• Marginally positive European equity open fizzled out as we await fresh catalysts pre-NFP but oil remains upbeat
• DXY remains above 94.00 but has come under modest pressure though safe-havens continue to lag and core debt remains downbeat
• Mainland China was bolstered on its return from Golden week; China's Caixin Services PMI topped forecasts
• US Senate voted 50-48 to pass the debt limit bill which sends it to the House, while House Majority Leader Hoyer later said they will convene on October 12th to address the bill
• European Commission will publish its proposals on easing the implementation of the Northern Ireland Protocol next Wednesday
• Looking ahead highlights include the US and Canadian labour market reports, ECB's Panetta & BoE's Tenreyro

CORONAVIRUS UPDATE

Japan's Health Ministry finalised a deal with Pfizer (PFE) for 120mln additional COVID-19 vaccines from January 2022. (Newswires)

ASIA

Asia-Pac stocks traded mostly higher as the region conformed to the global upbeat mood after the agreement in Washington to raise the debt ceiling which the Senate approved, with the overnight bourses also invigorated by the return of China and strong Caixin PMI data. The ASX 200 (+0.9%) was led higher by strength in mining names with underlying commodity prices boosted as Chinese buyers flocked back to market which helped the ASX disregard a record increase in daily COVID-19 cases in Victoria state. Nikkei 225 (+1.3%) was the biggest gainer and reclaimed the 28k level as exporters benefitted from a softer currency, while attention turns to PM Kishida who will outline his policy program today and is reportedly planning to present an additional budget after the election. Furthermore, there were recent comments from an ally of the new PM who suggested that capital gains tax could be raised to 25% from the current 20% without affecting stock prices, although this failed to dent the mood in Tokyo and weaker than expected Household Spending was also brushed aside. The gains for the KOSPI (-0.1%) were later reversed alongside the tentative price action in index heavyweight Samsung Electronics after its Q3 prelim. results showed oper. profit likely rose to its highest in three years but missed analysts’ forecasts. Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were mixed with the latter jubilant on reopen from the Golden Week holiday after improved Caixin Services and Composite PMI data which both returned to expansionary territory. This helped mainland stocks overlook the recent developer default fears and largest daily liquidity drain by the PBoC since October last year, although Hong Kong initially lagged amid heavy Northbound Stock Connect trade. Finally, 10yr JGBs declined on spillover selling from T-notes and with havens shunned amid the gains across riskier assets, although downside in JGBs was limited given the BoJ’s presence in the market for nearly JPY 1.5tln of JGBs with up to 10yr maturities.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 330bln net drain. (Newswires) PBoC set USD/CNY mid-point at 6.4604 vs exp. 6.4617 (prev. 6.4854)

Chinese Caixin Services PMI (Sep) 53.4 vs. Exp. 50.7 (Prev. 46.7); Caixin Composite PMI (Sep) 51.4 (Prev. 47.2)

• Japanese All Household Spending MM (Aug) -3.9% vs. Exp. -2.0% (Prev. -0.9%); YY (Aug) -3.0% vs. Exp. -1.5% (Prev. 0.7%)

US should fully recognize the high sensitivity of the Taiwan question, abide by the one-China principle, and stop arms sales to Taiwan island and military contact with it so as not to seriously damage China-US relations, Global Times citing Foreign Min. (Newswires)

Japanese Finance Minister Suzuki wants to pass the extra budget by year-end. (Newswires)

US

US Senate voted 61-38 to clear the first procedural hurdle on the debt limit bill and then voted 50-48 to pass the debt limit bill which sends it to the House, while House Majority Leader Hoyer later stated that the House will convene on October 12th to address the debt limit bill. (Newswires)

White House said US President Biden looks forward to signing debt limit legislation once it is passed by Congress and there were also comments from US Treasury Secretary Yellen that she exhaled a sigh of relief over the debt-limit deal, while she stated that having a debt ceiling is becoming increasingly damaging to the US and noted that there is still a lot of work to be done on debt ceiling before December 3rd. (Newswires)

UK/EU

France European Affairs Minister says yesterday's decision out of Poland marked an attack on EU, Polish Court ruling could impact EU recovery plans for Poland. (Newswires) Follows on from Poland's constitutional tribunal ruling that parts of EU law are not compatible with the Polish constitution; in response

European Commission will publish its proposals on easing the implementation of the Northern Ireland Protocol next Wednesday; sources familiar with the measures say they will be “more far-reaching” than people expect. One source said the proposals will be “difficult” for the UK to dismiss, via RTE's Connolly. (Twitter)

France European Affairs minister to visit Hungary next week, warns there could be financial and legal sanctions for Hungary. (Newswires)

