• European bourses are little changed, having faded the post-PBoC RRR gains; while WTI & Brent are now experiencing a more pronounced price decline with NFP & Powell ahead
• PBoC cut its RRR by 50bps, effective as of Sep 16, will further cut RRR for some qualified banks, some banks will get an addition RRR cut of 100bps
• DXY remains within a tight range and major counterparts are mixed while European bonds continue to grind higher and away from their US counterparts
• Looking ahead, highlights include US & Canadian Jobs Reports, CBR Rate Decision, Moody’s Reviewing Italy, Fed’s Powell, SNB’s Jordan, BoE’s Ramsden

ASIA-PAC

Asian equity markets traded higher after sustaining the momentum from Wall St. where all major indices rallied and the S&P 500 notched a 1-month high amid US-China trade hopes, while better than expected ISM Non-Manufacturing and ADP jobs data ahead of today's NFP report added to the optimism. ASX 200 (+0.5%) and Nikkei 225 (+0.5%) were higher with the gains in Australia led by tech following similar outperformance of the trade-sensitive sector stateside and with the JPY-risk dynamic at play in Tokyo. Hang Seng (+0.7%) and Shanghai Comp. (+0.5%) conformed to the global optimism although gains in the region were somewhat capped ahead of the key US jobs data and after a mostly inactive PBoC this week resulted to a net weekly liquidity drain of CNY 100bln. Finally, 10yr JGBs were lower following the extended its slide below 155.00 after-hours yesterday as the heightened risk appetite triggered declines across global bonds. However, downside has since been stemmed on selling fatigue and with the BoJ present in the market for over JPY 1.2tln of JGBs heavily concentrated on 1yr-10yr maturities, while BoJ Governor Kuroda also reiterated that lowering rates further into negative territory is always an option and noted both 20yr and 30yr yields have declined a bit too far.

PBoC injected CNY 40bln via 7-day reverse repos for a weekly net drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 7.0855 vs. Exp. 7.1003 (Prev. 7.0852) Fitch downgraded Hong Kong from AA+ to AA; Outlook Negative

PBoC cut its RRR by 50bps, effective as of Sep 16, will further cut RRR for some qualified banks, some banks will get an addition RRR cut of 100bps (in two phases of 50bps each on Oct 15 and Nov 15), to release CNY 900bln in liquidity

- RRR cuts will lower cost burden on banks by CNY 15bln annualy

- Reiterates that no flood-like stimulus will be implemented

- Reiterates will step up counters-cyclical adjustments and keep liquidity reasonably ample

US

US President Trump tweeted a quote which reiterated view that China needs a deal more than US and that the US economy is strong, while the quote suggested there wouldn't be a need to worry about a recession if the Fed cut rates to where the bond market says they should be. (Twitter)

US Treasury recommended ending conservatorship for Fannie Mae and Freddie Mac, as well as preserving government support in the housing market. (Newswires)

GEOPOLITICS

US President Trump spoke to French President Macron on Thursday regarding digital sales tax, while they also discussed Iran's actions in the Gulf and Trump told Macron that Iran sanctions won’t be dropped now. (Newswires)

Iran said it lifted limitations on research and development field as part of further scaling back from the 2015 nuclear accord and will inform UN nuclear agency of the details of its nuclear steps. (Newswires)

US Defence Secretary Esper says it appears in some ways that Iran is moving towards a place where talks would be possible. (Newswires)

US continues to believe that enforcing sanctions on Iran is key to bringing Iran to the negotiation table, US and French Minister are to discuss tomorrow on how to coordinate navies to ensure freedom of navigation in the Gulf, a Senior US Defence official. (Newswires)

UK/EU

UK Labour Party will seek to delay an election until November after party leader Corbyn was warned he would lose if it were to be held sooner, while Corbyn believes he can trap PM Johnson by refusing to an October election and force him to seek a Brexit delay. (Telegraph) However, there were later reports that suggested the Labour Party and SNP are said to discuss calling for October 29th election. (Newswires)

Chancellor of the Duchy of Lancaster Gove said he would support former PM May's Brexit deal if it returned to Parliament. (Telegraph)

At least 12 of the ejected rebel Tory MPs are seeking to run as independents if a new general election is called. (Newswires)

UK High Court rejects the attempt to rule that PM Boris Johnson acted unlawfully by proroguing Parliament for five weeks. (Newswires)

German Industrial Output MM* Jul -0.6% vs. Exp. 0.3% (Prev. -1.5%, Rev. -1.1%). (Newswires)

EQUITIES

Major European bourses are flat [Eurostoxx 50 +0.1%] after the region saw a tentative open ahead of today’s key risk events (US Jobs data, Fed Chair Powell to speak on economic outlook and monetary policy). Bourses experienced some short-lived upside upon the PBoC’s announcement of its 50bps RRR cut effective Sep 16th. Further RRR cuts will be implemented on some banks in two phases of 50bps each on October 15th and November 15th. The PBoC estimates a release of CNY 900bln in liquidity.  Sectors are mixed with marginal outperformance in consumer discretionary names whilst utilities lag. Looking at individual movers Telenor (-4.3%) are subdued after the Co. and Axiata agreed to end discussions regarding a non-cash combination of their telecom infrastructures. Meanwhile Sodexo (-3.7%) is just below on the Stoxx 600 on the back of a broker move. On the flip side, Thyssenkrupp (+2.2%) share continues its ascent amid constructive comments from Kone (+2.0%) regarding the former’s elevator unit, with indicative bids for this unit to be submitted by Wednesday.

