Awaiting the Fed and insights on taper

Notes/Observations

- Reprieve from China Evergrande debt situation helps risk appetite.

- Focus on FOMC with market expectations that Fed will announce to begin tapering its asset purchases by the end of the year (Note: likely to be short on details about the pace and the composition of tapering).

Asia

- BOJ kept its policy steady (as expected) with IOER unchanged at -0.10% and Yield Control maintained around 0.00%. Outlined its climate response financing operations and details on green lending program.

- China PBoC Monthly Loan Prime Rate Setting kept both 1-year LPR and 5-year LPR unchanged at 3.85% and 4.65% respectively.

- PBoC Open Market Operations (OMO) injected a net CNY90B into the system (prior was CNY100B injection).

- China real estate company Evergrande Unit Hengda stated it would make interest payment for onshore bond due on Sept 23rd [no mention of offshore bond].

- IMF Chief Economist: Following company very closely; China has tools and policy space to prevent situation from becoming system crisis.

- RBA Assistant Gov Bulloc noted that house prices were outside fundamentals; macro prudential rules should be targeted at risks arising from highly indebted borrowers.

Europe

- UK could join US, Mexico, Canada trade pact if its is unable to secure a direct FTA.

Americas

- House of Representatives passed bill to fund government through -Dec 3rd and extend debt ceiling limit through 2022 election. Bill unlikely to pass Senate given GOP opposition.

- Senate Minority Leader McConnell (R-KY) introduced spending bill to fund Govt through Dec 3rd but did not include debt limit provision.

- Treasury Sec Yellen argued that a default on US debt would lead to a historic financial crisis.

- Treasury’s Borrowing Committee said to warn Yellen of debt-limit risks: Committee noted that even if default was avoided, continued negotiations over the debt limit could cause needless volatility, create additional operational expenses for market participants, and do lasting damage to the Treasury market.

- White House stated that the debt limit was not a partisan issue. Sought to want to protect the full faith and credit of the United States, and. would continue to press for bipartisan support for moving forward.

Energy

- Weekly API Crude Oil Inventories: -6.1M v -5.4M prior (Note: crude inventories has been lower in 17 of the past 18 weeks).

- IEA was urging Russia to increase gas supply to Europe, Believed Russia could do more to increase gas availability to Europe and ensure storage was filled to adequate levels in preparation for the coming winter heating season.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.70% at 461.90, FTSE +1.13% at 7,059.93, DAX +0.65% at 15,447.95, CAC-40 +1.15% at 6,628.14 , IBEX-35 +0.52% at 8,801.50, FTSE MIB +0.65% at 25,517.00, SMI +0.28% at 11,821.60, S&P 500 Futures +0.56%].

Market Focal Points/Key Themes: European indices open higher across the board and stayed in the green as the session progressed; all sectors trade in the green with the outperformers including financial and consumer discretionary; laggard sectors include materials and consumer staples; Sulzer launches is offer of medmix shares; couriers under pressure after FedEx cut outlook yesterday; Iliad buys UPC Poland from Liberty Global; Entain rejects approach from DraftKings; focus on rate decision by the FOMC later in the day; earnings expected in the upcoming US session include General Mills and Blackberry.

Equities

- Consumer discretionary: Entain [ENT.UK] +7% (confirms DraftKings' offer). PZ Cussons [PZC.UK] -6% (earnings; trading update).

- Energy: IGas Energy [IGAS.UK] -12% (earnings).

- Healthcare: Oxford Biomedica [OXB.UK] +7% (earnings; investment).

- Industrials: Halma [HLMA.UK] +1% (trading update), Traton [8TRA.DE] +1% (profit warning on chip shortage).

Speakers

- ECB’s Muller (Estonia) stated that ECB should be able to end Pandemic Bond Buying Program (PEPP) in Mar 2022 (as scheduled). To discuss raising conventional QE (e.g. APP program) when PEPP ended. Noted that ECB could not just transfer PEPP flexibility to APP program.

- German Bundesbank Board Member Wuermeling noted that German banking system remained robust but could still see significant credit defaults due to pandemic; not out of the crisis just yet.

- EU Commission Energy Commissioner Kadri stated that was monitoring the surge in energy prices and considering tools to prevent an energy crunch.

- Sweden Central Bank (Riksbank) Dep Gov Ohlsson stated that the inflation trend was more important than monthly readings.

- Germany IFO Institute updated its economic outlook which cut 2021 GDP forecast from 3.3% to 2.5% while raising the 2022 GDP growth forecast from 4.3% to 5.1%.

- BOJ Gov Kuroda post rate decision press conference reiterated its overall assessment that domestic economy remained in a severe state but was picking up as a trend. Reiterated view that uncertainties were high over the economic impact of the pandemic and would not hesitate to add to easing if necessary.