UK Transport Minister says there is no set date when US will open for Britons. (Newswires)

CENTRAL BANK

PBoC Vice Governor said they will improve market-based interest rate formation and transmission mechanism, while they will improve interest rate corridor mechanism, deepen Loan Prime Rate reforms and will gradually make deposit rates market driven. (Newswires)

RBI kept the Repurchase Rate and Reverse Repo Rate unchanged as expected at 4.00% and 3.35% respectively, while it also maintained its accommodative stance. RBI Governor Das stated the economy is gaining traction with the second wave of the virus behind them and vaccinations picking up, as well as noted that India is in a much better place today than at the last meeting. Furthermore, he stated the economy has gained momentum helped by various factors in H2 of FY22 but added that output remain below pre-pandemic levels and although overall aggregate demand is improving, there is still some slack remaining. (Newswires)

RBA Financial Stability Review stated that risks to financial stability from borrower payment difficulties have generally eased but remain, while output is expected to rebound as the economy gradually opens which reduces risks to the financial system. (Newswires)

EQUITIES

An initially contained to marginally-firmer European cash open followed an upbeat APAC handover (ex-Hang Seng) was short-lived with bourses coming under moderate pressure; Euro Stoxx 600 -0.3%. As such, major indices are all in the red, except for of the UK FTSE 100 which is essentially unchanged and bolstered by strength in heavy-weight energy and mining names given broader price action the return of China. Sectors were initially mixed at the open, but in-fitting with the action in indices, has turned to a predominantly negative performance ex-energy. Crossing to the US, futures have directionally been following European peers, but the magnitude has been more contained, with the ES unchanged as we await the September labour market report for any read across to the Fed’s policy path; however, officials have already made it clear that it would have to be a very poor report to spark a deviation from its announced intentions, where it is expected to announce an asset purchase tapering in November. Returning to Europe, Daimler (+2.5%) stands out in the individual stocks space, firmer after a broker upgrade and notable price target lift at UBS; Marks & Spencer (+1.5%) is also supported on broker action. To the downside lies Weir Group (-3.0%) after reports of a ransomware attack.

TSMC (2330 TT/TSM) reports September revenue +11.1% M/M and +20% Y/Y to TWD 152.7bln. (Newswires) TSM -0.4% in pre-market trade

FX

USD - The Dollar is trying to regroup and firm up again after its latest downturn amidst a further rebound in US Treasury yields, more pronounced curve re-steepening, and perhaps some relief that the Senate finally passed the debt ceiling extension bill, albeit by a slender margin and only delaying the issue until early December. Looking at the DXY as a benchmark, a marginally higher low above 94.000 and lower high below 94.500 is keeping the index contained as the clock ticks down to September’s jobs report that is expected to show a recovery in hiring after the prior month’s shortfall, but anecdotal data has been rather mixed to offer little clear pointers for the bias around consensus - full preview of the latest BLS release is available via the Research Suite under the Ad-hoc Economic Analysis section. From a technical perspective, near term support for the DXY resides at 94.077 (vs the current 94.139 base) and resistance sits at 94.448 (compared to a 94.338 intraday high).

TRY - A double whammy for the already beleaguered Lira as oil prices come back to the boil and ‘sources’ suggest that Turkish President Erdogan’s patience is wearing thin with the latest CBRT Governor as the Bank waited until September to cut rates. Recall, Erdogan has already ousted a CBRT chief for not loosening monetary policy in his belief that lowering the cost of borrowing will bring inflation down, and although the reports have been by a senior member of his administration there is a distinct feeling of no smoke without fire in the markets as Usd/Try remains bid having only held below 9.0000 by short distance between 8.9707-8.8670 parameters.

CHF/JPY - No real surprise that the low yielders and funders are underperforming, even though broadly upbeat risk sentiment during APAC hours has not rolled over to the European session. The Franc has retreated to 0.9300 vs the Buck and Yen is trying to fend off pressure on the 112.00 handle after failing to sustain momentum through 111.50 before weaker than expected Japanese household spending data overnight. However, decent option expiry interest from 111.85-75 (1.4 bn) may weigh on Usd/Jpy pending the aforementioned US payrolls outcome.

AUD - Some payback for the Aussie after Thursday’s outperformance, as Aud/Usd loses a bit more momentum following its rebound beyond 0.7300 and with hefty option expiries at 0.7335 (2.7 bn) capping the upside more than smaller size at the round number (1.1 bn) cushions the downside.

