• European indices are set to end the month on a high, as sentiment remains strong on a lack of fresh trade newsflow
• ECB's Lautenschlager says it is much too early for a huge package and APP is a last resort, largely echoing ECB’s Knot
• USD is firmer vs. most G10 counterparts while the Fixed complex paints a mixed/little changed picture
• Looking ahead, highlights include US Core PCE & Chicago PMI, Canadian GDP

ASIA-PAC

Asian equity markets headed into month-end higher across the board after the tumultuous US-China trade saga took a positive turn following comments from Mofcom spurred that hopes regarding talks in September and indicated that China doesn't plan to immediately retaliate against President Trump’s latest tariff hikes. ASX 200 (+1.5%) and Nikkei 225 (+1.2%) advanced from the open with notable strength seen in Australia’s trade-sensitive sectors and as earnings continued to trickle in, while Tokyo trade was buoyant with focus on a slew of mixed data in which Industrial Production significantly topped estimates and amid reports that Japan permitted the first exports of hydrogen fluoride to South Korea since curbs were enacted. Hang Seng (+0.1%) and Shanghai Comp. (-0.1%) were underpinned by the trade hopes after Mofcom stated that both sides are discussing the September talks and that the sides have been in touch, while it also suggested that China wants to settle the dispute calmly and avoid further escalation. Furthermore, earnings have also been a driving force with firm gains in China’s largest bank ICBC, as well as oil majors CNOOC and PetroChina following their results, although upside in the broader market was contained given the looming additional tariffs and after continued PBoC inaction resulted to a consecutive weekly net liquidity drain. Finally, 10yr JGBs were lower with safe-haven demand sapped by the positive risk tone and after the BoJ reduced its purchases in 5yr-10yr JGBs to JPY 400bln from JPY 450bln for today’s Rinban operation.

PBoC skipped open market operations for a net weekly drain of CNY 130bln vs. Prev. drain of CNY 30bln last week. (Newswires) PBoC set CNY mid-point at 7.0879 vs. Exp. 7.1197 (Prev. 7.0835)

Global Times tweeted China is unswervingly tethered to its non-stop opening-up drive and reforming its economic system, even when the country is forced into a battle of tit-for-tat tariffs with the US on a massive, unprecedented magnitude. (Twitter)

Hong Kong rejected the appeal against the protest ban on Saturday, while it was also reported that Hong Kong arrested prominent activists Joshua Wong, Andy Chan and Agnes Chow. Subsequent reports indicate that Wong and Chow have been released. (Newswires)

BoK kept the 7-day Repo Rate unchanged at 1.50% as expected. BoK noted the decision was not unanimous with BoK’s Cho and Shin the dissenters who voted for a cut, while it stated it will maintain its accommodative policy stance and Governor Lee also commented the BoK still has a certain amount of policy room. (Newswires)

Japanese Industrial Production (Jul P) 1.3% vs. Exp. 0.3% (Prev. -3.3%). (Newswires)

Japanese Industrial Production (Jul P) Y/Y 0.7% vs. Exp. -0.5% (Prev. -3.8%)

Japanese Retail Sales (Jul) M/M -2.3% vs. Exp. -0.9% (Prev. 0.0%)

Japanese Retail Sales (Jul) Y/Y Jul -2.0% vs. Exp. -0.8% (Prev. 0.5%)

Japanese Tokyo CPI (Aug) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.9%)

Japanese Tokyo CPI Ex. Fresh Food (Aug) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.9%)

Japanese Tokyo CPI Ex. Fresh Food & Energy (Aug) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.8%)

GEOPOLITICS

China rejected proposal from Hong Kong Government to withdraw the extradition bill this summer, highest levels of Chinese government were involved in the decision., according to sources. (Newswires)

UK/EU

ECB's Lautenschlaeger (Hawk), when asked about the need for a package of stimulus measures, Echoes ECB's Knot by saying it is much too early for a huge package, believes the APP measure is a last resort that should only be used if deflation is a risk, and rate cuts would be something to think about before considering a non-standard measure like APP. (Newswires)

