• Asian equity markets traded subdued as the region conformed to the dampened global risk tone with markets cautious ahead of looming FOMC risk
• EU sources reportedly believe UK PM Johnson is pulling British officials out of EU meetings which hints that the PM is not serious about achieving a Brexit deal
• Italian PM Conte submitted his resignation to Italian President Mattarella. Conte was then asked by President Mattarella to stay as a caretaker leader
• Looking ahead, highlights include Canadian CPI, US Existing Home Sales, FOMC & RBI Minutes, German EUR 2.0bln 0.0% 2050 auction
• Earnings: Lowe’s Companies, Target Corp & Analog Devices

ASIA-PAC

Asian equity markets traded subdued as the region conformed to the dampened global risk tone with markets cautious ahead of the looming FOMC minutes and the Jackson Hole Symposium. ASX 200 (-1.2%) underperformed with broad pressure across its sectors. Nikkei 225 (-0.4%) was also lower but with downside stemmed as exporters found some solace from a gradually weakening currency, while Hang Seng (Unch.) and Shanghai Comp. (Unch.)traded indecisively after the PBoC’s quasi liquidity efforts resulted to another net daily drain and amid ongoing trade uncertainty as US President reiterated he is currently not ready to make a trade deal with China but suggested something will happen maybe sooner later. In addition, reports noted that outflows from funds focused on China investments recently widened to its highest since early 2017. Finally, 10yr JGBs returned flat as the initial upside from the cautious risk tone later faded after hitting resistance at the 155.00 level and near its record highs, while the BoJ were only in the market today for Treasury Discount Bills.

PBoC injected CNY 60bln via 7-day reverse repos for a net daily drain of CNY 40bln. (Newswires)

PBoC set CNY mid-point at 7.0433 vs. Exp. 7.0468 (Prev. 7.0454)

US President Trump reiterated that China wants to make a trade deal and something will happen maybe sooner or later, while he also reiterated he is currently not ready to make a trade deal with China and stated that someone had to take China on whether it was good or bad for the US in the short term. US Secretary of State Pompeo was said to sound bullish regarding the prospect of trade deal and thinks a US-China deal could be reached by the 2020 election. (Newswires)

The US and Japan are rushing to clear the final hurdles on the way to a partial trade deal that could be finalised as early as September. Japan’s Economy Minister Motegi and USTR will meet in Washington for crunch talks today, according to sources. (FT)

Investors withdrew USD 2.9bln from funds focused on China investment in the month to August 14th which is the largest outflows of its kind in more than 2 years. (FT)

UK/EU

UK PM Johnson said we will come up with solutions for Irish border during trade negotiations the EU, while he added the EU clearly still thinks there is a possibility that Parliament will block Brexit and are being a bit negative although he thinks we will get there. (Newswires)

EU sources reportedly believe UK PM Johnson is pulling British officials out of EU meetings which hints that the PM is not serious about achieving a Brexit deal, according to Express' Brussels Correspondent. (Twitter/Express)

UK PM Johnson will tell German Chancellor Merkel today that Parliament cannot stop Britain leaving the EU without a deal on October 31. (Times)

UK reportedly could delay a decision on the BoE Governor until Brexit is completed with sources also stating that if a general election is called the budget could be delayed until 2020. (Newswires)

Italy's League withdrew its no confidence motion against PM Conte who later submitted his resignation to Italian President Mattarella as expected, while PM Conte was then asked by President Mattarella to stay as a caretaker leader. League Leader Salvini said he will not resign and will remain as interiorminister, while he will ask President Mattarella for early elections and stated there is no plan B besides an early vote. Italian President Mattarella will begin consulting on the next steps for Italian politics at 1500BST, discussions with the larger parties in Italy are due to take place on Thursday. (Newswires)

FX

DXY was lacklustre after the prior day’s losses although remained above 98.00 with downside limited as participants await the latest clues from the Fed beginning with today’s FOMC minutes and Fed Chair Powell’s remarks on Friday. A non-committal tone was also observed by the greenback’s major counterparts with EUR/USD contained just below 1.1100 amid political uncertainty in the bloc’s periphery in which Italy PM Conte submitted his resignation following the breakdown of the ruling coalition, and after Spain’s acting PM Sanchez failed in his first attempt to form a new government amid differences between his Socialists and the Podemos party. GBP/USD was quiet and held on to the recent gains spurred by comments from German Chancellor Merkel regarding practical solutions to the backstop and reports that some in the EU are said to have hinted at concessions on the backstop in back channels, although the upward momentum has dissipated as Merkel also noted her comments concerned the political declaration on future ties not the WA and as sides continued to point the finger of blame at each other. Elsewhere, USD/JPY and JPY-crosses rebounded on a resumption of this week’s price swings, while antipodeans were choppy with support following a firmer than expected PBoC reference rate setting, counterbalanced by their high beta properties. 

COMMODITIES

Commodities were mixed with WTI crude futures slightly higher and back above the USD 56.00/bbl level after the prior day’s choppy price action, with marginal gains seen following a larger than expected draw in the latest headline API crude inventories and reports Alberta extended its output curtailments for another year but doubled the daily limit per producer. Elsewhere, gold was lacklustre with price action tentative ahead of the FOMC minutes and copper prices also languished alongside the cautious risk tone, as well as weakness in Chinese commodity prices in which benchmark Chinese iron ore prices slumped more than 4% to a 10-week low shortly after the open. 

API Crude Inventories -3.5mln bbls vs. Exp. -1.9mln bbls (Prev. +3.7mln bbls).(Newswires)

Canada's Alberta extended oil production curtailments through to end-2020 due to slow pipeline progress and raised the limit from 10k bpd to 20k bpd per producer. (Newswires)

An oil tanker, The Bonita Queen, carrying 600k barrels of Iranian oil is headed to Syria, which would violate Western sanctions, according to sources cited by Fox. (Fox News)

GEOPOLITICS

US Special Envoy for North Korea Biegun said US is prepared to restart discussions as soon as North Korea are ready. In related news, a Japanese defence report noted that North Korea has already achieved miniaturization of a nuclear warhead, while there were separate comments from US Marines Commandant Berger that US, Japan and South Korea share common view of North Korea threat, as well as China's long-term threat to stability. (Newswires)

Venezuela President Maduro said he had authorized secret meetings for months between top officials and the Trump administration. (Newswires)

US

The TPLEX moved higher on an illiquid August Tuesday as risk appetite faded, with participants tentative ahead of key risk events later this week, namely Fed Chair Powell’s remarks at Jackson Hole. The move higher was predominantly in the European session, and exacerbated by some chunky block buys, with the having bull flattened by settlement; the 10-year yield fell 5bps whilst the 2-year yield fell 3bps, leaving the curve approximately 2bps flatter. US T-note future (U9) settled 9+ticks higher at 130-23+.

US President Trump reiterated that the Fed needs to be proactive and cut interest rates, while he added that the administration is looking at possible tax cuts and that the US is very far from a recession. Furthermore, Trump added he is not thinking about doing anything at this moment on tax cuts but it is something he is considering and White House Deputy Press Secretary Gidley also stated that President Trump is mulling all options for tax cuts. (Newswires)

US President Trump postponed a meeting with Denmark PM Frederiksen due to her refusal to discuss purchase of Greenland, while he added the PM was able to save a great deal of expense and effort for both sided by being so direct and that he looks forward to rescheduling sometime in the future. (Twitter)

Fed's Daly (non-voter, dove) said she sees solid domestic momentum that points to a continued economic expansion, while Daly added she doesn’t think were headed to a recession and her support for a cut last month did not reflect concern about an economic downturn. (Newswires).