EUR/CAD/NZD/GBP - All narrowly divergent vs their US peer, with the Euro pivoting 1.1550 and also penned in by option expiry interest either side given 1 bn rolling off between 1.1500-05 and 1.1 bn at 1.1570-80 today. Meanwhile, the Loonie is straddling 1.2550 with some underlying support from crude in the run up to Canada’s face-off with the US on the labour front, the Kiwi continues to consolidate in the lower half of 0.6900-0.7000 extremes and Sterling is straddling 1.3600 ahead of comments from BoE’s Tenreyro. Note also, Usd/Cad has several big option expiries to keep an eye on for the NY cut, including 1.3 bn at 1.2540-50 and 1.5 bn at 1.2500-05.

SCANDI/EM - The Nok seems somewhat reluctant to breach 9.9000 against the Eur with impetus from firmer than forecast Norwegian monthly mainland GDP or buoyant Brent, but is gleaning more traction than the Rub from the latter as Russia takes another swipe at the US (Kremlin says Washington’s sanction threats against energy projects may contribute to the destabilisation of European energy markets). Elsewhere, a welcome return for the Cny from China’s Golden Week holidays as the Caixin services PMI beat consensus by a big enough margin to pull the composite back into expansionary territory.

Money markets pricing a circa 60% chance of a 10 bps ECB rate hike by Dec 2022, vs less than 40% chance earlier in the week. (Newswires)

Turkey President Erdogan frustrated central bank did not cut rates until September, and is losing confidence in the CBRT Governor, three sources said. Subsequently, a Senior Turkish President Erdogan administration official strongly denies that he is losing confidence in the CBRT Governor, describing it as 'fake news', via journalist Soylu. (Newswires/Twitter)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1500-05 (1BLN), 1.1550 (556M), 1.1570-80 (1.1BLN), 1.1600 (1.7BLN), 1.1650 (1.6BLN)
• AUD/USD: 0.7200 (828M), 0.7275-80 (500M), 0.7300 (1.1BLN), 0.7335 (2.7BLN), 0.7345 (703M), 0.7495 (1.8BLN)
• USD/CAD: 1.2500-05 (1.5BLN), 1.2525-30 (800M), 1.2540-50 (1.3BLN), 1.2560-70 (750M), 1.2600 (736M), 1.2650 (883M), 1.2670-80 (1BLN), 1.2700 (1.7BLN)
• USD/JPY: 111.00 (2.7BLN), 111.50 (686M), 111.75-85 (1.4BLN), 111.90-112.00 (726M)

FIXED INCOME

Bounces in bonds have been increasingly tame, short-lived and shallow with little sign of dip buyers throwing caution into the wind before the monthly BLS report. As such, Bunds, Gilts and the 10 year T-note are all rooted near or at intraday lows of 169.15, 124.18 and 131-04, while corresponding cash yields hover just shy of new cycle highs, naturally. However, chart proponents may take some heed, if not sufficient conviction to go against the trend, of the fact that futures are not quite retesting recent troughs. Also looming, Canadian jobs data, ECB and BoE speeches plus comments from US President Biden and Treasury Secretary Yellen.

UK DMO's second green gilt is planned to syndicate week of October 18th. (Newswires)

COMMODITIES

WTI and Brent remain on an upward trajectory after the mid-week pullback; as it stands, crude benchmarks are near fresh highs for the week, with WTI for November eyeing USD 80/bbl once again. Fresh news flow for the complex has been sparse, aside from substantial UK press focus on the domestic energy price cap potentially set to increase next year. More broadly, US officials have largely reiterated commentary from the Energy Department provided on Thursday around not currently intending act on energy costs with a reserve release. The session ahead has just the Baker Hughes rig count specifically for crude scheduled, though the complex may well get dragged into a broader risk move depending on the initial reaction to and analysis on NFP. For metals, spot gold and silver are contained around the unchanged mark and haven’t been affected by any significant amount by the firmer USD or elevated yield space thus far. Elsewhere, base metals are buoyed by China’s return and strong Caixin data from the region, although it is worth highlighting that the likes of LME copper are well off earlier highs.

Energy Officials in Inner Mongolia, one of China's largest coal producing regions, have ordered over 70 local minters to expand coal mining capacity by over 100mln/T, FT citing the Securities Times. (FT)

Russian Kremlin says US sanction threats against energy projects may contribute to the destabilisation of European energy markets; ready to respond to the growing European gas needs. (Newswires)

GEOPOLITICAL

A US nuclear-powered submarine hit an unknown object within the South China Sea on October 2nd, 11 sailors suffered injuries; object in question was not another submarine and the US sub remains fully operational. (Newswires)

Turkish officials confirm that Turkey indeed sent a letter of request to the US to purchase 40 Viper class F-16 and 80 modernisations kits for the existing Turkish F-16s. (Twitter)

Top US officials, including Sec of State Blinken, will be travelling to Mexico to reset security ties. (FT)