Asian equities traded mostly lower after failing to sustain the positive lead from their counterparts in the US

·        US President Trump said he could do a quick deal with China and be a hero

·        UK PM Johnson's Brexit advisor Frost reportedly told EU officials that the government wanted a deal and downplayed the prorogation move

·        Italy's Di Maio said that after meeting President Mattarella, he was told there was a political accord with PD that Conte should be PM

·        Looking ahead, highlights include French GDP (F), German CPI & Unemployment Rate, EZ Sentiment, US GDP (2nd Estimate), Core PCE Prices & Initial Jobless Claims, Banxico Minutes, Fed’s Daly, supply from Italy & US

ASIA-PAC

Asian equity markets traded mostly lower after failing to sustain the positive, but quiet lead from their counterparts in the US where energy outperformed and the DJIA led the majors higher to reclaim 26000. ASX 200 (Unch.) and Nikkei 225 (-0.1%) were subdued with focus in Australia centred on earnings including Woolworths. Nonetheless, the downside for the broader market was limited amid gains in mining names with gold lifted by a mild safe-haven bid and after the energy complex benefitted from the recent bullish inventory data, while the Japanese benchmark gave up initial gains after succumbing to the weight of the flows into JPY. Hang Seng (-0.4%) and Shanghai Comp. (-0.1%) were also lacklustre after PBoC inaction resulted to a drain on liquidity and as China plans tighter regulations on share pledging, as well as to reduce risks for small and medium banks. The losses in Hong Kong have also been a function of weak earnings releases including China Construction Bank which was the first of the Big 4 to report and slightly missed on its FY net. Finally, 10yr JGBs received a lift from the downbeat risk tone and after similar advances of their counterparts in US where there was a strong 5yr auction and the yield inversion briefly widened again, while stronger 2yr JGB auction results also added to the upside.

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires) PBoC set CNY mid-point at 7.0858 vs. Exp. 7.1237 (Prev. 7.0835)

US President Trump said he could do a quick deal with China and be a hero in a phone in to the Farm Progress Show, while he also stated that China was supposed to buy corn but did not do it. (Newswires)

China reportedly restricted lenders investment in policy bank bonds to curb interbank funding, according to sources. (Newswires)

Hong Kong Police are to ban Saturday’s Pro-Democratic rally. (SCMP/RTHK)

China's Global Times tweeted that China urges the US to immediately cease such provocative actions to avoid unexpected events after a US Navy warship entered waters near South China Sea without China's permission, while the Global Times added that the PLA will take all necessary steps to defend China's sovereignty and safeguard peace and stability in the South China Sea. (Twitter) 

UK/EU

UK PM Johnson could reportedly create new Bank Holidays in an attempt to thwart opposition Labour party leader Corbyn's plans to block a no-deal Brexit. (The Sun)

UK PM Johnson's Brexit advisor Frost reportedly told EU officials that the government wanted a deal and downplayed the prorogation move, while Frost reiterated current backstop was not acceptable for the UK and it was separately reported that UK and EU agree to intensify discussions from next week. (Twitter/FT) An EU source stated that there is a strong sense that no-deal has just become even more of a likely possibility than it was before, while there were separate reports that UK and EU agreed to intensify discussions from next week. (Twitter/Sun/Guardian)

Allies to Speaker of the House of Commons Bercow warned that PM Johnson has poked the hornet's nest by proroguing Parliament amid claims he is to assist Remainers’ attempts to pass legislation to block a no-deal Brexit. (Telegraph) Elsewhere, Leader of Scottish Conservatives Davidson steps down citing reasons being "family and Boris". (Newswires)

MEPs from across the bloc are reportedly planning to trigger investigation into UK PM Johnson's government for breaching rule of law due to his suspension of Parliament. (Independent)

Italy's Di Maio said that after meeting President Mattarella, he was told there was a political accord with PD that Conte should be PM, while he added that their programme remains the same as always and the League asked him to be PM in a new government but he is interested in the country not his personal ambition. (Newswires) President Mattarella is to give Conte a mandate to form another government during a meeting scheduled for 08:30BST on Thursday. (Newswires)

FX

DXY was relatively flat overnight but off the prior session highs after comments from US Treasury Secretary Mnuchin that the administration has weighed countering USD strength although do not intend to intervene in the currency for now, while he also suggested that ultra-long bonds issuances are under very serious consideration. The greenback’s major counterparts were uneventful in which EUR/USD languished below 1.1100 and GBP/USD struggled to hold on to 1.2200 after the recent selling triggered by PM Johnson’s prorogation announcement. Reports also suggested PM Johnson could double down on his efforts by creating new Bank Holidays in the lead up to the Brexit. Elsewhere, USD/JPYretreated below 106.00 as the downbeat risk tone spurred flows to safe-havens and antipodeans traded lacklustre after weak data in which New Zealand Business Confidence further deteriorated and Australian Capital Expenditure unexpectedly contracted.