Facebook (FB) and Alphabet (GOOG) will be the target of fresh State antitrust probes. (WSJ)

FX

USD - Pre-NFP caution and consolidation has curtailed the Dollar’s recovery, with the index churning within a tight 98.309-463 range just shy of Thursday’s post-ADP and non-manufacturing ISM high (98.538). In terms of Friday’s fundamental drivers, the data spotlight falls on US jobs ahead of Fed chair Powell ahead of the September FOMC and pre-policy meeting purdah, but from a technical perspective the DXY is delicately placed between 10 and 20 DMAs at 98.480 and 98.210 respectively.

NZD/AUD/CAD - In keeping with this week’s evolving and improving risk tone, supplemented by 50-100 BP PBoC RRR cuts, high beta and more sensitive to overall sentiment G10 currencies have forged further gains, with Nzd/Usd managing to clamber back above 0.6400 and overtaking Aud/Usd in the process as the cross fades after several 1.0700+ forays. However, the Aussie has formed a firmer footing vs its US counterpart and nibbled through buy-stops between 0.6830-35 alongside a more pronounced bounce in the Yuan (Usd/Cnh eyeing 7.1100 compared to highs not far from 7.2000 recently). Meanwhile, Usd/Cad has slipped back to test 1.3200 after comments from BoC’s Schembri basically underscored Wednesday’s rates appropriate for now guidance, albeit adding more emphasis on weak commodity prices and not ruling out NIRP in extreme circumstances. Next up for the Loonie, Canadian labour data alongside US NFP, and then IVEY PMI after this week’s sub-50 Markit manufacturing print.

EUR - The single currency is holding rock steady against the Greenback between 1.1030-50 and may not venture much further ahead of the aforementioned US labour report, or after given hefty option expiry interest at 1.1045-55 (1.8 bn) and Fib resistance near the middle of that band (1.1049).

JPY/GBP/CHF - All on the back foot, with the Yen pivoting 107.00 and wary of decent expiries between the big figure and 107.05 (1.7 bn), but cushioned by bids reportedly layered from 107.10 to 107.20 ahead of corporate supply at 107.50. Elsewhere, Sterling has been more volatile amidst the ongoing UK political and Brexit uncertainty, with Cable waning ahead of 1.2350 and losing grip of the 1.2300 handle again before gleaning some traction on the High Court’s ruling that PM Johnson’s Parliament suspension is not unlawful. Conversely, the Franc is underperforming around 0.9900 and under 1.0900 vs the Euro after reiterations from SNB head Jordan that sub-zero Swiss interest rates are still required, and in advance of another scheduled appearance by the chief alongside his US peer.

EM - Try aside, regional currencies are revelling in the stronger appetite for risk, and the Rub is now exception even though the CBR is widely expected to lower rates by 25 bp shortly.

Notable FX Expiries:

- EUR/USD: 1.0990-1.1000 (760M), 1.1045-55 (1.8BLN), 1.1075-80 (400M), 1.1090-1.1100 (750M)

- USD/CAD: 1.3200 (200M), 1.3230-40 (500M), 1.3290-1.3300 (1BLN), 1.3315-20 (500M)

- USD/JPY: 106.50 (250M), 107.00-05 (1.7BLN), 107.25-30 (860M)

FIXED

Interestingly, and perhaps pertinently there was relatively little adverse reaction or only limited pull-back on the breaking Chinese RRR cut headlines. Moreover, Bunds and Gilts have both rebounded firmly with seemingly no major catalyst, and independently of US Treasuries that remain depressed, albeit off worst levels. The 10 year Eurozone bond has now been as high as 174.99 and its UK equivalent recently reached 133.67 amidst more consolidation off yesterday’s deep lows and profit taking/position squaring ahead of the US jobs data, which may also entail some spread flows an unwinding of recent underperformance against USTs. In terms of chart impulses, Bunds face resistance around 175.14-17 if 175.00 is breached and Gilts are eyeing 133.76-83 next, plus BoE’s Ramsden before the BLS report.

COMMODITIES

WTI and Brent crude futures are lower on the day thus far, as is usually the case on US jobs report day, with participants also awaiting Fed Chair Powell’s speech on economic outlook and monetary policy. WTI futures reside under the 55.50/bbl mark after it failed to convincingly breach its 100 DMA to the upside yesterday whilst today breaching both its 50 and 200 DMAs to the downside (both at 56.15/bbl). Meanwhile, Brent futures trade below 60.00/bbl at time of writing. In terms of weekly performance, both energy benchmarks were swayed by the flip-flop in risk sentiment over the week, WTI futures fluctuated in-between its 50 WMA (57.63/bbl) and 200 WMA (53.25/bbl), whilst its Brent counterpart printed a weekly range of 57.26-60.90/bbl for now. Elsewhere, gold prices remain on the backfoot despite a weaker Buck as the recent bout of risk appetite (driven by US/China trade hopes and better-than-forecast ISM N-manufacturing) took the yellow metal closer to the 1500/oz mark (vs. weekly high at 1557/oz). Meanwhile, as it stands, copper is poised to end the week on a more positive note as prices remain above the 2.60/lb level (vs. sub-2.50/lb low). Finally, nickel ore prices saw a correction of around 3.0% amid supply glut concerns followings its recent rally with downside attributed to Indonesia stated that nickel miners can apply for new export quotas for the rest of the year in addition to their already approved quotas.

CME raised COMEX 5000 silver futures margins by 19.5% to USD 4900/contract and raised Nat Gas Henry Hub futures margins by 9.1% to USD 1800 per contract. (Newswires)