• Asian equity markets traded with cautious gains as participants await Fed Chair Powell’s speech and after the lack of conviction on Wall St.
• In FX markets, the greenback extended above the 98.00 level, EUR/USD was contained in a tight range, USD/JPY and JPY-crosses edged mild gains and NZD/USD firmed after comments from RBNZ Governor Orr
• UK Tory Remainers who are intent on stopping a no-deal are reportedly attempting to delay Brexit, according to sources
• Italian President Mattarella stated consultations will be held on Tuesday on forming a new government, 5-Star lawmakers are backing talks with the PD Party
• Looking ahead, highlights include Canadian Retail Sales, US New Home Sales, Fed’s Powell, Bullard, Mester, Kaplan & Harker, BoE’s Carney

ASIA-PAC

Asian equity markets traded with cautious gains as participants await Fed Chair Powell’s looming speech at the Jackson Hole Symposium and after the lack of conviction on Wall St. where risk appetite was dampened by hawkish Fed rhetoric, as well as decade-low US Manufacturing PMI data. ASX 200 (+0.1%) was positive with stock news in Australia dominated by earnings including Goodman Group and Sims Metals which have surged due to profit growth, although upside in the index was limited by weakness in the commodity sectors especially gold miners after the precious metal slipped below USD 1500/oz level. Elsewhere, Nikkei 225 (+0.3%) was supported by favourable currency moves, while Hang Seng (+0.2%) and Shanghai Comp. (+0.5%) were higher despite early indecisiveness after China’s MOFCOM reiterated its threat to retaliate against the US in the trade dispute and amid mixed signals from the PBoC in which they conducted reverse repos but resulted to a net liquidity drain for the week and softened its reference rate, although not as weak as anticipated. Finally, 10yr JGBs were subdued amid similar weakness in T-notes and as stocks in the region eked mild gains, although downside was stemmed amid the BoJ’s presence in the market for over JPY 1.2tln of JGBs in 1yr-10yr maturities.

PBoC injected CNY 80bln via 7-day reverse repos for a weekly net drain of CNY 30bln vs. last week's CNY 300bln injection. (Newswires)

PBoC set CNY mid-point at 7.0572 vs. Exp. 7.0674 (Prev. 7.0490)

China Global Times Editor said US tried to suppress China, but the damage caused is less than what China had feared. (Twitter)

White House Economic Adviser Kudlow said the US is making pretty good progress in trade discussions with Japan regarding telecoms and agriculture, while there were separate comments from Japanese Economy Minister Motegi that they will resume ministerial level talks with US on trade today and are getting close to a conclusion. (Newswires)

Japanese National CPI (Jul) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.7%). (Newswires) Japanese National CPI Ex. Fresh Food (Jul) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.6%) Japanese National CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.6% vs. Exp. 0.5% (Prev. 0.5%) 

UK/EU

UK Tory Remainers who are intent on stopping a no-deal are reportedly attempting to delay Brexit by preparing to hold their own talks with Brussels, sources state. A Downing Street source added that Brussels could reject any request for an extension, even if PM Johnson is legally bound to ask for one. (Times)

Remain rebels in the UK Conservative party have delayed their attempt to force PM Johnson to abandon a No-deal Brexit amid disagreement with MPs in other parties on when to act. (The Sun)

Italian President Mattarella said new elections is a choice that cannot be taken lightly and that some parties he has spoken to said they are working towards a deal to create a coalition but needed more time which he will give. Furthermore, Mattarella also stated new consultations will be held on Tuesday, while Italian 5-Star Leader Di Maio is said to have handed Mattarella ten reforms that need passing before parliament can be dissolved. Meanwhile, 5-Star lawmakers stated that they back talks with PD on a new government. League Leader Salvini also stated that he is willing to re-form a government with 5-Star if it adopts a more constructive attitude to the League’s policies. (Newswires)

EU officials want to set up a EUR 100bln wealth fund to bolster "European champions" against American and Chinese business rivals like Google, Apple and Alibaba. (Politico)

