• Trump’s latest tirade on the USD has given FX markets some much needed traction
• European equities trade mostly higher with the FTSE 100 lagging its peers
• Looking ahead, highlights include Brexit talks in Brussels, UK Foreign Secretary Hunt to speak in Washington

ASIA

Asia-Pac markets eventually traded mostly higher although it was far from smooth sailing despite the positive lead from Wall St where stocks edged a 3rd consecutive gain and the S&P 500 finished around 15 points from all-time highs. ASX 200 (-1.0%) was the worst performer and was pressured by weakness in energy, financials and mining names with losses in industry giant BHP following disappointing earnings results. In addition, political uncertainty added to dampened tone in Australia after PM Turnbull survived a leadership challenge, although is still seen to be at risk and some have even suggested to be a dead man walking after 42% of the party voted against him. Elsewhere, Nikkei 225 (+0.1%) was initially dampened by a firmer currency but then gradually recovered, while Hang Seng (+0.6%) and Shanghai Comp. (+1.3%) traded higher as earnings optimism helped shrug-off early indecision from further liquidity efforts by the PBoC and Trump trade pessimism. Finally, 10yr JGBs were marginally lower and retreated back below 150.00 with prices subdued amid an improvement of risk tone in Tokyo, while a mixed 20yr auction also failed to spur demand.

US President Trump said he has no time-frame for ending China trade dispute and does not anticipate much coming from the trade talks with China this week. US President Trump also accused China and Europe of currency manipulation and stated that when the US places tariffs on China, China artificially devalues its currency. (Newswires)

PBoC injected CNY 50bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.8360 (Prev. 6.8718)

Australian PM Turnbull survived a Liberal Party leadership challenge by 48 to 35 votes, which was brought on by Australian Home Affairs Minister Dutton who later stepped down. This followed reports that PM Turnbull abandoned his energy policy and conceded the legislation could not pass parliament given the coalition’s 1-seat majority and opposition from within the Liberal Party led by former PM Abbott, which reports had noted casted large doubts over Turnbull’s future as party leader and PM. (SMH/CNBC) 

RBA minutes from August 7th meeting stated the board viewed no strong case for a near-term adjustment in rates and that the next move is likely to be a hike if progress is made on unemployment and inflation, The minutes added the central bank is to be source of stability and confidence by keeping rates steady, while it also noted that AUD had weakened a little but TWI remains within range of last 2 years and that risks of faster Fed hikes could weaken AUD and support the economy. (Newswires)

FX

Trump’s latest tirade on the USD has given FX markets some much needed traction after yesterday’s somewhat contained session. In his latest attack on the firmer USD, Trump has once again shifted blame onto the ‘independent’ Fed Chair Powell but stating that he was ‘not thrilled’ with the FOMC for lifting rates, adding that the Fed should do more to support the economy.

Subsequently, the DXY sits on a 95 handle in EU trade with the greenback having given back some key levels to its major peers. More specifically, EUR/USD has reclaimed 1.1500 to the upside and went as high as 1.1543 overnight before pulling back to just above 1.1500 where around EUR 646mln of option expiries reside; EZ-specific newsflow and data remains light. JPY has failed to benefit much from the softer USD with the move in USD/JPY below 110.00 short-lived as the pair now resides in close proximity to USD 1.6bln of expiries between 110.00-10.

GBP could be the one to watch for today’s session as talks in Brussels continue between EU’s Chief Negotiator Barnier and UK Brexit secretary Raab. In-fitting with most majors, GBP is firmer vs. the greenback thus far and comfortably on a 1.2800 handle but not showing much in the way of outperformance vs. its peers with EUR/GBP currently flat. Talks between Barnier and Raab are unlikely to provide markets with much in the way of a breakthrough as prospects of a deal by October remains doubtful. Thursday could instead provide the next major development for Brexit with the UK government due to unveil their technical notes in preparation of a potential no-deal Brexit; public or political backlash to this could provide the next headache for May et al.

