• Core European bourses are marginally softer this morning as sentiment took a downturn in-spite of strong EZ data
• Chinese Commerce Ministry said China will have to retaliate if US persists on current course, adding that any new measures will lead to escalation, unreliable entity list will be published soon
• Italian President Mattarella is meeting with parties today, announcement on a potential PD/5-Star deal expected after 16:00BST today
• USD is mixed, with safe haven JPY remaining firm and antipodeans weighed on as CNH flirted with the 7.10 mark vs. USD
• Looking ahead, highlights include US Flash PMIs, US Initial Jobless Claims and EZ Consumer Confidence (Flash), Jackson Hole Symposium Begins, ECB Minutes & French President Macron meeting UK PM Johnson
• Earnings from: Salesforce.com, HP

ASIA-PAC

Asian equity markets traded mixed as the region failed to sustain the early momentum from Wall St where sentiment was underpinned by strong retailer earnings and after the FOMC minutes did little to alter the landscape as they showed a divide among officials on rate cuts. ASX 200 (+0.3%) and Nikkei 225 (U/C) were both higher at the open with tech and energy the outperformers on the busiest day of the earnings season in Australia, while Tokyo trade was less decisive as price action eventually reflected a choppy currency and after a lack of progress in talks between Japanese and South Korean Foreign Ministers to resolve the ongoing spat. Hang Seng (-0.8%) and Shanghai Comp. (+0.1%) were subdued amid CNY weakness and as Hong Kong’s property sector suffered the brunt of the Hong Kong protests with developers said to be reducing prices to support sales, although losses in the mainland have been cushioned by the PBoC’s liquidity efforts. Finally, 10yr JGBs were initially unchanged amid similar uneventful trade in T-notes, but later saw mild support after firmer demand at the enhanced liquidity auction for long end JGBs and as risk tone began to deteriorate.

PBoC injected CNY 60bln via 7-day reverse repos for a daily net injection of CNY 30bln. (Newswires)

PBoC set CNY mid-point at 7.0490 vs. Exp. 7.0519 (Prev. 7.0433)

Canadian PM Trudeau said he will defend Canada’s interests in China dispute and stated “we do not escalate, we also do not back down”, while he also urged dialogue and respect for fundamental freedoms in Hong Kong. (Newswires)

Chinese Commerce Ministry said China will have to retaliate if US persists on current course, adding that any new measures will lead to escalation, declines to comment on possible retaliatory measures, will publish unreliable entity list soon. (Newswires)

- Impact from US tariffs manageable, China is fully confident it can handle all challngers

- China/US trade teams have been keeping in touch

GEOPOLITICS

North Korea has carried out live fire drills by bombing replicas of South Korea's F-15K fighter jets, surface to air missiles and a radar. (Newswires)

South Korea state they will not be renewing their intelligence accord with Japan, according to the Blue House. (Newswires)

Iran has displayed a new locally built mobile missile defence system, reported via Iranian news agencies. (Newswires)

Iranian Foreign Minister Zarif says he is prepared to work on France's proposals regarding a nuclear deal. (Newswires)

Senior EU Official says the EU would be against bringing Russia back to the current format of G7 world leaders & summit could temper some trade tensions, there is blueprint for positive developments in EU-US trade ties. (Newswires)

UK/EU

Italian President Mattarella will meet with the Democratic Party at 1000BST, Forza Italia at 1100BST, Salvini’s League at 1500BST and the 5-Star Movement at 1600BST today in order to decide the next steps for Italian politics. In terms of comments from the President he wants parties to show clear signals of a possible deal on Thursday regarding the forming of a new government and wants to see clear progress next week on this. (Newswires)

Italian PD Leader Zingaretti has told President Mattarella their 5 preconditions for a government, and adds that they will not enter into a government at 'any cost'. (Newswires)

