Original insights into market moving news

[PODCAST] European Open Rundown 7th October 2021

  • Asia-Pac stocks traded in the green; Hang Seng outperformed while Mainland China observed the last day of Golden Week
  • In FX, the DXY was steady above 94.00, EUR/USD hovered around 1.1550, Antipodeans outperformed
  • US and China have an agreement in principle for a Biden-Xi virtual meeting before the end of the year
  • US Senate Minority Leader McConnell offered a short-term debt ceiling extension to December
  • ECB is to study a new bond-buying plan for when PEPP ends; no decision has been made
  • US mulls releasing emergency oil reserves from the SPR to tame fuel price rises and does not rule out a ban on crude oil exports
  • Looking head, highlights include US Initial Jobless Claims, ECB Minutes, ECB's Lane, Schnabel & Elderson, Fed's Mester, supply from Spain and France


NIH's Fauci said the FDA is examining data on mixing and matching booster shots. (Newswires)

White House COVID-19 Coordinator Zients said the US is making an additional USD 1bln investment in testing and are to buy a further 180mln tests, while the US will have a supply of 200mln tests per month by December. (Newswires)

US looks likely to delay reopening to British travellers and a source suggested that a line will be crossed if this is not sorted by Thanksgiving on November 25th. (The Telegraph)

Australia's New South Wales state Premier Perrottet said they will start relaxing restrictions on October 11th. (Newswires)


Asia-Pac stocks traded positively as the region took impetus from the mostly positive close in the US where the major indices spent the prior session clawing back opening losses, with sentiment supported amid a potential Biden-Xi virtual meeting this year, and hopes of a compromise on the debt ceiling after Senate Republican Leader McConnell offered a short-term debt limit extension to December. The ASX 200 (+0.7%) was led higher by strength in the tech sector and with risk appetite also helped by the announcement to begin easing restrictions in New South Wales from next Monday. The Nikkei 225 (+0.5%) attempted to reclaim the 28k level with advances spearheaded by tech and amid reports Tokyo is to lower its virus warning from the current top level. The Hang Seng (+2.1%) was the biggest gainer owing to strength in tech and property stocks, with Evergrande shareholder Chinese Estates surging in Hong Kong after a proposal from Solar Bright to take it private. Reports also noted that the US and China reportedly reached an agreement in principle for a Biden-Xi virtual meeting before year-end and with yesterday’s talks in Zurich between senior officials said to be more meaningful and constructive than other recent exchanges. Finally, 10yr JGBs retraced some of the prior day’s after-hours rebound with haven demand hampered by the upside in stocks and after the recent choppy mood in T-notes, while the latest enhanced liquidity auction for longer-dated JGBs resulted in a weaker bid-to-cover.

US and China have an agreement in principle for a Biden-Xi virtual meeting before the end of the year, while the recent conversation between US National Security Adviser Sullivan and China’s top diplomat Yang was said to be more meaningful and constructive than other recent exchanges, according to a senior US administration official. The official noted that Sullivan made it clear the US would oppose any unilateral actions to change the status quo regarding Taiwan and that Sullivan brought up human rights, Xinjiang, Hong Kong, the South China Sea and Taiwan in the talks, whereby the exchanges on Taiwan were professional and respectful. It was noted that ‘intense diplomacy' is required to properly manage US-China competition and that discussions in Zurich were direct, wide-ranging and with a different tone than Alaska talks. Furthermore, China opposed defining China-US ties as 'competition' and Yang urged for the US to take a rational policy on China, while it was also reported that China and US agreed to properly manage differences and avoid conflict. (Newswires/Xinhua)

Chinese President Xi will speak on Taiwan policy in a speech on Saturday and will restate China's desire for peaceful unification, as well as steadfast opposition to external interference regarding Taiwan, according to people familiar with the matter. (Newswires)

