Asia
The slowdown in China's economic growth will be curbed in the fourth quarter of the year following government measures but uncertainties will remain for future development, a Chinese think tank said in a report Sunday. (Xinhua) China's economy hasn't shown any signs of rebounding in the third quarter, and domestic investment is unlikely to expand dramatically in the short term, according to an adviser to the PBOC. (WSJ)
China will not have a big problem reaching 7.5% - 8% GDP growth, according to a researcher from the NDRC (China Securities Daily) He also added that China's policy loosening will be relatively moderate. The corporate Bank of China said overnight that they see 1 or 2 more reserve ratio cuts this year.
JGB's have trended higher throughout the session underpinned by weakness in Asian equity markets over concerns on Chinese growth potential, the Nikkei was trading down 0.5% at the time of writing. Analysts have also noted several pension funds are expected to buy JGB's across the curve for their month-end duration adjustments this week. (RANsquawk/IFR)
Europe
Eurozone countries plan to boost the size of their rescue fund for indebted countries to EUR 2trl to be ready for emergencies. (Der Spiegel) The current target for the European Stability Mechanism is EUR 500bln, but eurozone countries want to prepare for contingencies in large economies such as Spain and Italy.
Spain could lodge a formal request for help from the ECB within days as it prepares to approve a tough new budget and a EUR 60bln bailout of its banks. (Sunday Times) Mariano Rajoy, the prime minister, is believed to have been in secret talks with Brussels about asking the ECB to buy Spanish bonds. Separately, NRC Handelsblad reported that the ECB is ready to buy Spanish bonds but the country will need to restructure its banks and reorganise the financing of its regions, according to ECB's Asmussen.
Spanish banks may need a cash injection of more than EUR 100bln, the results of an official stress test are expected to show on Friday, placing more financial pressure on to an already explosive political crisis in Madrid. (Telegraph)
ECB's Coeure said policy makers may not cut interest rates further as confidence in the Euro-area's economic outlook is improving and inflation remains high. (Newswires) He added that while the ECB could "theoretically" cut its deposit rate below zero to add stimulus, it may not be feasible.
Greece update (To Vima, Del Spiegel, Bild):
- According to sources, Greece proposed to inspectors a deviation clause to overcome objections on certain proposed budget cuts. If there are any deviations from Greece's primary deficit target in 2013, the country would take further measures from Jan 2014 to achieve further savings, equivalent to deviation.
- Greece faces a budget shortfall of about EUR 20bln, almost double previous estimates.
- Greece should be allowed more time to meet deficit targets, according to French PM.
BarCap Pan Euro agg month-end extension seen at +0.07yrs.
UK
Britain could be heading for a bigger budget deficit next year than crisis-hit Greece and Spain, according to research by Morgan Stanley. (Telegraph) Economists at MS calculated that Britain's budget deficit could total GBP 126bln, or 7.8%, of GDP in 2013-14.
Nick Clegg said on Sunday he would block any more spending cuts in this parliament, in the clearest indication yet that the coalition is prepared to miss its borrowing targets rather than inflict more fiscal pain on the country. (FT-More)
The UK is to invest GBP 1bln in new state-backed business bank and aims to support GBP 10bln in lending to smaller firms. (Newswires)
FX
Jim O'Neill believes the AUD is overvalued at above parity with the USD and warns investors to adjust their thinking on China's contribution to the global economy in the next decade. (The Australian Financial Review)
The AUD was one of the biggest decliners overnight in reaction to this comment, fears on Chinese growth, sharp falls in commodity prices in Asian trade and with the NAB calling for two 25bps cuts to the RBA interest rate in November and February.
JP Morgan have revised their GBP/USD forecast to 1.6200 from 1.5800; EUR/USD year-end forecast cut to 1.3000 from 1.2400; AUD/USD year-end forecast revised to 1.0400 from 1.0200. (Newswires)
Geopolitical
A senior Iranian military commander warned on Sunday that an Israeli strike on the Islamic republic could trigger the World War III. (Press TV)
Commodities
WTI crude moved lower in early Asian trade breaking through the USD 92.00 level to the downside on fears over Chinese growth. However, a bounce in Asian equity markets led by China saw crude recover from its worst levels, trading at USD 92.32 (USD -0.57) at 0533BST. (RANsquawk)
Iran's crude oil sales dived to just 800,000bpd in July, due to Western sanctions, but are likely to have bounced back last month, according to a senior Iranian legislator. (Newswires) Daily Iranian oil exports of just 800,000 bpd for July are lower than International Energy Agency estimates of 1mbpd.
US
In their last act in Washington before the Nov. 6 elections, Senate lawmakers voted to approve a roughly USD 500bln bill to fund the federal government for six months from Oct. 1. (WSJ)
BarCap US Treasury month-end extension seen at +0.02yrs.
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