• Asian equity markets traded higher across the board; Japan outperformed; Mainland China posted solid gains
• China’s Mofcom announced US and China will hold trade talks early October in Washington DC, US VP Pence said President Trump will continue to take a strong stand on China
• UK lawmakers passed the third reading of the bill to delay the Brexit, government said the bill will complete its passage through the Lords on Friday, UK PM lost bid for snap election
• In FX markets, the DXY was lacklustre below the 98.50 level, USD/JPY was boosted by the risk appetite, GBP/USD took a breather from recent outperformance
• Looking ahead, highlights include Swiss GDP, German Industrial Orders, US ADP, Initial Jobless Claims, Composite & Services PMI (Final), Durable Goods & Factory Orders, Riksbank Rate Decision, ECB’s de Guindos, BoE’s Tenreyro, BoC’s Schembri & SNB’s Jordan, supply from Spain, France & UK

ASIA-PAC

Asian equity markets traded higher across the board as the region took impetus from the upside in global peers after dovish Fed rhetoric and positive developments in Hong Kong in which the extradition bill was fully withdrawn, while US-China trade hopes exacerbated the gains after the sides agreed to hold talks in Washington early next month. ASX 200 (+0.8%) and Nikkei 225 (+2.2%) were boosted by the trade developments and with the energy sector frontrunning the gains in Australia due to the recent advances in oil prices, while exporter names in Tokyo benefitted from a weaker currency. Hang Seng (+0.2%) and Shanghai Comp. (+1.6%)conformed to the heightened risk appetite after the phone call between China’s Vice Premier Liu He with US Treasury Secretary Mnuchin and USTR Lighthizer in which the sides also agreed on trade consultations mid-September ahead of next month’s talks and will take action to create good conditions for the consultations. Furthermore, expectations of PBoC easing after China’s Cabinet announced it will implement RRR reductions ‘in time’ have added to the optimism, although the advances in Hong Kong were restricted considering its benchmark had already surged just shy of 1000 points or a near-4% gain yesterday due to the extradition bill withdrawal. Finally, 10yr JGBs briefly slipped below the 155.00 level amid pressure across global bond futures triggered by the US-China trade talk announcement, although prices later nursed some of the losses after a mostly firmer than previous 30yr JGB auction.    

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0852 vs. Exp. 7.0955 (Prev. 7.0878)

China’s Mofcom announced US and China will hold trade talks early October in Washington DC after China Vice Premier Liu He spoke with US Treasury Secretary Mnuchin and USTR Lighthizer. Mofcom added that US and China trade teams will have trade consultations mid-September and have agreed to take actual actions to create good conditions for trade consultations. (Newswires)

US President Trump said the US is not doing business with Huawei and will not discuss the issue with China, while there were also comments from US VP Pence that President Trump will continue to take a strong stand on China. (Newswires) 

UK/EU

UK lawmakers passed the third reading of the bill to delay the Brexit with 327 votes in favour vs. 299 against, while UK PM Johnson's bid to call an election was also defeated with 298 votes in favour vs. 56 against which fell short of the two-thirds majority or 434 votes required for a snap election. PM Johnson is expected to table another general election vote on Monday. (Newswires/Telegraph)

UK PM Johnson said the delay bill effectively ends the Brexit negotiations and it will force him to surrender in the negotiations, while he added that there must be an election on October 15th and that he refuses to uphold the Brexit Bill passed by the House of Commons. In related news, the government said the bill to stop a no-deal Brexit will complete its passage through the Lords on Friday by 17:00BST and there were also reports that cabinet ministers were demanding PM Johnson ‘U-turn’ regarding the expulsion of 21 Tory MPs. (Newswires/BBC)

Labour source said that virtually every faction of the Parliamentary Labour Party was united on an election only after 31st October. (Sky News)

UK Deputy Speaker said the Kinnock amendment law to delay Brexit was approved which would give lawmakers the opportunity to vote on Theresa May's deal which has already been rejected 3 times, although reports also noted this was an accident as no tellers were available. (Twitter)