EU HICP Flash YY Aug 1.0% vs. Exp. 1.0% (Prev. 1.0%)

- EU HICP-X F&E Flash YY Aug 1.1% vs. Exp. 1.1% (Prev. 1.1%)

- EU HICP-X Food, Energy, Alcohol & Tobacco Flash YY (Aug) 0.9% (Prev. 0.9%)

A Scottish Judge has rejected a bid for an interim block on UK PM Johnson's decision to suspend parliament, according to the BBC. Subsequently, reported that a court hearing on the decision to suspend parliament will take place on September 5th. (BBC/Newswires)

UK PM Johnson has ordered Brexit Advisor Frost to "step up the tempo" in talks over a new deal with Brussels. Frost will meet his counterparts twice a week in Brussels, starting next week. (Telegraph)

UK House of Commons Speaker Bercow has reportedly been in contact with Tory rebels whilst on holiday this week regarding plans to stop PM Johnson from suspending Parliament. (Telegraph)

Tory grandee and former Chancellor Clarke said he would be prepared to back opposition Labour party leader Corbyn as caretaker PM to avert a no-deal Brexit as long as he could be kept under control. (Sky News)

Opposition Leader Corbyn has put his support behind a plot by his hard-left supporters to “shut down the streets” by whipping up the biggest act of civil disobedience in decades to protest at PM Johnson’s Brexit plans. (Telegraph)

UK GfK Consumer Confidence (Aug) -14 vs. Exp. -12.0 (Prev. -11.0); matches lowest since mid-2013. (Newswires) UK Lloyds Business Barometer (Aug) 1 (Prev. 13); lowest since December 2011

EQUITIES

Major European indices are firmer this morning [Euro Stoxx 50 +0.8%] as markets look to round a volatile week and month off on a positive tone, ahead of next month’s Central Bank infused slate. European bourses positivity follows on from the relatively strong performance seen in the Asia-Pac session, as sentiment received a boost on US-China updates; although, trade newsflow has been light in European hours. In terms of sectors the STXX Housing Sector (+2.2%) is outperforming on the back of reports that the rent freeze in Berlin may not be as strict as was initially feared/reported. Reports which have led to Deutsche Wohnen (+12.9%) topping the Stoxx 600, with Vonovia (+5.8%) not far behind. Elsewhere, other notable movers include Daimler (+2.3%) after being upgraded to buy at Kepler Chevreux, which has helped the auto sector more broadly (+1.7%). Separately, Deutsche Bank (+0.1%) are lagging the DAX (+0.6%) after reports that the Co. are examining the closure of local branches and are likely to begin an equity derivatives book auction in September. More broadly, the Banking index (+0.7%) remains in positive territory but is towards the bottom of the index pile, which may be partially explained by S&P downgrading Argentina’s credit rating to ‘Selective Default’ from ‘B-‘ after the country stated it would be delaying debt payments.

FX

EUR - The single currency is edging closer to ytd lows vs the Dollar at 1.1027 following more dire German data (retail sales), and despite ECB’s Lautenschlaeger adding her hawkish views to those of Knot and Weidmann ahead of September’s policy meeting. Month end rebalancing flows are not providing traction/support this time as light Usd sales are touted against all G10s bar the Euro, while even the usual RHS flows/orders in Eur/Gbp seem to be conspicuously absent or relatively small given that the cross remains capped ahead of 0.9100 and the Pound is hardly firm in its own right. In terms of fundamentals, the ECB is still widely expected to deliver some form of stimulus next month even if not the big bazooka favoured by Rehn and other doves perhaps. However, hefty option expiry interest at 1.1050 (1.9 bn) could be cushioning Eur/Usd vs smaller size at the 1.1000 strike (1 bn), albeit amply backed up by barrier defences.

USD - Notwithstanding the mostly bearish portfolio models noted above, the Greenback is only really softer vs the Yen in major markets, and the DXY has probed above resistance ahead of the 2019 peak, though remains some way below at 98.609 vs 98.932. Looming US data/surveys could give the index further impetus, but direction looks more contingent on broader risk sentiment and US-China trade developments with repercussions for Treasury yields and the curve alongside the Euro’s ability to evade further weakness.

