MNI EUROPEAN MARKETS ANALYSIS: It May Not Be China's Lehman, But It Is Creating Some Worry

BONDS: All About Evergrande

Worries surrounding an impending interest payment due on the part of embattled Chinese property developer Evergrande weighed on broader risk appetite during Monday's holiday-thinned Asia-Pac trade, with the absence of Japanese and Chinese markets hampering broader liquidity. The pressure pushed Chinese property developers listed in Hong Kong lower, while those with exposure to the sector also struggled. The S&P 500 e-mini contract crossed below its 50- & 55-DMAs in the process (these MA's have not seen a close below since March of this year).

• Still, T-Notes stuck to a narrow 0-05 range, last +0-04 at 132-29, with volume running at ~56K. Cash Tsys will remain closed until London hours owing to the aforementioned Japanese holiday. The U.S. docket is virtually non-existent on Monday, with fiscal jousting on the Hill set to headline. Looking ahead, Tuesday will bring 20-Year Tsy supply, while Wednesday will see the latest FOMC decision.
• The defensive tone helped the Aussie bond space away from worst levels of the day, leaving YM -0.5 and XM unch. at typing. There is some very modest underperformance for the 5-Year zone of the cash ACGB curve, although that is very marginal, with the benchmarks in that space little changed on the day. The minutes from the RBA's most recent meeting headline the local docket on Tuesday.

FOREX: High Beta Currencies Pressured

High beta currencies came under pressure in a quiet, holiday thinned session in Asia as the greenback extended its rally to a third day. Volumes have been kept thin by market holidays in China, Japan, South Korea and Taiwan while the economic docket has been virtually empty.

• The negative tone stems from worries surrounding the giant Chinese property developer Evergrande, markets seem to have been hoping for some clarity from the company considering bond payments due this week, but lack of communication has seemingly compounded uncertainty.
• AUD is bottom of the G10 pile, AUD/USD has now dropped through its 20-day EMA and breached a 61.8% retracement level at 0.7248, support is seen at the Aug 27 low of 0.7222. Further pressure was exerted on the pair as iron ore extended its slump below $100/ton.
• NZD also losing ground, data earlier showed Performance of Services Index slipped to 35.6 in Aug from a revised 55.9 in July.
• Market focus will be firmly on the FOMC decision/statement on Wednesday this week. Other notable central bank meetings include the Bank of Japan, Swiss National Bank and the Bank of England.

ASIA FX: Baht Worst Performer On Negative Day

The greenback rose for a third session in defensive Asia-Pac trade, sentiment was soured by the slide in Evergrande in Hong Kong.

• CNH: Equity and bond markets in China are closed for a holiday. Offshore yuan fell while the greenback found favour. The negative tone stems from worries surrounding the giant Chinese property developer Evergrande.
• SGD: Singapore dollar is weaker for a third session, the Straits Times Index fell despite reports that Singapore is seeking to set up an SGD 1.5bn fund backed by Temasek
• KRW: Markets in South Korea closed for holiday.
• TWD: Markets in Taiwan closed for holiday.
• MYR: Ringgit declined to hit a three-week low. There were reports that the government will offer booster shots to high-risk individuals
• IDR: Rupiah is lower, markets look ahead to the Bank Indonesia rate announcement tomorrow. The Central Bank are expected to leavy policy settings unchanged.
• PHP: Peso weakened, participants await the BSP rate announcement on Thursday this week, of 20 analysts surveyed 19 expect rates to remain on hold while one expects a 25bps cut.
• THB: Baht fell, the government announced an increase in coronavirus cases for a third day, though deaths fell to the lowest since July 26. The decline was accelerated by bonds outflows on worries of a debt supply increase.

ASIA RATES: Indian Bonds Boosted By Bond Index Inclusion Plans

• INDIA: Yields lower in early trade. Bonds are expected to gain in India amid broad risk off trade in the Asia-Pac region, while there could be an extra boost after a government official said inclusion of India's bonds in global indexes could be complete as soon as March. At a conference Sanjeev Sanyal, principal adviser to the finance ministry, said: "Ninety-nine percent of the stuff that needs to be done has been done", adding "So rest assured that in this financial year at least some announcement should happen on that space so that we can get into these indexes. They are a good, stable source of money." Bonds declined on Friday after the weekly auction, the sale was fully subscribed and saw the RBI sell INR 260bn of securities. Markets look ahead to the RBI's conversion operation today, the RBI will switch INR 100bn of shorter dated securities for those with longer maturities.
• SOUTH KOREA: Markets closed for holiday.
• CHINA: Markets closed for holiday.
• INDONESIA: Yields higher across the curve in Indonesia, curve seeing some bear flattening. Indonesian assets coming under pressure from outflows as the continued slide in Evergrande sours sentiment across the region. Markets look ahead to the Bank Indonesia rate announcement tomorrow. The Central Bank are expected to leavy policy settings unchanged.

EQUITIES: Defensive Start To The Week

Defensive trade has been the name of the game in Asia on Monday with worries surrounding the giant Chinese property developer Evergrande seemingly providing much of the early impetus. Volumes have been kept thin by market holidays in China, Japan, South Korea and Taiwan. Markets in Hong Kong lead the way lower, the Hang Seng down over 4% while the Hang Seng Property index has dropped to the lowest since 2016. Other markets in the region also seeing losses, though moves are less pronounced. US futures are lower, S&P 500 e-minis have traded below their 50- & 55-DMAs (there hasn't been a close below these MAs since March) and sit at levels last seen on Aug 20. Markets look ahead to the FOMC meeting on Wednesday this week.

GOLD: Hovering Just Above Support In Holiday-Thinned Asia Trade

An uptick in the USD has pushed bullion lower in Asia, with a look through technical support apparent, before a retrace from worst levels of the day. Spot last deals ~$5/oz lower, printing $1,749/oz. This comes after an uptick in the DXY and U.S. real yields kept a lid on gold on Friday, as spot closed just above its weekly low. The break below initial support has exposed the 76.4% retracement of the Aug 9-Sep 3 rally ($1,724.5/oz). To the upside, initial firm resistance is seen at the Sep 14 high ($1,808.07/oz). Wednesday's FOMC decision, specifically any communique surrounding the central bank's tapering plans, provides the focal point for participants this week.

OIL: Negative Start

Crude futures are off to a negative start in Asia on Monday, pressured by a broad risk off tone as the slide in Evergrande has soured sentiment, the greenback has also continued its rise putting crude futures under further pressure. For WTI support is seen at $69.49 the 20-day EMA, Brent has support at $72.47/70.88 the 20-day EMA / Low Sep 8. Markets look ahead to the FOMC meeting on Wednesday this week.

UP TODAY (Times GMT/Local)