• Asian equity markets were mixed following the negative close last Friday on Wall St. amid temperamental US-China trade headlines
• Trump reiterated he does not need a deal before the 2020 election and is not interested in a limited China deal
• Reports suggest that repair work for Saudi to return to normal oil output levels could take much longer than expected
• US Secretary of State Pompeo said the US is still seeking to avoid war with Iran but added that additional troops being deployed to the region are for deterrence and defence

ASIA-PAC

Asian equity markets were mixed following the negative close last Friday on Wall St. amid temperamental US-China trade headlines, while the absence of Japanese markets also contributed to the lacklustre tone. ASX 200 (+0.4%) was positive with the index led higher by the commodity related stocks after gold advanced above the USD 1500/oz level and with oil underpinned by reports it could take 8 months for Saudi output to return to normal, while India’s NIFTY (+2.2%) outperformed again after the recent corporate tax cut announcement. Conversely, weakness in Hang Seng (-0.8%) and Shanghai Comp. (-1.3%) dampened sentiment in the region with underperformance in the mainland as ongoing trade uncertainty overshadowed the liquidity efforts by the PBoC. This followed conflicting reports in which US President Trump stated Chinese agricultural purchases will not be enough and reiterated that he does not need a deal before the 2020 election although it was also reported the US granted temporary tariff exemptions on over 400 types of Chinese products, while China’s delegation cancelled its US farm visit but this was later attributed to concerns it could turn into a media circus or may be misconceived as meddling and was not due to a breakdown in trade talks.

PBoC injected CNY 20bln via 7-day reverse repos and CNY 80bln via 14-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0734 vs. Exp. 7.0828 (Prev. 7.0730)

US President Trump said he has an amazing relationship with Chinese President Xi but are having a little spat, while he added Chinese agricultural purchases will not be enough and that he wants a complete deal. Trump reiterated he does not need a deal before the 2020 election and is not interested in a limited China deal, while he added China is 'eating' the tariffs. (Newswires)

Montana Farm Bureau said the Chinese delegation cancelled its US farm visit to Montana and its agriculture officials are returning to China sooner than expected. However, reports over the weekend stated the delegation of Chinese agriculture officials didn’t cancel the trip because of any new difficulty in the trade talks but instead cancelled amid concerns it could turn into a media circus and to avoid misimpression China was trying to meddle in US domestic politics, while it was also said that the cancellation was done at the request of the US. (Newswires)

US and China deputy level talks were said to be constructive and the sides agreed to continue discussions on relevant issues, according to Chinese state media. (Newswires)

UK/EU

Legal experts expect the Supreme Court to rule against PM Johnson who would then be forced to recall MPs to Parliament. (Newswires) UK Foreign Secretary Raab has refused to rule out proroguing parliament for a second time if the Supreme Court rules in favour of PM Johnson's decision to suspend parliament. (BBC)

UK Brexit proposals reportedly don’t amount to a legally operational solution and fall short of satisfying objective of backstop, according to reports citing a leaked document. In related news, the UK is said to have responded that the ideas put forward to avoid a hard border are serious and workable, while it is focussed on actually getting a deal in the room and trust the EU Commission will do the same. (Newswires)

ECB's Vasle said economic conditions are very complicated and there is likely a need for further ECB action. (Newswires)

FX

Price action was relatively quiet in which the DXY gave back some of Friday’s gains which had been spurred amid a deterioration in risk sentiment and amid broad losses in its major counterparts, including EUR/USD which briefly tested 1.1000 to downside where it eventually rebounded from. GBP/USD was lacklustre beneath 1.2500 with UK PM Johnson pessimistic on reaching a full “legally operable” deal covering the Irish border at next month’s EU summit and amid reports the UK’s proposals fell short of satisfying the objectives of the backstop. USD/JPY found reprieve after support held at 107.50 and was helped by some early safe-haven outflows, while antipodeans recovered some lost ground following a stronger than expected reference rate setting, with mild outperformance in NZD heading into this week’s RBNZ rate meeting where the central bank is expected to stand pat and in which the New Zealand Shadow Board also recommended no change in policy.