JPY - Bucking the overall trend, but marginally the Yen is holding a tight line around 106.50 vs the Buck following a raft of mixed Japanese data overnight and with plenty flanking the headline pair either side of the range. 1.4 bn expiries reside between 106.00-15 and the 21 DMA is only a fraction above at 106.17, while exporter supply is said to be layered from 106.70 right up to and through 107.00 at 107.10.

CHF - In contrast to its fellow safe-haven, the Franc has retreated towards 0.9900 vs the Dollar and below 1.0900 against the Euro even though Switzerland’s KOF index was better than expected, and it appears evident that latest SNB warnings about action to curb excessive Chf demand are being heeded.

GBP/CAD/NZD/AUD - All narrowly mixed against the Greenback, with Cable deriving some traction above 1.2150 and the 21 DMA (1.2154) to retest offers/resistance around 1.2200, while the Loonie continues to straddle 1.3300, but could finally break out of its shackles if Canadian GDP is outside consensus. Elsewhere, the Kiwi and Aussie are still top heavy on a mixture of dovish RBNZ/RBA and downbeat economic indicators not to mention negative input from RBA’s Debelle, with Aud/Usd only just hovering above 0.6700 and Nzd/Usd struggling to keep tabs on 0.6300.

SEK/NOK - The Scandi Crowns are mixed vs the Euro, but both looking technically weak as the crosses trade above 10.8000 and 10.0000 respectively. However, the Sek is underperforming ahead of next week’s Riksbank policy meeting that could culminate in a dovish tweak to forward guidance via the timing of the likely next rate hike and/or a flatter repo path.

Notable Option Expiries:

- EUR/USD: 1.1000 (1BLN), 1.1025 (450M), 1.1050 (1.9BLN), 1.1065 (500M), 1.1090-1.1100 (2.1BLN), 1.1110-15 (1.6BLN), 1.1150-65 (1.2BLN)

- AUD/USD: 0.6755-70 (1.5BLN)

- USD/JPY: 105.50 (1.7BLN), 105.75 (420M), 106.00-15 (1.4BLN), 106.50 (330M), 107.00-10 (800M)

Australian Building Approvals (Jul) M/M -9.7% vs. Exp. 0.0% (Prev. -1.2%). (Newswires) Australian Building Approvals (Jul) Y/Y -28.5% vs. Exp. -22.2% (Prev. -25.6%) Australian Private Sector Credit (Jul) M/M 0.2% vs. Exp. 0.2% (Prev. 0.1%) Australian Private Sector Credit (Jul) Y/Y 3.1% vs. Exp. 3.2% (Prev. 3.3%)

S&P downgrades Argentina rating to selective default from B-. (Newswires)

FIXED

Difficult to describe the tone or depict a decisive trend, as bonds continue to move independently and almost bereft of a definitive or obvious catalyst. However, Bunds have made a spirited recovery from 178.63 lows to regain sight of 179.00 vs Gilts lagging closer to their lows and BTPs also regaining momentum, though still well off Thursday’s heady 147.00+ contract best. Meanwhile, US Treasuries are back in bear-steepening mode, though mildly ahead of a busy end of month agenda and following a tepid 7 year auction, but a lengthy extension for August may be supportive.

COMMODITIES

WTI and Brent are in negative in territory and failing to benefit from the strong performance in stocks thus far; with WTI retreating somewhat from yesterday’s weekly high of USD 56.86/bbl and Brent painting a similar picture. In terms of catalysts there have been no fundamental updates for the complex, though its worth nothing that today is Brent’s Oct’19 future expiry which, alongside month-end flows, may be playing a role in today’s price action. Turning to metals, where spot gold has slipped somewhat on the strength in stocks and the USD’s strength this morning; as such the yellow metal looks set to finish the week just a few dollars away from its Monday open at USD 1527/oz. Separately, UBS note that iron ore prices have had a very volatile H1, and the metal is now being afflicted by slower production and supply lifts which may push it below the USD 80.0/t mark.