• European indices are in negative territory as sentiment is subdued on reports that the US & China are struggling to agree a schedule for September’s talks
• RBA left rates unchanged at 1.0% and maintained their wait and see approach
• UK Parliamentarians return to Westminster as Brexit remains the key focus for UK assets
• Looking ahead, highlights include US Construction Spending & ISM Manufacturing PMI, UK Parliament’s return, vote on incoming ECB President Lagarde, Fed’s Rosengren

WEEKEND/HOLIDAY HEADLINE SUMMARY

The new 15% US tariffs on about USD 112bln of Chinese goods went into effect, while China’s Customs Tariff Commission of the State Council also confirmed the first round of tariff increases on USD 75bln of US goods. (Newswires)

Chinese Manufacturing PMI (Aug) 49.5 vs. Exp. 49.7 (Prev. 49.7); Chinese Caixin Manufacturing PMI (Aug) 50.4 vs. Exp. 49.8 (Prev. 49.9); first expansion in 2 months. (Newswires)

ECB’s Rehn (Dove) stated that it is important to maintain strong monetary stimulus and that the situation called for an effective policy package. (Newswires)

ECB’s Holzmann (Hawk) stated he is worried about further additional stimulus to the EU and lowering the deposit rate, while he suggested that if there is an adjustment in rates, it should be a hike not a cut. (Newswires)

ASIA-PAC

Asian equity markets traded indecisively following a non-existent lead from Wall St due to the Labor Day holiday and as upcoming key risk events, as well as reports US and China are struggling to set a meeting for trade talks this month, added to the non-committal tone. ASX 200 (U/C) and Nikkei 225 (+0.1%) were choppy with upside in Australia limited by mixed data and amid the RBA rate decision where the central bank kept rates unchanged as expected, while advances in Tokyo were restricted by a mixed currency. Hang Seng (-0.4%) and Shanghai Comp. (+0.2%) conformed to the indecisive tone after reports noted difficulty in setting up planned US-China trade talks and after MOFCOM lodged a case against the US at the WTO, with PBoC inaction and a net daily liquidity drain of CNY 80bln also contributing to the lacklustre sentiment in China. Finally, 10yr JGBs were subdued after the pullback in T-notes but then gradually recovered after mixed 10yr JGB auction results.

PBoC skipped open market operations for a net daily drain of CNY 80bln. (Newswires) PBoC set CNY mid-point at 7.0884 vs. Exp. 7.1099 (Prev. 7.0883)

US & China are reportedly struggling to agree on a schedule for this month’s planned trade talks. (Newswires)

Hong Kong Chief Executive Lam said disruption at the airport has harmed Hong Kong's international image and that the economy is seeing a downturn impacting every industry, while Lam added she believes she can still bring the city out of current trouble and has never contemplated discussing a resignation. There were separate comments from Hong Kong Deputy leader Cheung who does not rule out declaring a state of emergency in response to tens of thousands of high school and university students boycott classes, as well as increasing violence between police and protesters. (Newswires)

GEOPOLITICS

China Hong Kong Affairs Office says Hong Kong situations has seen some positive change, adding that we have come to critical juncture; those who care for HK must fully recognise that there can be no hesitation in stopping violence. (Newswires)

UK/EU – link to UK Parliament analysis piece

Application for an emergency Brexit debate has been submitted as expected, House of Commons speaker will consider it later today. (Newswires)

UK PM Johnson said he is encouraged by progress on Brexit and that chances of a deal are rising, while he added that the EU can see UK wants deal and has a vision for future relationship. PM Johnson also reiterated his argument that getting a deal would be made impossible if MPs vote for a Brexit delay and that the UK is to leave on 31st October as he will not ask for a delay under any circumstances but believes UK will get a deal at the October EU summit. In other news, UK PM Johnson said Chancellor Javid will announce a spending round on Wednesday. (Newswires/Sky)

