• European bourses are buoyed by the positive risk tone on US-China updates, though the FTSE 100 lags on Sterling strength
• China’s Mofcom announced US and China will hold trade talks early October in Washington DC & Commerce Ministry said this morning call with the US went well
• UK PM Johnson lost his attempt to call a general election, and the Benn bill is expected to complete its Lords passage by Friday 17:00BST
• Looking ahead, highlights include US ADP, Initial Jobless Claims, Composite & Services PMI (Final), Durable Goods & Factory Orders BoC’s Schembri & SNB’s Jordan

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global peers after dovish Fed rhetoric and positive developments in Hong Kong in which the extradition bill was fully withdrawn, while US-China trade hopes exacerbated the gains after the sides agreed to hold talks in Washington early next month.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 (+0.9%) and Nikkei 225 (+2.1%) 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 (U/C) and Shanghai Comp. (+1.0%) 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)

China's Commerce Ministry said the trade call with the US this morning went very well, but China has not considered withdrawing WTO complaint on US tariffs. (Newswires)

US

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)

GEOPOLITICS

US has reportedly proposed a meeting between US President Trump and Iranian President Rouhani on the fringes of UN General Assembly, sources state. (Newswires)

UK/EU

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 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 Brexit Minister Barclay says a delay to Brexit requires the approval of every member state including the UK. (Newswires)

EU Chief Brexit Negotiator Barnier says UK government has still not made specific proposals on replacing backstop, The idea that the EU will cave in is wrong, UK risks crashing out without a deal by accident or by default. (Newswires)

German Industrial Orders MM* Jul -2.7% vs. Exp. -1.5% (Prev. 2.5%, Rev. 2.7%)

EQUITIES

A positive session thus far for most of the major European bourses [Eurostoxx 50 +0.8%] as the region follows suit from a mostly positive Asia-Pac session as trade optimism bolstered sentiment after China’s Mofcom announced a US/China meeting in Washington next month, although an explicit date has not been reported. UK’s FTSE 100 (-0.7%) is the laggard and has slipped further due to a strengthening GBP after UK PM Johnson received a double whammy with UK Parliament voting to pass the bill to delay Brexit and defeated the PM’s bid for snap elections. Sectors are mixed with the IT sector the clear outperformer as chip names rally on US-China optimism; meanwhile defensive sectors are in the red amid the risk appetite. In terms of individual movers, Equinor (+7.9%) shares spiked higher after the Co. began a USD 5bln share buyback programme which is to be completed at the end of 2020. Elsewhere, Safran (+6.1%) and Melrose (+6.3%) rose on the back of earnings. On the flip side, William Hill (-1.7%) shares opened lower following on from the resignation of its CEO.

Apple (AAPL) says five-part notes offering priced at USD 7bln, sells (USD); 1bln 3 year notes at T+35bps, 0.750bln of 5 year notes at T+53bps, 2bln of 7 year notes at T+68bps, 1.75bln of 10 year notes at T+78bps, 1.5bln of 30 year paper at T+103bps. (Newswires)

FX

SEK - The Swedish Crown is rallying in wake of the Riksbank policy meeting as a hike by the end of 2019 or in Q1 next year is still on the agenda even though the accompanying statement acknowledged looser monetary policy elsewhere, a deterioration in sentiment and included the caveat that the Central Bank will adjust rates if prospects for the domestic economy and inflation change. Moreover, the projected repo path was lowered and the Riksbank reiterated the need to proceed with caution. Nevertheless, Eur/Sek has tested support below 10.7000 in the form of the 100 DMA on relative policy outlooks given that the ECB is widely tipped to unleash more stimulus next week.