Israel Joint List party are to back center-left’s Benny Gantz to form a new government. (Newswires)

COMMODITIES

Commodities were mixed with early advances seen in oil prices after reports that repair work for Saudi to return to normal output levels could take much longer than expected with some experts and officials anticipating as long as 8 months vs. the 10-week timeframe ARAMCO projected, although oil prices are off intraday highs amid the cautious overnight risk tone and as Texas refineries begin to ramp up their production in the aftermath of storm Imelda. Elsewhere, gold was steady as it took a breather from Friday’s gains, while copper traded lacklustre amid the mixed risk sentiment and underperformance in its largest buyer China.

Baker Hughes (Sep 13): Oil rigs -14 at 719, Nat Gas rigs -5 at 148, Total rigs -18 at 868. (Newswires)

Aramco is in emergency discussions with contractors and are offering premium rates for parts and repair work in an effort to resume output quickly amid concerns repairs may last many months instead of the maximum 10 weeks that was promised. Some ARAMCO board members were said to be horrified Co. communicated such optimistic assessments on returning output to normal, while technical experts shared the view with some Saudi officials that it could take 8 months. (WSJ/Newswires)

Saudi Aramco notified Japan's top oil distributor JXTG Nippon Oil & Energy regarding a potential change in shipments in which it wants to change the oil grade it supplies from light to heavy and medium beginning next month which reports suggest indicates ARAMCO is having a hard time restoring its production as quickly as it has promised. (Nikkei)

Total Port Arthur Texas refinery is raising production after storm Imelda, while Valero Port Arthur Texas refinery has resumed production of its crude unit and Exxon also restarted its Beaumont Texas Refinery large crude unit. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said the US is still seeking to avoid war with Iran but added that additional troops being deployed to the region are for deterrence and defence. In related news, US positioned the USS Nitze destroyer armed with surface to air missiles, off the northeast coast of Saudi Arabia to cover the gap in Saudi Air Defences. (CBS)

Iran's Foreign Minister Zarif said US President Trump is determined not to get military involved but others around him are trying to drag him into it. (Axios)

Yemen Houthis are reportedly to stop targeting Saudi territories and expect those targeting Yemen to announce something similar. However, there were separate reports that Yemen's Houthi rebels said the Saudi-led coalition strike on Omran province killed 5 civilians, while Yemen have warned foreign diplomats Iran is preparing a follow-up strike to the missile and drone attack on Saudi’s oil facilities. (Al Masirah/WSJ)

US

Treasuries caught a bid in the tail-end of the session and going into the weekend (after trading mainly sideways) in the latest risk-off flows as the Chinese delegation announced it was leaving the US earlier than it had anticipated. There was some support for the TPLEX earlier, taking cues from Bunds, after Germany announced new climate budget plans would be financed via taxes, otherwise little else had much effect on Friday. At settlement yields were lower by around 3bps with spreads mixed. US T-note futures (z9) settled 3 ticks higher at 129-22.

Fed's Bullard (Voter, Dovish Dissenter Voted 50bps Cut) forecasts one more rate cut in 2019 and commented that the Fed should not market signals of a potential recession. (Newswires)

Fed's Rosengren (Voter, Hawkish Dissenter) said building permits and initial claims for unemployment insurance are not signalling a recession, while he also stated PPI and Dallas Trimmed Mean inflation measures are firm and does not see another rate cut unless the financial conditions change. (Fox)

Fed's Williams (Voter, Neutral) questioned the hesitance of banks in the repo market and suggested the need to focus on how the market functions and not the level of reserves at the Fed. (FT)

Fed's Kaplan (Non-Voter, Dove) said he has pencilled in no more rate cut this year and one next year, while he added the Fed should seriously examine plans to allow balance sheet increase with the increase in demand for reserves. Kaplan also stated he is not opposed to nor leaning towards further rate cuts this year and will be open minded and will not prejudge, while he earlier suggested he would rather take modest, limited action and that if we wait to see evidence of a weak consumer, the Fed will have waited too long. (Newswires)