US Secretary of State Blinken said the US' commitment to Taiwan is "rock solid" and they are concerned by China's provocative military activity near Taiwan which has the potential to undermine regional peace and stability. (Newswires)

US Senator Rubio reportedly pressed the SEC for more information on China investments, while reports also noted SEC Chair Gensler said ESG and diversity should also be applied to Chinese businesses. (Newswires)


ECB is said to study a new bond buying plan for when PEPP ends whereby it would not be tied to capital key, although reports added the ECB has not taken a decision on new bond-buying plan and the new programme would complement the older asset purchase plan. (Newswires)

German SPD's Scholz is reportedly eyeing a narrow path to a 'traffic light' coalition with Greens and FDP with talks set to begin today. (FT)

French Foreign Minister Le Drian said President Macron and US President Biden are to hold another discussion on AUKUS in mid-October. (Newswires)


In FX, the DXY was steady and held onto the 94.00 status after the prior day’s mild strength. Default concerns eased on hopes of Congress moving towards a compromise after Senate Minority Leader McConnell offered a short-term debt ceiling extension to December, which is essentially kicking the can down the road. EUR/USD was uninspired with the single currency stuck around 1.1550 following the recent disappointing data. It was also reported that the ECB is to study a new bond-buying plan for when PEPP ends, while GBP/USD was uneventful amid the absence of fresh catalysts for the pair which was also contended with resistance at 1.3600. USD/JPY lacked firm commitment with participants wary in the early stages of the new government which is to consider the first panel meeting regarding Kishida’s ‘new capitalism’ concept this month and following the recent reference to redistribution by PM Kishida earlier in the week. Antipodeans were kept afloat amid the constructive mood with AUD outperforming its trans-Tasman peer after AUD/NZD extended above 1.0500 despite the recent RBA-RBNZ policy divergence.


Energy underperformed overnight after Russian President Putin weighed in on the energy crisis in which he said Russia is ready to stabilise global energy markets and that Gazprom gas supplies to Europe may reach new highs with increased exports to Europe beyond contracted volumes. Nat gas futures languished near the prior day’s lows. Furthermore, it was reported that the US is considering releasing oil from the SPR to tame fuel prices and is not ruling out a ban on crude exports. This added to the headwinds for WTI crude which declined beneath the USD 77.00/bbl level. Gold prices were rangebound owing to the steady dollar and with participants awaiting tomorrow's NFP data, while copper was underpinned by the improved risk appetite.

OPEC+ decision against a larger supply hike at Monday's meeting was partly driven by concern that demand and prices could weaken, according to sources. It was also noted that another reason was money after seeing income slide during COVID and a price collapse in 2020, while Russia and Saudi Arabia, especially, are enjoying the rise in revenues. Furthermore, another OPEC+ source suggested no one wants to make any big moves amid fears of the fourth wave of the virus. (Newswires)

US mulls releasing emergency oil reserves from the SPR to tame fuel price rises and does not rule out a ban on crude oil exports which Energy Secretary Granholm noted was also tool although they have not used it, while they are looking into accusations of market manipulation by Russia for surging gas prices in Europe and Asia. (Newswires)

Russian Deputy PM Novak said an increase in US LNG exports to LatAm created shortages of gas in Europe among other factors and that current gas prices do not reflect fundamentals. Novak also stated the gas market should be stabilised as soon as possible and the certification of Nord Stream 2 may cool off gas prices, while he added that Russia has to fill its own gas storages. (Newswires)


US Secretary of State Blinken said US and Russia share an interest in seeing a mutual return to compliance with Iran nuclear deal, according to a call with Russia's Lavrov. (Newswires)


