, the Buck is gleaning traction and making gains at the expense of others, like the Euro that is gradually weakening in wake of Sunday’s German election that culminated in narrow victory for the SPD Party over the CDU/CSU alliance, but reliant on the Greens and FDP to form a Government. Eur/Usd has lost 1.1700+ status and is holding a fraction above recent lows in the form of a double bottom at 1.1684, but the Eur/Gbp cross is looking even weaker having breached several technical levels like the 100, 21 and 50 DMAs on the way down through 0.8530. Conversely, Eur/Chf remains firm around 1.0850, and largely due to extended declines in the Franc following last week’s dovish SNB policy review rather than clear signs of intervention via the latest weekly Swiss sight deposit balances. Indeed, Usd/Chf is now approaching 0.9300 again and helping to lift the Dollar index back up towards post-FOMC peaks within a 93.494-206 range in advance of US durable goods data, several Fed speakers, the Dallas Fed manufacturing business index and a double dose of T-note supply (Usd 60 bn 2 year and Usd 61 bn 5 year offerings).

GBP/NZD/JPY - As noted above, the Pound is benefiting from Eur/Gbp tailwinds, but also strength in Brent to offset potential upset due to the UK’s energy supply issues, so Cable is also bucking the broad trend and probing 1.3700. However, the Kiwi is clinging to 0.7000 in the face of Aud/Nzd headwinds that are building on a break of 1.0350, while the Yen is striving keep its head afloat of another round number at 111.00 as bond yields rebound and curves resteepen.

SCANDI/EM - The Nok is also knocking on a new big figure, but to the upside vs the Eur at 10.0000 following the hawkish Norges Bank hike, while the Cnh and Cny are holding up well compared to fellow EM currencies with loads of liquidity from the PBoC and some underlying support amidst the ongoing mission to crackdown on speculators in the crypto and commodity space.

FIXED INCOME

The early rebound in Bunds appeared to be quite compelling, but ultimately unsustainable as Gilts and US Treasuries topped out before succumbing to another bout of relatively pronounced selling that saw the respective 10 year debt futures give up whole numbers at 127.00 and 132-00 respectively on the way down to deeper 125.80 and 131-24 lows. As a result, the corresponding yields are back within string distance of psychological levels, at 1% and 1.5%, while the core Eurozone bond has also lost 170.00+ status to trade at 169.94 and expose the next bearish support at 169.81. So, no sign of any duration needs or demand for Thursday when the end of the month aligns with the final session of the quarter and half fiscal year as yet. More immediately, US durable goods loom, auctions and a packed agenda in terms of global Central Bank speakers.

COMMODITIES

WTI and Brent front-month futures kicked the week off on a firmer footing, which saw Brent Nov eclipse the USD 79.50/bbl level (vs low 78.21/bbl) whilst its WTI counterpart hovers north of USD 75/bbl (vs low 74.16/bbl). The complex could be feeling some tailwinds from the supply crunch in Britain – which has lead petrol stations to run dry as demand outpaces the supply. Aside from that, the landscape is little changed in the run-up to the OPEC+ meeting next Monday, whereby ministers are expected to continue the planned output hikes of 400k BPD/m. On that note, there have been reports that some African nations are struggling to pump more oil amid delayed maintenance and low investments, with Angola and Nigeria said to average almost 300k BPD below their quota. On the Iranian front, IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with the exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility, with no real updates present regarding the nuclear deal talks. In terms of bank commentary, Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. Conversely, Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and nat gas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Over to metals, spot gold and silver have fallen victim to the firmer Dollar, with spot gold giving up its overnight gains and meandering around USD 1,750/oz (vs high 1760/oz) while spot silver briefly dipped under USD 22.50/oz (vs high 22.73/oz). Turning to base metals, China announced another round of copper, zinc and aluminium sales from state reserves – with amounts matching the prior sales. LME copper remains within a tight range, but LME tin is the outlier as it gave up the USD 35k mark earlier in the session. Finally, the electricity crunch in China has seen thermal coal prices gain impetus amid tight domestic supply, reduced imports and increased demand.

