• Asian equity markets traded somewhat mixed as the region struggled to maintain the momentum from the US
• US President Trump said China is making large agricultural purchases and there is a good chance that we'll make a trade deal with China, getting closer and closer
• US President Trump announced the first stage of a new US-Japan trade deal
• UK PM Johnson said he will not request a Brexit extension even if conditions of the Benn bill are met
• ECB's Lautenschlaeger (Hawk) resigned from the ECB board and is to step down from her position on October 31st
• Looking ahead highlights include, German GfK, EZ M3, US GDP (Final) & Pending Home Sale, Fed’s Kaplan, Bullard, Clarida, Daly, Kashkari, Barkin, ECB’s Draghi, de Galhau, BoJ’s Kuroda & BoE’s Cunliffe, Banxico Rate Decision, supply from US.

ASIA-PAC

Asian equity markets traded somewhat mixed as the region struggled to maintain the momentum from the US where President Trump ignited trade hopes after he suggested a deal with China could happen 'sooner than you think', while the US and Japan also reached a first stage trade agreement. ASX 200 (-0.6%) and Nikkei 225 (+0.3%) were higher at the open although the optimism in Australia later faded amid losses in commodity related sectors especially gold miners after the precious metal slumped to test the USD 1500/oz level, while the Japanese benchmark was positive but with gains capped as participants reflected on the limited US-Japan trade pact which didn’t involve autos although the US was said to have agreed to not impose Section 232 tariffs on Japan while talks are underway. Hang Seng (+0.1%) and Shanghai Comp. (-0.7%) were both underpinned at the open following the encouraging trade rhetoric from US President Trump who also stated that China is making large agricultural purchases and that there is a good chance we'll make a trade deal with China which is getting closer and closer. However, the advances in the region later waned considering Trump’s tendency to flip flop on trade discussions and as US impeachment concerns lingered, while the PBoC’s open market operations also resulted to a considerable CNY 100bln net drain in liquidity. Finally, 10yr JGBs were lower following the bear steepening in the US and after the BoJ reduced its purchase amounts of 5yr-10yr JGBs for today’s Rinban operations.

PBoC injected a CNY 20bln via 14-day reverse repos for a net daily drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 7.0729 vs. Exp. 7.0947 (Prev. 7.0724)

US President Trump said China is making large agricultural purchases including beef and pork, while he also commented there is a good chance that we'll make a trade deal with China which is getting closer and closer. (Newswires)

USTR Lighthizer said "we'll see" about a China trade deal and that we have communication back and forth when asked about a timeline for a trade deal, while he added it is his job is to get a good deal. (Newswires)

US President Trump announced the first stage of a new US-Japan trade deal in which Japan will open its market to USD 7bln of US agricultural products, while the sides agreed on strong commitments for up to USD 40bln on digital trade. (Newswires)

US Trade Representative Lighthizer said cars are not included in the agreement with Japan but the two sides are to discuss it and stated that it is not in the intentions of the US to put Section 232 tariffs on Japan. Furthermore, Lighthizer stated that once the deal has been implemented, over 90% of US food and agricultural products exported into Japan will be duty free or receive preferential tariff access and that talks on a phase 2 agreement will start at the end of April/beginning of May next year. (Newswires)

Japanese PM Abe said US President Trump agreed the US won’t impose Section 232 tariffs on Japan while talks are underway, while Abe also believes the trade agreement with US will lead to further economic growth for Japan and contribute to the global economy. There were also comments from Japan Minister of Economy Trade and Industry Sugawara that he will negotiate firmly and get results in scrapping US tariffs on Japan autos. (Newswires)

UK/EU

UK PM Johnson said he will not request a Brexit extension even if conditions of the Benn bill are met, while he also stated that changing the Irish backstop is under serious negotiation and replied yes when asked if he thinks the EU will move on the Irish backstop. (Newswires/ITV)