German Finance Ministry said early indicators suggest sustained slowdown in the industrial sector and that external risks have risen significantly which is fuelling business uncertainty, while there were separate reports the German government is reportedly considering a ban on negative interest rates for retail savers. (Newswires/FAZ)

EU Markit Manufacturing Flash PMI (Aug) 47.0 vs. Exp. 46.2 (Prev. 46.5)

- EU Markit Services Flash PMI (Aug) 53.4 vs. Exp. 53.0 (Prev. 53.2)

- EU Markit Comp Flash PMI (Aug) 51.8 vs. Exp. 51.2 (Prev. 51.5)

French Markit Manufacturing Flash PMI (Aug) 51.0 vs. Exp. 49.5 (Prev. 49.7)

- French Markit Services Flash PMI (Aug) 53.3 vs. Exp. 52.5 (Prev. 52.6)

- French Markit Comp Flash PMI (Aug) 52.7 vs. Exp. 51.8 (Prev. 51.9)

German Markit Manufacturing Flash PMI (Aug) 43.6 vs. Exp. 43.0 (Prev. 43.2)

- German Markit Services Flash PMI (Aug) 54.4 vs. Exp. 54.0 (Prev. 54.5)

- German Markit Comp Flash PMI (Aug) 51.4 vs. Exp. 50.5 (Prev. 50.9)

EQUITIES

European stocks have given up the earlier PMI-induced gains [Eurostoxx 50 -0.1%] as the sentiment seen from firmer EZ metrics across the board failed to persist, and amid little follow-through from FOMC Minutes. Italy’s FTSE MIB (+0.4%) is kept afloat as Italian President Mattarella holds a barrage of talks with party leaders in search of a coalition to fill the country’s political void in order to pass the 2020 budget later this year. Meanwhile, UK’s FTSE 100 (-0.5%) marginally lags its peers as heavyweight tobacco stocks (Imperial Brands -1.0%, British American Tobacco -1.4%) weigh on the index amid news that  the US House Energy and Commerce Committee launched a probe into four e-cigarette companies, British American Tobacco, Atria Group (MO), Japan Tobacco (2914 JT) and Reynolds American; seeking information on Cos’ research into public heath impacts, marketing practices and promotion of e-cigarette use by adolescents. Moreover, broker downgrades for BHP (-1.7%), Anglo American (-2.0%) and Rio Tinto (-0.4%) adds further pressure on the index. Sectors are almost all in the red with cyclical stocks faring worse than defensives, in-fitting with the current risk tone. In terms of individual movers, Thyssenkrupp (+5.4%) shares jumped to the top of the Stoxx 600 amid reports that parties interested in Co's elevator unit include Advent, Apollo, CVC, Carlyle, KKR and possibly EQT, according to Manager Magazin. Meanwhile, BBVA (+1.3%) and Caixabank (+1.7%) benefit from broker upgrades at HSBC.

Amazon (AMZN) is on track to invest over USD 15bln this year in infrastructure, tools, services, people and programs to aid third-party sellers. (Newswires)

FX

EUR - Not the strongest G10 currency, but the Euro perked up in wake of the flash Eurozone PMI surveys that were firmer than forecast across the board. Eur/Usd started to climb after the French preliminary prints and then crossed 1.1100 and beyond when German and pan headlines maintained the recovery trend, but faded again before testing offers reportedly waiting at 1.1120. Note also, hefty option expiries between 1.1095 and the big figure may be exerting a gravitational pull given 1.65 bn rolling off at the NY cut.

GBP/JPY - The other major outperformers as the Dollar continues to drift post-FOMC minutes that failed to provide any further or clearer insight on guidance for the September policy meeting. Indeed, the DXY remains tightly bound just above the 98.000 handle and inside relatively narrow confines for the week so far (between 98.451-115), awaiting Fed chair Powell for clearer pointers (hopefully) at Jackson Hole on Friday. Meanwhile, Sterling is still seemingly taking the positive view that there is time left (albeit limited and decaying) to resolve the Irish backstop stalemate and reach some sort of Brexit deal before October 31, with Cable keeping its head above 1.2100, but capped by the 21 DMA circa 1.2154 and Eur/Gbp pivoting 0.9150 even though the single currency is underpinned as noted above. Elsewhere, the safe-haven Yen retains an underlying bid around 106.50 amidst ongoing global trade and geopolitical tensions after tough talks between the US and Japan failed to produce a breakthrough and SK not renewing its intelligence sharing agreement with Japan.