UK ministers suspended competition laws to permit fuel suppliers to talk to each other to allow information sharing and target petrol stations running dry, while Business Minister Kwarteng stated that this step will allow the government to work constructively with fuel producers, suppliers, hauliers and retailers to minimise disruptions. It was also reported that UK PM Johnson is to consider using the British Army to deliver fuel to petrol stations and Transport Minister Schapps stated that there would not be queues nor shortages if people behaved normally when buying petrol. Furthermore, fuel industry representatives said they want to reassure the public that issues were due to temporary spikes in customer demand and not a national shortage of fuel, while a BP (BP/ LN) spokesperson stated that around 30% if its sites in the UK network are without either main grade of fuel and UK's largest energy retailers had warned suppliers could refuse to absorb the customers of failed rivals without government support. (Newswires/Times/Guardian/FT) UK Petrol Retailers Association head notes that some are reporting 50-90% of petrol stations running out of fuel in some areas. (Newswires)

Many OPEC+ officials note that the planned easing of cuts will likely continue at the October 4th meeting. (Twitter)

ADNOC Drilling IPO receives USD 34bln in orders and coverage 31 times. (Newswires)

Russia’s Kremlin said Gazprom is ready to boost gas sales to Europe. (Interfax)

Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. (Newswires)

Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and natgas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Furthermore, Citi stated that it sees gold prices averaging USD 1,778/oz this year and copper prices averaging USD 9,165/ton this year. (Newswires)

Hess (HES) sees oil demand to reach 100mln bpd at year-end or Q1 2022, while it sees demand to reach 101mln or 102mln bpd next year, while Vitol's CEO said global oil demand is still 4mln bpd behind 2019 levels although noted that the global gas market is set for a reasonably bullish five-year outlook. (Newswires)

UK's second largest oil refinery, the 296k BPD Stanlow refinery, is in talks with tax officials over a deferred tax bill, with reports also stating that it could be on the brink of collapse. (Guardian)

GEOPOLITICAL

US Justice Department reached a deal to allow Huawei CFO Meng to return to China and the US confirmed it reached a resolution of charges against Huawei's CFO Meng Wanzhou, while the prosecutor said Huawei CFO is to be released on a personal recognisance bond and that the US plans to withdraw its request to Canada for her extradition. Furthermore, US said Huawei CFO Meng admitted she made material misrepresentations about Huawei's Iran operations to a senior bank executive to preserve Huawei's banking relationship and the US said it continues to prepare for trial against Huawei, as well as looks forward to proving its case in court. It was also confirmed that the two Canadians imprisoned by China were released. (Newswires)

IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility and that the decision not to grant access to the latter is contrary to the terms of their joint statement issued earlier this month. Furthermore, the IAEA said all activities mentioned in their joint venture for all identified equipment and facilities are indispensable to maintain continuity of knowledge, although the Iran envoy dismissed IAEA report regarding surveillance cameras at the Tesa Karaj facility as inaccurate. (Newswires) US told the IAEA board that if Iran fails to grant IAEA access, US will closely be consulting with other members on the appropriate response. (Newswires)

North Korean government said they could consider an intra-Korea summit if mutual respect can be assured. There were also comments from the South Korean Unification Minister that they hope to be able to communicate with North Korea via the hotline and suggested they need to have smooth and stable communication. In relevant news, South Korea and US begin there two days of biannual defense talks this Monday amid conciliatory signals from North Korea. (Newswires/Yonhap)

Turkish President Erdogan suggested that Turkey is still considering purchasing a second batch of Russian S-400 defence missile systems and noted that US President Biden never raised the topic of Turkey’s human rights track record with him. (Newswires)

Chinese military notes that a British warship sailing through Taiwanese Strait showed behaviour that "harboured evil intentions"; Chinese military followed and warned the British warship that sailed through the Strait. (Newswires)

China and EU top envoys are to hold high level talks tomorrow. (Newswires)

Kremlin notes the potential expansion of NATO infrastructure in Ukraine crosses a red line for Russian President Putin. (Newswires)