UK House of Commons Leader Rees-Mogg said Parliament will be asked on Thursday to approve adjournment motion next week for the Tory Party Conference and that the government will then hold general debate on principles of democracy. (Newswires)

UK Government warned that if the opposition did not take up a vote of no confidence last night, they will assume parliament is behind the Brexit plan where UK PM Johnson does not rule out a second prorogation in order to achieve it, although UK opposition Labour Party leader Corbyn refused to table a no confidence motion in the government. (Sky/Sun)

WTO are to rule that the US can sanction up to USD 8bln worth of EU goods over Airbus (AIR FP) aid, according to sources. (Newswires) Note, the actual decision is not due to be published until September 30th.

ECB's Lautenschlaeger (Hawk) resigned from the ECB board in which she is set to step down from her position on October 31st which is 2 years early; reports highlight her resignation occurs amid disagreement over the ECB's recent stimulatory packages. (Newswires/WSJ)

FX

In FX markets, the DXY retreated beneath the 99.00 level although still retained most the prior day’s gains spurred by rising US yields and broad weakness across its major counterparts in which EUR/USD slipped below the 1.1000 handle. GBP/USD was also on the backfoot despite the reopening of Parliament as UK PM Johnson remained defiant and continued to push unsuccessfully for a no-confidence vote to trigger an election, while he also reiterated he will not request a Brexit extension even if the conditions of the Benn bill are met. However, both aforementioned pairs have since nursed some of the losses overnight as they found mild reprieve from the pullback in the USD. Elsewhere, USD/JPY and JPY-crosses were mixed with price action largely a function of their base currencies and antipodeans were initially subdued by recent weakness across the commodities complex, although NZD/USD later found support from optimistic comments by RBNZ Governor Orr that New Zealand is in a sound position to seize opportunities and that the RBNZ is unlikely to require the use of unconventional monetary policy measures.

RBNZ Governor Orr said New Zealand is in a sound position to seize the opportunities and manage challenges related to global low interest rate environment, while he added the current view is we are unlikely to require unconventional monetary policy tools and is confident rates will remain low for a number of years providing a great environment for investment. (Newswires) 

COMMODITIES

Commodities were uneventful during Asia hours in which WTI crude futures traded flat as it consolidated from the prior day’s choppy moves in which early downside from this week’s bearish oil inventory reports and Saudi’s restored capacity, was later reversed as trade hopes spurred risk appetite. Elsewhere, gold prices languished after the prior day’s slump in which it briefly tested a breakdown of the USD 1500/oz level amid a double whammy from a stronger greenback and lack of safe-haven demand, while copper flatlined as risk momentum began to wane overnight.

OPEC Secretary General Barkindo said the oil market has been struck by uncertainty over past few months but added we expect robust long-term oil demand growth. (Newswires)

US

The Treasury curve has bear-steepened, with major curve spreads generally wider, and yields up across the curve. Yields rose in afternoon trade on optimism about progress on US/China trade talks, after US President Trump said a China trade deal was possible, while transcripts released by the White House do not show a clear point the Democrats can impeach US President Trump on. A soft 5-year auction, which tailed 0.9bps, with sponsorship below average; in wake of the poor auction, yields continued to rise, helping the curve steepen. US T-note futures (Z9) settled 24+ ticks lower at 129-30+.

Fed's Kaplan (non-voter, dove) said he feels current policy setting is on the margin of being a little accommodative, while he is agnostic on whether or not more cuts are required and is keeping an open mind. Furthermore, Kaplan said the odds of a recession within next 12 months are relatively low and that repo problems last week show a need for more liquidity but are not sign of broader stress. (Newswires)

An adviser to Ukraine's President said President Trump's insistence for the two leaders to discuss a possible investigation into Joe Biden was a precondition for their July 25 phone call, while it was also reported the Whistleblower's complaint against US President Trump has been declassified and could be releases as early as Thursday morning according to sources. (ABC News/CNN)