- Russia Foreign Ministry official stated that Russia was not manipulating the gas prices via the Nord Stream 2 pipeline.

- Philippines said to be planning a strategic oil reserve program to ensure supplies.

Currencies/Fixed Income

- USD was steady despite some risk appetite in the session. Focus was on the upcoming FOMC rate decision. Dealers believe updated DOT projections to upward revision to interest-rate outlook. Dealers also believe Fed will announce to begin tapering its asset purchases by the end of the year.

- EUR/USD at 1.1730 at mid-session and well contained within recent ranges.

- GBP/USD probing the key 1.36 support area.

- USD/JPY at 109.50.

Economic data

- (NL) Netherlands Sept Consumer Confidence Index: -5 v -6 prior.

- (NL) Netherlands July Consumer Spending Y/Y: 4.8 v 6.7% prior.

- (DK) Denmark Sept Consumer Confidence Indicator: 8.2 v 4.4 prior.

- (ES) Spain July House transactions Y/Y: 53.5% v 73.5% prior.

- (TR) Turkey Sept Consumer Confidence: 79.7 v 78.2 prior.

- (TW) Taiwan Aug Unemployment Rate: 4.1% v 4.2%e.

- (ZA) South Africa Aug CPI M/M: 0.4% v 0.3%e; Y/Y: 4/9% v 4.9%e (6th straight reading within target band).

- (ZA) South Africa Aug CPI Core M/M: 0.3% v 0.1%e; Y/Y: 3.1% v 3.0%e.

- (PL) Poland Sept Consumer Confidence: -13.0 v -15.0e.

- (IT) Italy July Industrial Sales M/M: 0.9% v 3.1% prior; Y/Y: 19.1% v 28.5% prior.

- (IS) Iceland Aug Wage Index M/M: +0.3% v -0.1% prior; Y/Y: 7.9% v 7.8% prior.

Fixed income Issuance

- (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills.

- (SE) Sweden sold total SEK3.5B vs. SEK3.5B indicated in 2023 and 2045 Bonds.

- (UK) DMO sold £350M in 0.125% inflation-linked 2056 Gilts (UKTi); Real Yield: -2.289% v -1.972% prior; bid-to-cover: 2.12x v 2.17x prior.

Looking Ahead

- (PT) Portugal Debt Agency (IGCP) to hold bond exchange.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €2.5B in 0% May 2036 Bunds.

- 05:30 (EU) ECB allotment in its quarterly 3-year TLTRO-3 Tender.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (IE) Ireland Aug PPI M/M: No est v 2.4% prior; Y/Y: No est v -2.1% prior.

- 06:00 (CZ) Czech Republic to sell 2032 and 2037 bonds.

- 06:30 (EU) EU Commission to sell combined €4.0B in 3-month and 6-month bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia to sell 2025 OFZ Bond auction.

- 07:00 (US) MBA Mortgage Applications w/e Sept 17th: No est v 0.3% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (PL) Poland Aug M3 Money Supply M/M: 0.3%e v 1.0% prior; Y/Y: 9.2%e v 8.8% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).

- 10:00 (US) Aug Existing Home Sales: 5.88Me v 5.99M prior.

- 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: -5.9e v -5.3 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 12:00 (RU) Russia Q3 Consumer Confidence Index: No est v -18 prior.

- 12:00 (RU) Russia Aug Industrial Production Y/Y: 5.9%e v 6.8% prior.

- 12:00 (RU) Russia Aug PPI M/M: 1.3%e v 2.6% prior; Y/Y: 28.4%e v 28.1% prior.

- 13:00 (US) Treasury to sell 2-year FRN.

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Interest Rates unchanged beteen 0.00-0.25%; Expected to leave Interest on Reserve Balances Rate (IOER) unchanged at 0.15%.

- 14:30 (US) Fed Chief Powell post rate decision press conference.

- 15:00 (AR) Argentina Aug Trade Balance: No est v $1.5B prior.

- 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to raise the Selic Target Rate by 100bps to 6.25%.

- 19:00 (AU) Australia Sept Preliminary PMI Manufacturing: No est v 52.0 prior; PMI Services: No est v 42.9 prior; PMI Composite: No est v 43.3 prior.

- 20:00 (KR) South Korea Sept 20 Days Exports Y/Y: No est v 40.9% prior; Imports Y/Y: No est v 52.1% prior.

- 21:00 (CN) China Aug Swift Global Payments (CNY): No est v 2.2% prior.

- 21:30 (KR) Bank of Korea (BOK) to sell KRW1.0T in 3-month Bonds.

- 23:00 (TH) Thailand Central Bank (BOT) to sell THB35B in 2023 Bonds.

- 23:30 (TH) Thailand Aug Customs Trade Balance: $0.9B v $0.2B prior; Exports Y/Y: 15.1%e v 20.3% prior; Imports Y/Y: 39.6%e v 45.9% prior.