Whitehall sources said it is possible UK House Speaker Bercow could rule out a second election vote under the Fixed Term Parliament Act limiting future options. (Twitter/Daily Mail)

EU officials said talks with UK are at an impasse and they will now focus on preparations for a no-deal. (Newswires)

FX

In FX markets, the DXY was lacklustre below the 98.50 level after the prior day’s losses partly due to the recent dovish Fed rhetoric including Fed’s Williams who is ready to act as appropriate to support the economy and after Fed’s Kaplan warned of distortions and challenges if the Fed stays where it is above the treasury curve. Meanwhile, the greenback’s major counterparts held on to most their recent gains with EUR/USD above 1.1000 as Italy prepares to swear in its new 5SM-PD coalition government today and with GBP/USD taking a breather from recent outperformance at the mid-1.2200 handle after PM Johnson and his ‘do-or-die’ Brexit agenda suffered a double setback in Parliament in which lawmakers passed the first stage of the Brexit delay bill and as the PM’s motion for an election failed to meet the two-thirds majority needed. Elsewhere, USD/JPY was boosted by the risk appetite and CADremained firm after a less dovish than hoped BoC meeting where rates were kept unchanged as expected and there was no mention of future policy moves, while antipodeans were also lifted with AUD/USD back above 0.6800 due to the US-China trade hopes, stronger PBoC reference rate and its high beta properties.

Australian Trade Balance (AUD)(Jul) 7268M vs. Exp. 7400.0M (Prev. 8036.0M, Rev. 7977M). (Newswires)

Australian Exports (Jul) M/M 1.0% (Prev. 1.0%)

Australian Imports (Jul) M/M 3.0% (Prev. -4.0%)

COMMODITIES

Commodities were mixed overnight with WTI crude futures relatively flat as it took a breather following its surge of more than 4.0% yesterday which was fuelled by a weaker USD and the heightened global risk appetite, while the pullback from a surprise build in the latest headline API crude inventories was limited as trade hopes exacerbated the overnight risk sentiment. Elsewhere, goldprices retreated back below the USD 1550/oz level with the precious metal weighed by the lack of safe-haven demand and copperextended on gains spurred by the broad rally across stocks. 

API Crude Inventories: +0.401mln vs. Exp. -2.5mln (Prev. -11.1mln). (Newswires)

GEOPOLITICS

US President Trump said Iran wants to talk and make a deal but noted the US will not drop sanctions on Iran, while he replied that anything is possible when asked if he would meet Iranian President Rouhani at the UN General Assembly. In related news, Iran is to announce the third scale back of its commitments to the nuclear deal within hours, according to Iranian TV. (Newswires)

US

The curve bear-steepened, with major curve spreads up between 2-3bps, with newswires attributing a dovish wave of Fedspeak. Better data out of China, as well as seemingly positive developments on Hong Kong also helped yields rise. US T-note futures settled 5 ticks higher at 132-09.

Fed’s Beige Book stated the US economy appeared to expand at a modest pace and that the majority of businesses remained optimistic about the near-term outlook even though concerns on tariffs and trade uncertainty continued. Furthermore, consumer spending was mixed although auto sales for most districts grew at a modest pace and manufacturing activity was down from prior, while employment overall grew at a modest pace but in some districts manufacturing employment was flat to down. (Newswires)

Fed's Kashkari (Non-Voter, Dove) said slow wage growth means the US is not at full employment and that he does not see evidence of overheating in the US economy, while he added tariffs as well as the trade war is leading to nervousness and sees greater downside risks globally which will end up slowing the US. Kashkari also suggested the Fed shouldn't tap brakes on the US economy until we see inflation and that odds of a full-blown financial crisis are less likely but noted that even in an ordinary recession the fed has little room to cut rates. (Newswires)

US House judiciary committee probing alleged attempts US President Trump to offer pardons to Department of Homeland Security officials for carrying out "illegal and cruel" immigration policies. (Newswires)

NHC said life-threatening storm surge and significant coastal flooding is expected along parts of the US south-east and mid-Atlantic coast during next couple of days, while it added that Dorian has strengthened again to a Category 3 hurricane. (Newswires)