SNB's Maechler said uncertainty level is quite high, while Swiss inflation pressures remain very weak and that expansionary monetary policy remains needed. Maechler commented that the attractiveness of the CHF has enormously increased although a negative rate helps reduce the attractiveness and that the SNB still has plenty of room for FX intervention. (Newswires)

Australian Private Capital Expenditure (Q2) Q/Q -0.5% vs. Exp. 0.5% (Prev. -1.7%). (Newswires) Australian Private Capital Expenditure 2019-2020 (Est. 3) 113.4B (Prev. 99.14B)

New Zealand ANZ Business Confidence (Aug) -52.3 (Prev. -44.3). (Newswires) New Zealand ANZ Activity Outlook (Aug) -0.5 (Prev. 5.0)

COMMODITIES

Commodities were mixed with WTI crude futures subdued following a pullback from the recent gains triggered by the bullish inventory data and with prices dampened as risk sentiment soured overnight. Elsewhere, gold was kept afloat as it marginally benefitted from the safe-haven flows but with gains capped by a steady greenback, and copper prices were restricted as the appetite for risk soured.

GEOPOLITICS

Iran Foreign Minister Zarif said it will not be possible for Iran to engage with US unless they stop imposing a war and conducting economic terrorism, while he added the US must observe 2015 nuclear deal if it wants to meet for talks. (Newswires)

Turkey President Erdogan spoke with US President Trump via telephone regarding latest developments in Syria and bilateral issues, while Erdogan said he is in agreement with US which is a correct step towards 'safe zone' in northeast Syria. In other news, Russia and Turkey are considering creating a new fighter jet, according to Russian officials. (Newswires/Washington Post)

North Korea Parliament is conducting a rare 2nd meeting for the year today, with media speculating it is to rubber stamp a decision from leadership regarding ongoing issues with missile tests or about talks with South Korea and/or US President Trump. Yonhap)

US

The TPLEX again moved higher on Wednesday despite firmer equity indices, catching steam on the back of a strong 5-year Note auction; some desks were also attributing the growing risk of a no-deal Brexit as a tailwind. Yields continued to exacerbate their inversion with the 2s10s testing just shy of -0.6bps; on the outlook Nordea noted that inversions deepen for two to three months usually – once initially inverted - based on the past five inversions. The 5-year Note auction saw a chunky 1bps stop through the screens with the B/C ratio at 2.48x (avg. 2.36x); both indirects and dealers took above their six-auction averages, leaving less for dealers in what was evidently a strong auction. At settlement the curve was actually steeper, expect in the belly- to long-end, with Treasury yields lower between 1.5bps to 2.5bps. US T-note futures (U9) settled 7 ticks higher at 131.11+.

US Treasury Secretary Mnuchin said issuance of ultra-long bonds are under very serious consideration, while he added that the US does not intend to intervene in USD for now but the administration has weighed countering USD strength. (Newswires)

White House Trade Adviser Navarro said it is unlikely anything quick will happen with trade talks, while he suggested the Fed is needed to do its job and cut rates. (Newswires)

Fed's Daly (Non-voter, Dove) said she is biased towards running economy hot amid low inflation and uncertainty regarding full employment, while she added that persistently undershooting 2% is worrisome and that the Fed may want to consider countercyclical buffer if there is an increase in financial vulnerabilities. Daly also noted that she is currently in a "watch and see" position regarding monetary policy but is convinced using tools early and pre-emptively is better than waiting. (Newswires)

Fed's Barkin (Non-voter, Hawkish) said he is not yet persuaded on the weak inflation part of the case for a rate cut but is watching risks to growth closely and is holding his decision on rate policy until he gets to the September meeting. (Newswires)