NOK/NZD/AUD/CAD/GBP - Although Statistics Norway believes rates have peaked, the Norges Bank retains guidance for a further 25 bp tightening by the end of the year, and Eur/Nok is also retreating further from recent peaks amidst a broad upturn in risk sentiment with the cross eyeing 9.9250. Elsewhere, the Kiwi and Aussie are also buoyed by reports that the US and China are planning to hold trade talks in early October, while the Loonie is extending its post-BoC gains (less dovish than expected stance) through 1.3200. However, the Antipodean Dollars have switched places as Nzd/Usd builds a firmer base above 0.6350 and Aud/Usd is capped around 0.6825 with the Aud/Nzd cross topping out just above 1.0700 accordingly, perhaps in response to overnight Australian trade data revealing a moderately narrower than forecast surplus. Note also, decent option expiries between 0.6790-0.6800 may be hampering the Aussie. Meanwhile, a generally softer Greenback (DXY just off another new recent low, at 98.185, and under a key 50% Fib level of 98.464) alongside manoeuvres in Westminster to block a no deal Brexit continue to prop up the Pound, with Cable nudging above 1.2300, to just shy of 1.2350 at best, and Eur/Gbp back down under 0.9000 even though the single currency is outpacing the Buck as well.

EUR/JPY/CHF - All narrowly mixed vs the Usd, as the Euro edges further above 1.1000 to test offer and option expiry interest at 1.1050 where 1.6 bn resides, but the Yen and Franc lose a bit more safe-haven appeal on the aforementioned improvement in market morale, with Usd/Jpy and Usd/Chf pivoting 106.50 and 0.9825 respectively.

EM - Some loss of recovery momentum for the Lira ahead of next Thursday’s CBRT rate verdict as Turkish President Erdogan contends that more cuts are coming, while the Rand’s bull run has been somewhat hampered by worse than expected SA Q2 current account metrics. Usd/Try has bounced from circa 5.6500 and Usd/Zar is firmer after a temporary dip below 14.7500, but the PBoC set its Usd/Cny reference rate a smidge lower against the recent trend.

Swedish Riksbank Rate (Sep) -0.25% vs. Exp. -0.25% (Prev. -0.25%); Maintains rate guidance, interest rate is expected to be raised towards end of year or beginning of next year

- Low interest rates abroad and worsened sentiment mean that interest rate is expected to be increased at a slower pace thereafter than in previous forecast

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%)

Notable FX Option Expiries:

- EUR/USD: 1.1000-10 (1.1BLN), 1.1020-35 (1BLN), 1.1050 (1.6BLN)

- AUD/USD: 0.6675-60 (1BLN), 0.6770-75 (1BLN), 0.6790-0.6800 (2.1BLN)

- USD/JPY: 105.70-85 (4BLN), 106.00-15 (1.4BLN), 106.25-30 (910)

FIXED

No new catalysts, but another flush out and bout of long liquidation has pushed Bunds, Gilts and US Treasuries to fresh intraday lows, at 174.82, 133.12 and 131-23 respectively, while bear-steepening is getting more pronounced on a combination of factors deemed less risk-averse if not outright positive. UK debt may be seeing further post-2029 tap accommodation or contagion from cash markets, while Eurozone contracts could also be prone to residual position rolling from Sep19, but the technical backdrop is turning increasingly negative, for now at least. Ahead, a raft of key US data/survey releases following recent Fed rhetoric that has become a tad dovish on balance, and impacting spreads given the wider/disinverted trajectories.

COMMODITIES

WTI and Brent futures are relatively flat as the benchmarks take a breather yesterday’s above 4% rally which was fuelled by heightened risk appetite, a weaker USD and geopolitical tensions after US imposed sanctions, targeting the shipping network controlled by the IRGC, whilst last night’s surprise build in API crude stocks (+0.401mln vs. Exp. -2.5mln) did little to sway prices. WTI remains above the 56.0/bbl with its 200 and 50 DMAs at 56.13/bbl and 56.19/bbl respectively, meanwhile its Brent counterpart re-eyes 61.0/bbl to the upside. Next up, participants will be eyeing the delayed release of the weekly DoE crude stocks at 1600BST/1100EDT with the headline expected to print a drawdown of 2.488mln barrels. Traders may also take note of US production, which reached a record of 12.5mln BPD last week, ahead of next week’s JMMC meeting (12th Sept). Elsewhere, gold has retreated further below the 1550/oz despite a weaker USD amid safe-haven outflows whilst the risk appetite buoys copper and iron, with the former reclaiming 2.60/lb to the upside.