MNI ASIA MARKETS ANALYSIS: Evergrande Cares Triggers Risk-Off

US TSYS: Evergrande Contagion or Just a Correction Trigger

• Dec emini futures (ESZ1) were off lows at 4349.5 vs. 4293.75 low after the bell;
• while TYZ1 held just under first resistance of 133-09.5 (20D EMA), after tapping 133-11.5 high. Rather decent volumes on orderly risk-off session, TYZ >1.3M.
• Just a trigger for correction. Barclays analysts wrote the "possible Evergrande default could be a significant drag on the property sector" it's "far from being China's Lehman moment."
• Otherwise -- trade was rather orderly, many accounts squared and pared, plying the sidelines ahead of Wednesday's FOMC policy annc -- no rate change expected, while most Fed watchers estimate a taper annc to come at the November meeting at the earliest.
• Currently, the 2-Yr yield is down 0.8bps at 0.2137%, 5-Yr is down 4.1bps at 0.8195%, 10-Yr is down 5.4bps at 1.3074%, and 30-Yr is down 5.2bps at 1.8471%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00113 at 0.07188% (-0.00088 total last wk)
• 1 Month +0.00000 to 0.08350% (-0.00038 total last wk)
• 3 Month +0.00150 to 0.12538% (+0.00813 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00025 to 0.15250% (+0.00288 total last wk)
• 1 Year +0.00175 to 0.22613% (+0.00188 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $64B
• Daily Overnight Bank Funding Rate: 0.07% volume: $256B

• Secured Overnight Financing Rate (SOFR): 0.05%, $884B
• Broad General Collateral Rate (BGCR): 0.05%, $371B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $354B
• (rate, volume levels reflect prior session)

• Tsy 7Y-10Y, $3.199B accepted vs. $7.151B submission
• Next scheduled purchases
• Tue 9/21 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Wed 9/22 No buy operation scheduled due to FOMC
• Thu 9/23 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Fri 9/24 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B

FED: Reverse Repo Operation, Second Consecutive Record High

NY Fed reverse repo usage climbs to new record high of 1,224.289B from 77 counter-parties vs. last Friday's record $1,218.303B. Prior record high was $1,189.616B set Tuesday, Aug 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• Update, over -19,000 Blue Oct 98.50 puts, 5.0-5.5
• 2,000 Dec 99.62/99.75 put spds
• Overnight trade
• 2,000 Green Oct 98.37/98.50 call spds
• +10,000 Green Oct 99.25 calls, 0.5
• +5,000 Green Nov 99.25 calls, 1.5
• +9,000 Green Mar 99.50 calls, 1.5

• +10,000 TYV 133.25/133.5/133.75 call trees, 2.5 133-04 to -05 ref
• 2,500 TYX 142 calls, cab
• 1,000 USZ 210 calls, 1
• Update, >33,000 FVV 123 puts, 3-3.5
• Overnight trade
• 1,900 TYV 131/132 2x1 put spds
• +3,000 TYV 133.25 calls, 12 vs. 133-02.5/0.10%
• -3,000 TYV 134 calls, 2 vs. 133-01/0.05%
• 5,000 TYZ 134 calls, 17 ref 132-30 to 133-00

FOREX: Risk Off Prompts Safe Haven Demand

• A shaky start to the week for risk sentiment on the back of China stability concerns prompted strong demand for historically considered safe haven currencies such as JPY and CHF, with the dollar index also marginally firmer for the session ahead of the FOMC decision/statement on Wednesday.
• USDJPY and USDCHF have both fallen a little over half a percent with sharper declines seen in the crosses as commodity/risk tied currencies such as AUD, NZD and CAD all suffered. CADJPY has fallen 1.1% with heavy equity indices and oil prices exacerbating the pairs decline.
• GBP led G10 declines with aforementioned bearish sentiment drivers mostly to blame, however, uncertainties about the Bank of England's monetary policy and surging gas prices may be acting as additional headwinds.
• With EURUSD downside momentum halted at the 1.17 mark, EURGBP broke out of its consolidating trend today, inching higher to work against the bearish technical outlook. Key short-term resistance at 0.8614, Sep 7 high remains intact for now, but initial resistance at 0.8563 has been cleared.
• Markets will turn their focus to Canadian election exit poll results due later today followed by the RBA's Monetary Policy Meeting Minutes.
• Attention then undoubtedly turns to the plethora of central bank meetings starting on Wednesday, including the Fed, BOJ, SNB and BOE.

FOREX: Expiries for Sep21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1685-00(E843mln), $1.1800(E655mln), $1.1900-20(E1.6bln)
• USD/JPY: Y108.55-65($651mln), Y109.00($1.3bln), Y109.50($679mln), Y109.65-70($807mln)
• EUR/JPY: Y127.00(E630mln)
• AUD/USD: $0.7315-20(A$585mln)
• USD/CAD: C$1.2675($550mln), C$1.2800($1.5bln)

PIPELINE: September Debt Issuance Third Largest For 2021

• Total for September last year was $207.82B. No new issuance on tap as yet, expected to be relatively light this week, around $20B as issuers hit the sidelines ahead Wednesday's FOMC annc.

EQUITIES: Slide in Stocks Puts E-mini S&P Through Key Support

• The e-mini S&P gapped lower at the open, with the contract cracking below both the 50-DMA and 50-day EMA support. This put the index as much as 5% off the alltime highs posted in early September, with energy, financials and materials leading the way lower. Evidence of sizeable selling was prominent from the off, with NYSE's TICK Index showing some of the largest programmatic in the series' history.
• A perfect storm of China stability concerns and the risks surrounding Wednesday's Fed rate decision worked against sentiment, pressuring equity markets globally. Markets are beginning to price in the possible macro fallout from the expected credit event surrounding Chinese real estate giant Evergrande, with contagion spread via the global banking network unsettling an already buoyant market.
• Losses were uniform across the Atlantic, with European indices off 2% or more. The selling pressure put Germany's DAX at the lowest levels since mid-May . The UK's FTSE-100 fared better thanks to sizeable rallies in AstraZeneca (positive drug test results), but still slipped 0.8% into the close.

COMMODITIES: WTI, Brent Dented by China Fears

• Oil markets globally slid sharply into the Monday close, with WTI and Brent crude futures off around 2% apiece. Concerns over any macro spillover from the potential default of China real estate giant Evergrande are largely responsible for the reversal, but pre-positioning ahead of Wednesday's Fed decision may also be playing a part, with the USD sharply stronger.
• Despite the pullback in WTI, futures maintain a bullish outlook following last week's gains. The climb resulted in a break of $71.30, the bear channel top drawn off the Jul 6 high. The move higher strengthens the current bullish theme and signals scope for further short-term gains.
• Gas prices globally continue to grind higher, with a number of governments now becoming concerned over supply constraints and the possible folding of a number of smaller energy providers. The UK government are said to be seeking information on the hedging arrangements for a number of suppliers, with UK day ahead gas prices again closing at alltime highs. Prices are higher by close to 500% over the past 12 months.