Elsewhere, AUD was a key focus overnight after extending yesterday’s move above 0.7300, largely off the back of USD weakness with gains capped by domestic political uncertainty. As a reminder, Australian PM Turnbull survived a Liberal Party leadership challenge by 48 to 35 votes, which was brought on by Australian Home Affairs Minister Dutton who later stepped down. This followed reports that PM Turnbull abandoned his energy policy and conceded the legislation could not pass parliament given the coalition’s 1-seat majority and opposition from within the Liberal Party led by former PM Abbott, which reports had noted casted large doubts over Turnbull’s future as party leader and PM. RBA minutes overnight were a non-event.

A ‘calmer’ start to the session for TRY with USD/TRY (only!) up 1.0% thus far after US President Trump yesterday criticised Turkey by stating that he thought he had a deal with Turkey for Pastor Brunson’s release. TRY will continue to remain sensitive to any developments regarding the Pastor with Trump no-doubt wanting to get a ‘win’ in the eyes of the US electorate by securing his release without conditions. That said, questions remain over what long-term impact the release of the Pastor will have on the TRY given Turkey’s current account woes and central bank inertia.

GEOPOLITICS

UK Foreign Secretary Hunt is said to call for further sanctions from the EU on Russia. (Sky News)

US President Trump said he thought he had a deal with Turkey for Pastor Brunson’s release and that he helped Israel to free a Turkish citizen for the pastor's release. US President Trump said he would consider lifting Russian sanctions if Moscow took steps to cooperate with US on issues such as Syria and Ukraine, while he also stated it is fine if Iranian President Rouhani wants to meet him but that he could not care less if not. US President Trump later added that it is likely will have a 2nd summit with North Korean leader Kim. (Newswires)

PBoC Vice Governor said CNY will not be used as a weapon in trade frictions and is primarily decided by demand and supply. (Newswires)

EQUITIES

European equities trade mostly higher (Eurostoxx 50 +0.7%) with the FTSE 100 (-0.3%) underperforming, weighed by a firmer sterling and heavyweight BHP reported a 37% fall in profits due to a write-down on its US onshore oil and gas assets. Energy and Telecom names are underperforming while IT names outperform. Looking at individual stocks, Aggreko (+4.7%) and Bayer (+2.5%) are faring well following broker upgrades. Atlantia (+3.4%) remains in focus, company shares are taking a breather after plunging over 9% yesterday.

FIXED INCOME

A mixed start to the session thus far for EZ paper with Bunds and BTPs once again diverging as the IT/GE spread tightens. Bunds started the session on the backfoot with the German 10yr slipping to a session low of 163.39 after opening at circa 163.60 with the modest uptick in sentiment placing some modest pressure on core markets. Bunds pared losses slightly to reclaim 163.50 to the upside ahead of Germany 2yr supply which drew a softer than prior b/c (1.6 vs. Prev. 2.5) but did little to shake the complex. From an Italian perspective, today’s session has offered little in the way of new thinking into the populist administration’s stance on EU budgetary requirements with markets using the slightly more positive broader market tone thus far to buy BTPs with the Italian 10yr yield back below 3.0% for the first time since August 10th. Gilts trade modestly lower, in-fitting with the broader theme across core paper with the latest borrowing figures from the UK unable to provide any traction in Gilts with the release highlighting the largest surplus in public finances since 2000; supply today came in the form of a 2028 I/L Gilt which proved to be a non-event. USTs relatively flat with paper unfazed by the US Commander-in-Chiefs attempts to force the hand of the Fed

COMMODITIES

WTI (Unch) and Brent (Unch) trade without a firm direction, while concern grows over the potential impacts of the US-Sino trade disputes. US President Trump stated last night that he has no time frames for ending the China trade disputes. Traders are noting the rise in WTI is supported by the tightening outlook for fuel in the coming months. Of note: US offered 11mln barrels of sour crude from its Strategic Petroleum Reserve yesterday. This release of oil could offset some expected supply shortfalls as a result of US sanctions on Iran. Traders will be keeping an eye on the API weekly crude inventories today. Elsewhere, gold (+0.3%) is higher as the yellow metal moves with the dollar, while base metals benefit from the weaker dollar.