NZD/AUD/CAD - All on the backfoot vs their US counterpart as the Kiwi loses more ground after failing to sustain recovery momentum above 0.6400 and the Aussie likewise following fleeting bounces over 0.6800, but also undermined by CBA PMIs overnight showing sub-50 manufacturing and composite readings. The Loonie is holding up a bit better after Wednesday’s frothy Canadian CPI, but unable to rally too far beyond 1.3300 ahead of wholesale trade data later today.

SEK/NOK - Also weaker, partly on fundamentals and technically as Swedish unemployed jumped in SA terms and Norway trimmed its Q3 oil investment estimate, with Eur/Sek back up above 10.7000 and Eur/Nok hovering nearer the top of 9.9550-9145 trading parameters against the backdrop of faltering risk appetite.

EM - Widespread losses against the Greenback, but Cnh and Try depreciation looks particularly eye-catching as the offshore Yuan teeters around 7.1000 amidst more warnings from China that retaliation is in the pipeline if the US presses ahead with extra tariffs on September 1st. Meanwhile, the Lira continues to list and tested 100 DMA support circa 5.7922 even though Turkish consumer sentiment picked up in August.

South Africa Treasury has instructed government departments to draft budget reductions of 5% for 2020, then 6% and 7% for the respective years after. (Newswires)

FX Option Expiries of Note:

- EUR/USD 1.1040-50 (1.7BLN), 1.1055-60 (800M), 1.1095-00 (1.65BLN), 1.1135-40 (960M), 1.1165-70 (1.6BLN), 1.1175-80 (1.3BLN)

- USD/JPY 105.00-10 (1.55BLN), 106 (576M), 106.65 (325M), 107.00-04 (1.1BLN)

FIXED

Not much traction for Gilts via a dire CBI retail survey with the headline sales balance tumbling and other components also bleak, but the 10 year UK benchmark is holding off Wednesday’s Liffe low (just) within a 134.29-71 range, like Bunds that briefly inched below yesterday’s Eurex intraday base before paring some losses between 178.18-94 parameters. Meanwhile, Italian bonds are consolidating and awaiting more news from Rome with the 10 year BTP back under 143.00 having just topped the round number earlier. Turning to US Treasuries, futures have retreated and the curve has reverted to steepening ahead of claims data and the Markit prelim PMIs that could bounce in lime with the Eurozone surveys.

COMMODITIES

WTI and Brent futures are modestly firmer on the day with the former around the 56/bbl mark, whilst the latter remains near the 60.50/bbl level having found a base at 60/bbl. News flow has been light thus far for the complex with price action likely to be dictated by macro developments/sentiment heading into Fed Chair Powell’s speech tomorrow. Meanwhile, the WTI/Brent Arb widened to around USD 4.60/bbl vs. USD 3.60 earlier in the week. ING notes that “it does appear that the relative strength in WTI is starting to raise concerns over how it may impact demand for US oil from overseas buyers”. Elsewhere, gold is marginally softer and pivots on either side of 1500/oz ahead of ECB Minutes and as the Jackson Hole Symposium goes on underway, with Fed Chair Powell due to speak tomorrow. Copper prices declined further below the 2.6/lb mark as risk appetite somewhat waned.

DNB Markets lowers its 2019 Brent forecast to USD 66/bbl (Prev. USD 73/bbl), 2020 to USD 64/bbl (Prev. USD 75/bbl) and 2021 to USD 68/bbl (Prev. USD 76/bbl). (Newswires)