Treasuries bull-flattened amid energy prices consolidating from peaks and traders seeking havens amid debt limit uncertainty. By settlement, 2s +0.8bps at 0.296%, 3s +1.4bps at 0.536%, 5s +0.7bps at 0.985%, 7s +0.0bps at 1.315%, 10s -0.9bps at 1.522%, 20s -2.4bps at 2.019%, 30s -2.5bps at 2.075%, TYZ1 volumes were average. Inflation breakevens fell across the curve; 5yr TIPS +2.9bps at -1.676%, 10yr TIPS +0.2bps at -0.914%, 30yr TIPS -1.3bps at -0.241%. Eurodollars were mixed, with ED Z2, Z3, and Z4 down 2bps, 1.5bps, and 1bp, respectively, while Z5 +1bp. SOFR and EFFR both unchanged at 5bps and 8bps, respectively. A choppy open for stocks in Europe saw a haven bid emerge for govvies, taking them off their lows, although the moves were only a few ticks, with upside limited due to the continued surge in energy prices bombarding the newsflow. However, bidding gained traction at the NY handover as the surge in gas prices began to reverse, aided by ICE trade limits, and more crucially, Putin suggesting Russia would increase its contracted supply to Europe. Bonds saw no selling as the ADP print came in above expectations ahead of Friday, with analysts citing the lack of reliability on the ADP print as an NFP proxy, in addition to Fed policy taper being on autopilot despite a strong/weak jobs report. Instead, the further decline in energy prices through the session saw extended gains for duration (lower inflation breakevens), aided by some block buys out the futures curve. T-Notes reversed all their losses to hit session peaks of 131-27 as the NY cash equity open. A recovery off the lows in NY for stocks saw the consolidation for Treasuries capped. In pre-settlement trade, there was downside in duration after McConnell proposed a short-term raising of the debt ceiling until December, although the move pared somewhat after a frosty reception from Dems as they mull the proposal. Similarly, at the front-end, 1m bill yields have fallen from earlier Wednesday highs of 14bps to below 5bps, despite the later hesitancy from Democrats on the proposal. T-note (Z1) settled 5 ticks lower at 131-23.

US Democratic progressives are ramping up pressure to deny Fed Chair Powell a second term, because they say it is key to Fed monetizing massive spending plans and winning midterms, according to FBN’s Gasparino. (Twitter)

US Senate Minority Leader McConnell told a closed meeting of Senate Republicans that he would offer a short-term debt ceiling extension or offer Schumer an expedited reconciliation process, while he later said that he will ask Democrats to use normal procedures to pass an emergency debt limit extension into December and that bipartisan talks are possible if Democrats quit spending. Furthermore, McConnell reportedly "told his colleagues he’s concerned about pressure on Manchin and Sinema to gut filibuster in order to raise debt ceiling", which is why he pushed for a short-term debt limit raise to support reconciliation, according to CNN's Raju. (Newswires/Punchbowl/CNN/Twitter)

US Democrat Senator Hirono said there is no pressure to accept McConnell's debt offer and reportedly swiftly rejected it, while Democrat Senator Murphy said he is obviously willing to listen to any new ideas but added that just pushing the crisis off for a couple of months sounds like a disaster and an invitation to get downgraded, while Democrat Senator Durbin commented 'We'll see' and that the Democrats are going to discuss McConnell's offer on the debt limit. However, CNN's Raju tweeted that Democrats will agree to raise the debt limit until December although still oppose using reconciliation and will use the time to figure out what to do in the interim, while Axios also noted that Democrats seem to be leaning towards accepting McConnell's deal, citing conversations with senior leadership aides. (Newswires/CNN/Axios/Twitter)

US Democrat Senator Manchin said his number for the economic agenda remains USD 1.5trln. There were also separate reports that Democrats in congress want a west coast offshore drilling ban in President Biden's reconciliation plan. (Newswires)

US President Biden's administration is reportedly debating the fate of IMF chief Georgieva as the board evaluates actions, while it was earlier reported that IMF Chief Georgieva rejected the conclusion of the WilmerHale Report that she pressured World Bank staff to manipulate data to benefit China and said she did not participate in any technical discussions related to China's ranking. (Newswires)