• APAC stocks followed suit to the gains on Wall St (SPX +0.66%) although the upside was capped after recent global central bank activity.
• European equity futures are indicative of a firmer open with the Euro Stoxx 50 future +0.3% after the cash market closed up by 0.3% yesterday.
• DXY is on the backfoot and sits on a 109 handle, EUR/USD has gained a firmer footing above parity, Cable eyes 1.16 and AUD leads G10 FX.
• Source reports suggest that ECB officials could pull the trigger on another 75bps hike in October if warranted by the inflation outlook.
• Looking ahead, highlights include Canadian jobs report, EU energy meeting, Speeches from ECB's Lagarde, Fed's Evans, Waller & George.

US TRADE

• US stocks notched mild gains but with price action choppy after shrugging off the hawkish central bank activity in which the ECB hiked rates by 75bps and signalled more is to come, while Fed Chair Powell also reaffirmed hawkish commitments from the Fed heading towards the blackout period this week.
• SPX +0.66% at 4,006, NDX +0.50% at 12,321, DJIA +0.61% at 31,774, RUT +0.56% at 1,842.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Bullard (2022 voter) said bringing inflation down to the 2% target is the Fed's top goal.
• Fed's Evans (non-voter, departing) said labour markets are tight and inflation is high, while he added that the Fed is raising rates expeditiously and the job is to get inflation to 2%. Fed's Evans also said he will monitor inflation and if anything surprises on wages, they may need to get to peak rate sooner and said signs of cooling inflation won't change the need for terminal 4% Fed rate but maybe not as soon.
• NY Fed Desk Manager Zobel said Treasury supply may grow in the coming months and a faster pace of balance sheet reduction may expand the supply of alternative money market assets.

GEOPOLITICS

OTHER

• US Department of Defence spokesperson Kirby said they are still in the back and forth on the Iran nuclear deal and there are still gaps, while he added they are not as close to a deal as parties have been before and President Biden wants to ensure the US has other options available to achieve no nuclear weapons capability for Iran if the US can't get there on a deal.
• US issued Iran-related sanctions on one individual and four entities, according to the Treasury website.
• North Korean assembly adopted a law officially declaring itself a responsible nuclear weapons state and which allows it to automatically launch a nuclear strike against an enemy target if it is attacked, according to KCNA. Furthermore, the new law allows the use of nuclear weapons if a WMD strike against it is considered imminent or if a military strike against its strategic assets are considered imminent. North Korean leader Kim said they will never give up nuclear arms and with the new law, the country's status as a nuclear weapons state has become irreversible, while he added there will be no negotiations on denuclearisation and peace is only possible with the strength to deter imperialist arrogance.

APAC TRADE

EQUITIES

• APAC stocks followed suit to the gains on Wall St although the upside was capped after recent global central bank activity including a 75bps rate hike by the ECB and Fed Chair Powell's hawkish reiterations.
• ASX 200 was led by the mining-related sectors although advances were limited by weakness in defensives.
• Nikkei 225 extended on gains above the 28k level but with upside capped amid currency-related jawboning.
• Hang Seng and Shanghai Comp were also lifted with property and tech stocks spearheading the outperformance in Hong Kong owing to supportive policy-related headlines, while the mainland was somewhat contained in comparison after softer-than-expected inflation data from China and ahead of the long weekend with markets shut on Monday for the Mid-Autumn Festival.
• US equity futures continued their gradual advances amid the constructive overnight mood. ES +0.5%.
• European equity futures are indicative of a firmer open with the Euro Stoxx 50 future +0.3% after the cash market closed up by 0.3% yesterday.

FX

• DXY weakened alongside the positive risk tone and retreated beneath the 109.00 level despite a lack of major fresh catalysts overnight and Fed Chair Powell sticking to the hawkish script yesterday.
• EUR/USD extended above parity with a recent ECB source report suggesting officials are not excluding a 75bps rate hike in October if a further large move is warranted by the inflation outlook.
• GBP/USD reclaimed the 1.1500 handle and briefly approached 1.1600 owing to the softer dollar and despite the UK beginning a 10-day mourning period following the death of Queen Elizabeth II.
• USD/JPY retreated after further currency jawboning by officials including BoJ Governor Kuroda who noted that rapid FX moves are undesirable, increase uncertainty and make it difficult for companies to do business.
• Antipodeans were firmer with gains helped by the positive mood and upside across the commodities complex.
• PBoC set USD/CNY mid-point at 6.9098 vs exp. 6.9206 (prev. 6.9148).
• SNB's Jordan said the 75bps hike from the ECB was not fully surprising, while he added that exchange rates play a role in inflation and when big central banks act, this helps the SNB.
• SNB's Maechler said the Swiss Franc is very strong, which is a reason inflation is relatively low in Switzerland.