UK PM Johnson warned if lawmakers vote for another Brexit delay on Tuesday, there will be a vote for a General Election on Wednesday with the view to conduct the vote on 14th October rather than accept another Brexit delay, while reports also suggested that Johnson wants an election before the EU Council meeting scheduled for 17th-18th October. (Twitter/ITV/Sun)

The text of the bill which MPs want to use to prevent a no-deal Brexit has been published which, if passed, would mandate PM Johnson to seek a Brexit extension until 31st January 2020 if the PM has not passed a Brexit agreement by 19th October 2019 (the day after the Brexit summit), unless MPs pass a motion to approve a no-deal exit. (Guardian/BBC)

UK opposition Labour party leader Corbyn will not fall for PM Johnson's no-deal snap election trick and will only support a general election if the threat of a no-deal is removed, according to shadow cabinet minister Lloyd. (Huffington Post)

UK BRC Retail Sales YY Aug -0.5% (Prev. 0.1%). (Newswires) Barclaycard said UK consumer spending increased 1.3% Y/Y. (Newswires)

UK Markit/CIPS Cons PMI (Aug) 45.0 vs. Exp. 45.5 (Prev. 45.3)

As a reminder, Italy's 5-Star Movement members will take part in an online vote between 0700-1700BST today on whether the party should form a government with the Democratic Party (PD). (Newswires) Of note, the latest LA7/SWG poll suggests that 51% of 5SM voters support forming a government with the PD party, whilst 69% of PD voters are in favour of forming a government with the 5SM.

EQUITIES

European indices are marginally lower on the day [Eurostoxx 50 -0.4%] following on from a mostly subdued Asia-Pac lead and ahead of US markets’ first chance to react to the implementation of further US/China tariffs. UK’s FTSE 100 (-0.2%) derives some modest support, but remains in negative territory, from the weaker Pound as UK Parliament returns from their summer recess to challenge PM Johnson’s attempt to prorogue Parliament until 14th October. Sectors are mostly in the red, albeit defensive sectors are less dented than cyclicals. Turning to individual movers, easyJet (-3.9%) rests at the foot of the Stoxx 600 index due to a broker downgrade at Kepler Cheuvreux, whilst Iliad (-4.3%) is not far behind on the back of earnings. On the flip side, Renault (+1.2%) and Fiat Chrysler (+2.5%) shares spiked higher amid source reports that Renault and Nissan are seeking ways to end their alliances discord, a resolution may potentially lead to a Fiat Chrysler deal.

Renault (RNO FP) and Nissan (7201 JT) are seeking ways to end their alliances discord, a resolution may potentially lead to a Fiat Chrysler (FCA IM) deal., according to sources. (Newswires)

FX

GBP - The Pound has racked up more losses in advance of UK Parliament reconvening after the Summer break and in anticipation of a showdown between anti-no deal politicians across party divides and PM Johnson’s pro-Brexiteers. Like yesterday, stops were triggered in Cable once the previous 1.2015 ytd low was breached and again through the psychological 1.2000 before another round was tripped on a break of 1.1980 that sat just below 1.1986-83 ‘support’ from mid-May 2017. The selling has subsequently abated even though construction PMI missed expectations in line with Monday’s manufacturing headline print, but Sterling remains weak and extending relative declines vs G10 pears with Eur/Gbp firmly above 0.9100 and Gbp/Jpy hovering around 127.00 after an order driven lurch to circa 126.70 at one stage.

AUD/JPY/CHF - In contrast to the underperforming Pound, and despite ongoing strength in the Greenback (ie DXY up to 99.356 at best), the Aussie and Yen are at the top of the major ranks, as Aud/Usd reclaims 0.6700+ status and Usd/Jpy slips back to test underlying bids/support around 106.00. No change in rates or wait-and-see guidance from the RBA overnight has helped the Aussie stabilise amidst the ongoing US-China trade stalemate and further Yuan weakness, while a broader downturn in risk sentiment is keeping the Yen underpinned alongside Gold, but not the Franc uniformly. Indeed, Usd/Chf is still holding above 0.9900, while Eur/Chf creeps deeper below 1.0850, albeit largely due to Euro depreciation on top of no verbal intervention from the SNB, so far.

