• Asian equity markets traded mostly positively with gains capped by soft trade metrics from China and ongoing unrest in Hong Kong
• UK PM Johnson has reportedly drawn up a plan to legally sabotage a Brexit extension if MPs vote against holding a general election
• Saudi Arabia removed Energy Minister Al-Falih from his position and replaced him with Prince Abdulaziz bin Salman bin Abdulaziz al-Saud
• Fed Chair Powell provided a relatively upbeat view of the economy which suggested a lack of urgency for a more aggressive move by the Fed
• Looking ahead, highlights include German Trade Balance; UK GDP (Estimate) & Services, BoE’s Vlieghe

ASIA-PAC

Asian equity markets traded mostly positively but with gains relatively mild as the region digested the latest developments from the world’s 2 largest economies including the PBoC RRR cut announcement, mostly weaker than expected Chinese trade data and US NFP. ASX 200 (+0.1%) was choppy as upside in tech was counterbalanced by continued weakness in gold miners and after soft Chinese trade data which showed a surprise drop in Exports, while Nikkei 225 (+0.5%) remained afloat after Final GDP figures for Q2 printed inline with estimates. Hang Seng (Unch.) and Shanghai Comp. (+0.4%) were mixed as the mainland reacted to the PBoC’s 50bps RRR cut and further targeted 100bps reduction for qualified banks which is expected to release CNY 900bln of liquidity, although advances were limited by the weak trade figures and with Hong Kong dampened after further violent protests over the weekend. Finally, 10yr JGBs were higher despite the mostly positive risk tone and reclaimed the 155.00 level, although prices later stalled amid mixed results in the enhanced liquidity auction for 2yr-20yr JGBs.

PBoC injected CNY 120bln via 7-day reverse repos but skipped MLF operations vs. CNY 176.5bln of MLFs maturing. (Newswires) PBoC set CNY mid-point at 7.0851 vs. Exp. 7.0940 (Prev. 7.0855)

Heavy protests continued over the weekend in Hong Kong where police used tear gas to keep protesters from blocking the airport. (Newswires)

Chinese Trade Balance (USD)(Aug) 34.84B vs. Exp. 43.0B (Prev. 45.06B, Rev. 44.61B). (Newswires) Chinese Exports (USD)(Aug) Y/Y -1.0% vs. Exp. 2.0% (Prev. 3.3%) Chinese Imports (USD)(Aug) Y/Y -5.6% vs. Exp. -6.0% (Prev. -5.6%, Rev. -5.3%) Chinese FX Reserves (Aug) 3.107tln vs. Exp. 3.100tln (Prev. 3.104tln)

Japanese GDP (Q2 F) Q/Q 0.3% vs. Exp. 0.3% (Prev. 0.4%). (Newswires) Japanese GDP (Q2 F) Y/Y 1.3% vs. Exp. 1.3% (Prev. 1.8%)

UK/EU

UK PM Johnson was reported to draw up a plan to legally sabotage Brexit extension if MPs vote against holding a general election, as such the government believes that today’s vote is the “last chance” for MPs to prevent a no-deal exit. (Telegraph) However, there were later reports that PM Johnson signalled to cabinet ministers the government would have to accept a 3-month Brexit delay if it is forced on him by the courts. (Times)

Two polls published over the weekend (Opinium, YouGov) give the Conservatives a commanding lead over Labour, suggesting that PM Johnson’s hardline stance on Brexit is resonating with voters. (Telegraph)

UK opposition lawmakers are to request emergency debate on Monday to try force government to publish a no-deal planning document and emergency debate regarding PM Johnson adhering to law on Brexit delay. (Newswires)

UK Work and Pensions Minister Amber Rudd quit the Cabinet and the Conservative Party on Saturday night in which she criticized the “short-sighted” ousting of pro-EU MPs and stated that she believed PM Johnson was aiming for a no-deal Brexit. (Newswires)

French Foreign Minister said that Brussels will not grant the UK an extension to A50 if the current circumstances remain the same. (Politico)

Plaid Cymru reportedly wish to use cross party discussions to consider the idea of impeaching UK PM Johnson in the event that he attempts to stop a Brexit extension. (Sky News)

Irish PM Varadkar said he does not expect any breakthroughs in Monday's meeting with UK PM Johnson but that the meeting is an opportunity to establish a common ground. (Virgin Media News)