FX

In FX markets, the greenback extended above the 98.00 level and is more determined in comparison to the choppy trade seen in the prior session where turbulence was triggered by opposing factors including hawkish Fed comments and disappointing PMI data. EUR/USD was contained in a tight range at the 1.1000 handle after the ECB minutes noted the slowdown is more protracted than previously thought and amid ongoing political uncertainty in Italy where parties have several days to attempt to form a government, while Deputy PM Salvini appeared to have changed his tune and suggested the League are still willing to re-form a government with 5-Star if it is more constructive. GBP/USD slightly pulled back but remained above 1.2200 after German Chancellor Merkel once again spurred the currency with her optimism regarding reaching a solution by the Brexit date despite contrasting views from within her close circle. Elsewhere, USD/JPY and JPY-crosses edged mild gains and another leg in this week’s price swings, while NZD/USD firmed after comments from RBNZ Governor Orr that they will do whatever it takes to support New Zealand economy but can afford to wait and observe what is happening. Furthermore, Orr stated they will see what the situation is like in November and will cut if necessary, which suggests a move in the September meeting is unlikely, while a breakdown of support around 1.0600 in AUD/NZD added to the outperformance of NZD against its trans-Tasman counterpart.

RBNZ Governor Orr reiterated a rate cut earlier reduces likelihood of having to do more later and stated they will do whatever it takes to support New Zealand economy but can afford to wait and observe what is happening, while he added that they will see what the situation is like in November and will cut if necessary. (Newswires)

COMMODITIES

Commodities were subdued with WTI crude futures unchanged amid a lack of fresh catalysts overnight and with market participants tentative ahead of Fed Chair Powell’s speech at the Jackson Hole symposium. Elsewhere, gold prices are marginally lower after having recently given up the USD 1500/oz level with the precious metal hampered by a firmer greenback following the recent hawkish Fed rhetoric, while copper prices flatlined amid the cautious tone in the region.

GEOPOLITICS

North Korea Foreign Minister Ri said US Secretary of State Pompeo casts dark shadows over US-North Korea talks and that Pompeo is more interested in his political ambitions than US foreign policy, while the Foreign Minister added we have given enough time to US and are ready for both dialogue and confrontation, while he added it would be a miscalculation if US continues with sanctions and that North Korea can remain the biggest threat to US for a long time. (KCNA)

US

Major curve spreads were mixed at settlement, although +/- 1bps or so vs Wednesday’s settlement levels. There was a steepening bias in early trade, however, underpinned by the ‘hawkish’ FOMC meeting minutes. A little bit of indecision has been seen in Thursday trade, with traders questioning if Powell will be able to deliver on the market’s dovish expectations. In pre-market US trade, Treasuries moves in sympathy with Bunds. However, the focus was back on Fed officials after remarks from Fed’s hawkish voter (dissenter) George, as well as somewhat hawkish comments from the Fed’s Harker; the net impact of these was for risk assets to come under pressure. Focus now on Powell, with risks of a disappointment.  US T-note futures (U9) settled 7+ ticks lower at 130-09+.

US President Trump plans to pressure France to repeal new tax on US tech giants and will call for India to lower tariffs at the G7. In other news, White House will reportedly not move forward with plan to cut foreign aid by billions according to sources, although US Secretary of State Pompeo later stated that President Trump is still undecided on what to do. (Newswires/Politico)

White House Economic Adviser Kudlow said he thinks economy is strong and does not believe recession talk, while he added the US is still looking at tax cuts 2.0 which US President Trump has not taken off the table and just meant there won’t be anything immediate. Kudlow also suggested there could be tax cuts before 2020 election and that short-term payroll tax cut is unlikely although personal rates could be lowered, and capital gains tax could be reduced. (Newswires)

Fed's Kaplan (Non-Voter. Dove) said he was in favour of the rate cut in July as the Fed has to be forward looking and that his expectations for growth are about 2% with risks tilted to the downside but added as long as consumers stays strong, we will have solid growth. Kaplan also stated he is taking time to assess all incoming data ahead of September FOMC and would like to avoid taking further action on rates although separately noted that global growth risks and trade uncertainty could result to a rate cut. (Newswires/WSJ)