• Asian equity markets traded mixed with the region cautious amid Former Trump lawyer Cohen pleading guilty to violating campaign financing laws at the direction of a 'candidate'
• DXY remained pressured and edged closer towards the 95.00 level as its major counterparts held on to this week’s gains
• Looking ahead, highlights include Canadian retail sales, US existing home sales, EIA weekly crude inventories and FOMC minutes

ASIA

Asian equity markets traded mixed with the region indecisive due to the events stateside where the elated mood from the fresh record highs in the S&P 500 eventually deteriorated on political concerns due to legal troubles for President Trump’s former inner circle. This was after Trump’s former campaign manager Manafort was found guilty on 8 counts including tax fraud, while former Trump lawyer Cohen also pleaded guilty at a court hearing and stated he violated campaign financing laws at the direction of a 'candidate' which his lawyer further elaborated on and alleged that Trump directed Cohen to commit a crime. ASX 200 (-0.4%) declined from the open with the index weighed by financials although telecoms outperformed on M&A news with TPG in merger discussions with Vodafone Hutchison Australia, while Nikkei 225 (+0.5%) was also initially pressured but then recovered as auto names cheered recent reports that US auto tariffs could be delayed. Elsewhere, Hang Seng (+0.5%) and Shanghai Comp. (-0.5%) were mixed in which the mainland underperformed after the PBoC refrained from liquidity operations and with both US and China said to be pessimistic heading into trade discussions. Finally, 10yr JGBs saw initial gains as prices tracked the overnight rebound in T-notes and with the BoJ also in the market for JGBs in the belly to super-long end, but then gradually pared throughout the session.

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.8271 (Prev. 6.8360)

UK/EU

UK's Brexit Secretary Raab said progress has been made with EU's Barnier but there are still significant issues to overcome and that he agreed with EU's Barnier to step up pace of negotiations. EU Chief Brexit Negotiator Barnier said we need a legally operational Irish backstop and that negotiations are entering a final stage with the two to negotiate continuously from now on. Barnier also commented they can still find common ground in Brexit talks and that content of White Paper contradicts his and European Council guidelines, while he also stated we are not working towards a no deal Brexit but we have to prepare for that scenario. (Newswires)

EU’s Financial Services Chief warned the UK that Brussels will be strict in policing UK’s right of access to the bloc’s market post-Brexit. (FT)

US VP Pence and UK Foreign Minister Hunt have said they are committed to bilateral trade talks upon the UK’s departure from the EU. (Newswires)

FX

In FX markets, the DXY remained pressured and edged closer towards the 95.00 level as its major counterparts held on to this week’s gains, with EUR/USD biding its time after the recent test of the 1.1600 level and with GBP/USD back at the 1.2900 handle. MXN and CAD were underpinned on reports US is to announce a ‘handshake’ NAFTA deal related to Mexico on Thursday, although some of the gains were reversed after both Canada and Mexico denied knowledge of an imminent deal. Elsewhere, USD/JPY and JPY-crosses were also higher at the expense of the greenback, while antipodeans traded mixed with NZD supported by strong Retail Sales data and AUD contained by recent political infighting.

New Zealand Retail Sales (Q2) Q/Q 1.1% vs. Exp. 0.3% (Prev. 0.1%). (Newswires)

Australian PM Turnbull said tax cuts for large companies failed to pass the Senate and they will not be taking the tax cut plan for big businesses into the next election while Australian PM Turnbull also commented that he doesn't anticipate another leadership challenge this week. (Newswires)

COMMODITIES

Commodities were relatively quiet overnight with WTI crude futures slightly higher and back above the USD 66.00/bbl level following a larger than expected drawdown in headline API crude stockpiles. Elsewhere the metals complex was steady gold holding onto recent gains amid a weaker greenback and within proximity to retest the USD 1200/oz level, while copper traded sideways amid the cautious risk tone in the region.

US API Weekly Crude Stocks (17 Aug) -5.170M vs. Exp. -1.500M (Prev. +3.660M). (Newswires)

US issued a preliminary duty on pipes from Canada, China, India, Greece, South Korea and Turkey. (Newswires)

GEOPOLITICAL

North Korea reportedly agreed to provide key info to US about nuclear warheads and secret test sites, according to sources. (Korea Times)

US

The Treasury complex began to slide just after the European open and continued to drift lower into the US session as equities climbed higher with the SPX hitting an all-time high. Investors are now awaiting the FOMC Minutes due to be released tomorrow and Fed’s Powell conference at Jackson Hole later in the week. Amid decent volume, most of the action was concentrated in the belly of the curve where yields were higher by c.3bps whilst the short and long end of the curve were higher by c.2bps. 2s10s. 2s5s and 2s30s were wider by c.1bps at settlement. US 10-year T-notes settled ticks 5+ ticks lower at 120-14+.

Former Trump lawyer Cohen pleaded guilty at a court hearing and stated he violated campaign financing laws at the direction of a 'candidate' and acted to influence the election. Furthermore, Cohen’s lawyer Lanny Davis alleged that Trump directed Cohen to commit a crime and said that Cohen is willing to talk to Special Counsel Mueller (Newswires)

Former Trump campaign manager Manafort was found guilty on 8 counts including tax fraud, while a mistrial was declared on 10 other charges after the jury failed to reach a verdict on those counts. (Newswires)

US President Trump said Manafort was a good man and that the Manafort case has nothing to with Russia collusion, while US Republican Senate Majority whip Cornyn also stated that the recent events do not implicate the President at all, particularly on the Russia investigation. (Newswires)

US is said to announce ‘handshake’ NAFTA agreement related to Mexico on Thursday, according to reports in Politico. However, there were later comments from the Canadian government that it has no notification of a NAFTA agreement being imminent, while Mexico was also said to have denied the existence of a NAFTA handshake deal. (Politico/Newswires)

Designated NAFTA negotiator for incoming Mexican President AMLO said NAFTA talks are making good progress and are coming to an end, while he also expects US & Mexican officials to have an agreement on outstanding issues by early next week. In related news, there were also reports that the incoming and outgoing Mexican administrations are said to have differences over inclusion of the energy chapter in the potential NAFTA agreement. (Newswires/WSJ)

Fed’s Kaplan (Non-Voter, Neutral) said Fed should raise interest rates gradually to a neutral level and that he sees 3 to 4 more hikes before that level is reached. Kaplan further added that once the neutral level is reached, he would be inclined to step back and assess the outlook. (Newswires)

Senate Majority Leader McConnell said the Senate is on the path to avoid an omnibus and fiscal drama. (Newswires)