FIXED INCOME

• 10yr UST futures were contained beneath 116.00 amid the positive risk tone in stocks and after Fed Chair Powell reaffirmed the need to act forthrightly and strongly on inflation.
• Bund futures extended their post-ECB losses following the central bank’s 75bps rate hike and a hawkish ECB source report that officials are not ruling out a 75bps move next month.
• 10yr JGBs futures shrugged off the weakness in global peers and traded firmer with no signs yet from the BoJ of a shift in its dovish resolve.

COMMODITIES

• Crude gained alongside the constructive risk tone and a softer greenback, while there was mixed commentary regarding a price cap on Russian energy with Hungary warning it would trigger a cut-off in supply to Europe.
• US Treasury Secretary Yellen said the US is very concerned about the economic outlook in light of Europe's energy crisis and is doing everything it can on the LNG front to be helpful to Europe, while she also noted that a fall in gasoline prices brought down headline inflation in July and could do so again for August, according to Reuters.
• US Treasury official said the oil price cap should be set above marginal production cost and take into consideration historical prices for Russian oil, while the price cap should take out the risk premium that was brought in by Russia's invasion of Ukraine, according to Reuters.
• Hungarian Foreign Minister said the proposed price cap on Russian gas goes against Hungarian and European interests, while the proposed cap would trigger an immediate cut-off in Russian gas supplies to Europe.
• US Energy Secretary Granholm said the Biden administration is assessing the need for further SPR oil releases after October and a fuel export ban is not off the table, but not at the top of the list for the Biden admin.
• Kuwait set October KEC crude OSP for Asia at Oman/Dubai + USD 3.80/bbl, according to Reuters.
• Spot gold recovered from the prior day's losses with the precious metal underpinned by a weaker dollar.
• Copper strengthened amid broad upside across the commodities complex and upbeat mood.

CRYPTO

• Bitcoin gained alongside the positive risk tone and reclaimed the 20,000 level.

NOTABLE APAC HEADLINES

• US is considering an order to screen US investment in tech in China and elsewhere, according to WSJ.
• US Treasury Secretary Yellen said President Biden continues to consider tariff relief on Chinese imports and wants to make sure the decision is good for Americans, while she added that it is important to take a tough stance on China due to its economic practices and national security threat, according to Reuters.
• US reportedly relaxed Huawei curbs to counter China's push on tech standards with the Commerce Department issuing a new rule to permit sharing of certain 'low-level' technologies and software, according to SCMP.
• BoJ Governor Kuroda said he met with PM Kishida to explain domestic and overseas economic developments and markets, but noted there was no specific request from PM Kishida on the economy or markets. Kuroda said he discussed FX moves with Kishida and noted that rapid FX moves are undesirable and heighten uncertainty, as well as make it difficult for companies to do business, according to Reuters.
• Japanese Finance Minister Suzuki said they are to tap JPY 3.5tln in budget reserves to speedily deliver measures against the negative impact of price hikes, while he added that sharp FX moves are undesirable and won't rule out any options on FX, according to Reuters.
• Japanese Chief Cabinet Secretary Matsuno said he is concerned about abrupt FX moves and noted that speculation is a factor behind recent moves, while he added that the strong USD is affecting other currencies, not just the JPY, according to Reuters.

DATA RECAP

• Chinese CPI MM * (Aug) -0.1% vs. Exp. 0.2% (Prev. 0.5%)
• Chinese PPI YY * (Aug) 2.3% vs. Exp. 3.1% (Prev. 4.2%)
• Chinese CPI YY * (Aug) 2.5% vs. Exp. 2.8% (Prev. 2.7%)

EU/UK

NOTABLE HEADLINES

• UK Queen Elizabeth II died and Prince Charles was named King Charles III who will remain at Balmoral on Thursday evening and return to London on Friday.
• ECB officials do not exclude a 75bps rate hike in October if the inflation outlook warrants an additional big step and ECB’s Lane was touted to have struck a more hawkish tone than during his latest speech. Furthermore, QT is expected to be discussed at the non-policy meeting in Cyprus on October 5th and will likely also be debated at subsequent meetings, according to Bloomberg sources.