CAD/NZD/EUR - The Loonie and Kiwi have both lost more ground relative to their US peer (and latter against the aforementioned recovering Aussie as Aud/Nzd eyes 1.0700), with Usd/Cad climbing above 1.3350 ahead of NA Markit manufacturing PMIs, and ISM in the US, while Nzd/Usd has pulled back under 0.6300 into the latest GDT auction and not really gleaning support from NZ Finance Minister Robertson noting some robust domestic data and firm economic fundamentals, as he also stated that the Government is ready to react in the case of a shock. Elsewhere, the single currency continues to decline as noted above, and closer to 1.0923 support ahead of 1.0900, but may find some traction from hefty option expiries close by (2 bn between 1.0945-50).

EM - The Rand and Lira look technically and fundamentally ripe to claw back ground vs the Buck, with Usd/Zar reversing from almost 15.2900 towards 15.1250 and Usd/Try touching 5.7650 compared to 5.8220 at the other extreme in wake of SA GDP and Turkish CPI that confounded forecasts on the upside and downside respectively.

RBA kept the Cash Rate unchanged at 1.00% as expected. RBA stated the outlook for global economy is reasonable and that it is to ease policy if needed to support sustainable growth, while it added rates are to remain low for an extended period. RBA reiterated that it will monitor developments in labour market closely and that signs of a turnaround in housing market but sees inflation likely to be subdued for some time and noted the outlook for consumption remains the main domestic uncertainty.

Australian Current Account Balance (Q2) 5.9B vs. Exp. 1.4B (Prev. -2.9B). (Newswires) Australian Net Exports Contribution (Q2) 0.6% vs. Exp. 0.3% (Prev. 0.2%) Australian Retail Sales (Jul) M/M -0.1% vs. Exp. 0.2% (Prev. 0.4%)

FIXED

Gilts continue to lead the way in core debt markets and only ran out of steam when 136.00 seemed to offer too much resistance, with the 10 year debt future subsequently drifting back down towards 135.40 vs 135.90 at best. Similarly, Bunds are pausing for breath after just eclipsing their previous best, at 179.67, and perhaps -75 bp in cash terms proved sticky, while US Treasuries are hovering just shy of overnight session highs awaiting desks to return stateside from the long holiday weekend. Note, however, the curve is flatter/inverted and 10/30 year yields are back below 1.5%/2% respectively ahead of Markit and ISM manufacturing surveys.

COMMODITIES

WTI and Brent futures are on the backfoot in early EU trade, with prices around 54/bbl and under 58/bbl respectively. Prices may also see divergence as WTI had no settlement yesterday due to the US Labor Day Holiday, which will also see the weekly API and DoE inventory data pushed back by a day. Price action has largely been dictated by sentiment thus far, with ongoing US/China, Brexit and Hong Kong woes weighing on risk appetite. State-side, NHC said a tropical cyclone is expected to form later today over SW Gulf of Mexico, tropical storm warnings have been issued for portions of NE Mexico. The potential tropical cyclone Seven is located about 220 miles East of La Pesca, Mexico, with maximum sustained winds of 35mph. Meanwhile, Hurricane Dorian is reportedly stationary and is expected to drift North/Northwest later, away from the Gulf of Mexico. Elsewhere, gold is relatively flat but off of intra-day lows and in positive territory despite the DXY printing fresh YTD highs as investors increase positions in safe-haven assets. Conversely, the risk aversion has taken a toll on copper prices which currently reside below the 2.50/lb level. Finally, Dalian iron ore futures rose in excess of 4% amid a rosier demand outlook for the base metal as steel mills restock their supplies.

Saudi Arabia removed Energy Minister Khalid Al-Falih from his position as Chairman of Saudi Aramco and appointed public investment fund head Yasir Al-Rumayyan as the new Chairman ahead of an IPO. (Newswires)

NHC says a tropical cyclone is expected to form later today over SW Gulf of Mexico, tropical storm warnings have been issued for portions of NE Mexico. (Newswires/NHC)