BoE Financial Stability Executive Director Brazier said BoE has properly prepared lenders for shock of Brexit and that an imminent change of Governor will not derail the Bank. (Newswires)

ECB’s De Guindos said policy can play a greater countercyclical and stabilizing role, while he added that fiscal space should be used wisely in countries where it exists. (Newswires)

FX

DXY traded steady following the recent miss in US Non-Farm Payrolls and upbeat comments by Fed Chair Powell on the economy which suggested a lack of urgency for a more aggressive move by the Fed. EUR/USD was rangebound near Friday’s lows at the 1.1000 handle and GBP/USD traded tentative below 1.2300 as participants looked ahead to another attempt by the government to push through a general election in parliament today. Furthermore, UK PM Johnson was said to draw up a plan to legally sabotage a Brexit extension if MPs vote against holding a general election, although he was later reported to have signalled to cabinet ministers the government would have to accept a 3-month Brexit delay if it is forced on him by the courts, and his cabinet suffered another high-profile resignation in which Works and Pensions Secretary Rudd quit due to Brexit inaction and suggested that the PM was aiming for a no-deal Brexit. Elsewhere, USD/JPY remained unchanged and antipodeans conformed to the archetypal post-NFP lull as the effects of a firmer than expected CNY reference rate was offset by the weak Chinese trade data.

Turkish President Erdogan stated that Turkey will reduce interest rates to single digits and that inflation will follow suit. In other news, the Turkish Trade Minister asked US to lift barriers as well as increase trade, and the US is said to have set the goal of quadrupling trade to USD 100bln annually, while China and Turkey have signed MoU’s to boost trade. (Newswires/Xinhua)

COMMODITIES

Commodities were mixed overnight in which WTI crude futures extended on Friday’s rebound to reclaim the USD 57.00/bbl level following the shake up in OPEC’s top ranks in which Saudi replace Energy Minister Al-Falih with Prince Abdulaziz, while some suggested the move was part of efforts to prepare for the Aramco IPO and followed a continued failure to boost oil prices to the kingdom’s preferred USD 80/bbl level. Elsewhere, gold was steady amid similar flat trade in the greenback and copper prices also traded lacklustre amid early weakness in Chinese commodity prices after weaker than expected Chinese trade data. 

Saudi Arabia removed Energy Minister Al-Falih from position and replaced him with Prince Abdulaziz bin Salman bin Abdulaziz al-Saud. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said he thinks the Trump administration will announce vision for Middle East peace in coming weeks, while he also tweeted that Iran announced it will violate all limits and noted the fact that Iran retains massive uranium enrichment capacity reveals a core weakness of the deal. (Newswires/Twitter)

Iranian oil tanker Adrian Daria 1 reportedly unloaded its cargo of oil at a Syrian port, while there were separate reports that a US official warned that the US will continue to sanction whoever purchases Iranian oil or conducts business with its Revolutionary Guards. (Newswires/Al Jazeera)

US

At settlement, Treasuries have bull-flattened, with major curve spreads narrower by between 1-3bps. Overnight, the bias was to the downside, as geopolitical and trade related news flow became more constructive. The complex ticked higher in wake of a disappointing NFP headline, however, although there were some gyrations as traders' digested the data in wake of the release, which did show wage growth was solid. However, the T-Note came off highs after remarks from Fed chair Powell, who seemed upbeat on the economy, and signalled no concerns that could justify a 50bps rate cut at the 18th September FOMC. The market is still priced for 25bps. The Fed now enters blackout period, with attention on the central bank front moving towards Thursday's ECB, where a package of stimulus is expected to be unveiled, and will likely see T-Notes taking cues from Bunds. US T-note futures settled 2+ ticks higher at 131-12.

Fed Chair Powell said the Fed will act as appropriate to sustain the economic expansion when asked if the Fed will provide accommodation, while he added the Fed is watching all developments, geopolitical risks and financial conditions. Powell also commented that the labour market is in a good place and the labour market report is consistent with that story, while he reiterated the Fed will act appropriately to sustain the expansion. Powell added the economy is in the longest expansion since records began and the outlook is still favourable but noted risks to the outlook include slowing global growth and low inflation, while he cited trade tensions and Brexit as factors dampening global growth. (Newswires)