• European equities traded choppy but are ultimately lower; FTSE 100 underperforms
• Further US COVID-19 relief bill talks will take place today; goal is to conclude discussions this week
• BoE maintained policy settings; Gov Bailey said negative rates are in the toolbox but prefers QE; RBI unexpectedly stood pat on rates
• In FX, DXY is modestly firmer; GBP outperforms and TRY tumbles
• Looking ahead, highlights include US Initial Jobless Claims and Continued Claims, Fed's Kaplan

CORONAVIRUS UPDATE

AstraZeneca (AZN LN) has signed an exclusive framework agreement with Shenzhen Kangtai Biological on the development and manufacturing and commercialisation of COVID-19 vaccine candidate AZD1222 in Mainland China. (Newswires)

German Health Minister Spahn said we are seeing a lot of smaller outbreaks of COVID-19 with infections stemming from the work place and other places. (Newswires)

ASIA-PAC

Asian equity markets traded mixed amid a lack of fresh catalysts and with the region failing to take advantage of the mild tailwinds from Wall St where cyclicals led the upside and the DJIA outperformed its major peers after the blue-chip index received a boost from a surge in Disney shares post-earnings and with Boeing also flying high after optimism on its ability to navigate through the aviation crisis. Furthermore, participants continue to hang on COVID-19 relief discussions where the latest headlines suggested that progress must be made by this Friday or else President Trump is ready to take executive action. ASX 200 (+0.7%) was positive with the index kept afloat of the 6000 level, supported by the commodity-related sectors and with the RBA continuing its QE operations for a 2nd consecutive day. Nikkei 225 (-0.4%) was subdued by a firmer currency and as earnings remained in focus with Honda Motor and Mitsui Engineering & Shipbuilding among the worst hit after posting losses during the prior quarter, while KOSPI (+1.3%) benefitted alongside strength in index heavyweight Samsung Electronics after it unveiled a new phablet, foldable smartphone and wearable products. Hang Seng (-0.7%) and Shanghai Comp. (+0.3%) failed to hold on to early gains with sentiment dampened by a continued PBoC liquidity drain and ongoing US-China tensions with the US said to want untrusted Chinese apps removed from US app stores and President Trump criticized that Hong Kong will not be a successful financial exchange anymore in which the city will dry up and fail. Finally, 10yr JGBs were weaker amid spill-over selling from USTs and with prices also dampened by weaker demand at the 10yr inflation-indexed auction.

PBoC skipped reverse repo operations for a net daily drain of CNY 50bln PBoC set USD/CNY mid-point at 6.9438 vs. Exp. 6.9464 (Prev. 6.9752)

Xu Weihong, who is of Canadian nationality, was sentenced to death on Thursday by Guangzhou Intermediate People's Court in his first trial for producing drugs, according to the Chinese Global Times. (Twitter)

US

Further COVID relief bill talks will take place today between White House Chief of Staff Meadows and Treasury Secretary Mnuchin, with House Speaker Pelosi and Senate Minority Leader Schumer; goal is to conclude discussions this week; Fox's Pergram. (Twitter)

US President Trump commented that if Democrats put partisan demands aside, we will reach an agreement on relief quickly. President Trump also stated he is exploring executive action on evictions and unemployment relief. (Newswires)

US White House Chief of Staff Meadows said he will meet with House Speaker Pelosi and Senate Minority Leader Schumer on Thursday evening and that if significant progress hasn't been achieved by Friday, US President Trump is ready to use executive action and noted the sides remain trillions of dollars apart in discussions on COVID relief. (Newswires)

US Senate Majority Leader McConnell said both sides want to achieve a solution in relief talks but noted the sides are far apart, while Senate Minority Leader Schumer commented that this is a huge crisis and Democrats will only back a broad bill that meets the crisis, while he added that Democrats will stay in Washington for as long as it takes to reach an agreement and will not walk away. (Newswires)

US House Speaker Pelosi says she and Senate Minority Leader Schumer are determined to reach an agreement on relief that satisfies US public needs, while she feels optimistic following discussions with the White House. (MSNBC)

Fed's Mester (voter) said high frequency data and discussions with regional contacts point to a slowdown in US economic activity in recent week and suggested the reopening proved to be more difficult and could be more protracted that thought. Mester added that there doesn't seem to be much support regarding negative rates for the US and noted much more fiscal support will be needed, while she also commented that forward guidance is a tool she will keep in her kit for the right time and is hopeful a stimulus bill is passed because the need is out there. (Newswires)

The Hill/HarrisX poll showed former VP Biden leads President Trump nationally at 43% vs. 40% (Prev. 45% vs. 38%) which was conducted online between August 2nd-5th. (The Hill)

It was initially reported that Twitter (TWTR) suspended US President Trump from tweeting until he removes a Fox News clip which alleged that children were almost immune to COVID-19, although this was later corrected to stated that US President Trump is not banned from tweeting and instead the Trump campaign account will not be able to tweet until the post was removed. In related news, Facebook (FB) also said it took down a post from President Trump's Facebook page as it broke COVID-19 misinformation rules. (Washington Post/Newswires)

New York Prosecutors seeking President Trump's tax records had reportedly issued a subpoena last year to his long-term lender Deutsche Bank, which suggests a more wide-ranging investigation. (New York Times)

New York declared a state of emergency in 12 areas due to Tropical Storm Isaias. (Newswires)

CENTRAL BANKS

BOE held rates at 0.1% (9-0 vote); maintained APF size at GBP 745bln; repeated expects asset purchases to be completed 'around turn of the year'; reiterated stands ready to adjust policy as needed

-        The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

-        Higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April. However, the risks to the outlook for GDP are judged to be skewed to the downside.

-        UK GDP: 2020 at -9.5% (prev. -14%), 2021 at 9% (prev. 15%), 2022 at 3.5% (prev. 3%)

-        CPI: 2020 at 0.25% (prev. 0.6%), 2021 at 1.75% (prev. 0.5%), 2022 at 2.0% (prev. 2.0%)

-        Unemployment Rate: 2020 at 7.5% (prev. 8%), 2021 at 6.0% (prev. 7%), 2022 at 4.5% (prev. 4%)

-        Negative policy rates at this time could be less effective as a tool to stimulate the economy. That said, the wider economy and banks’ balance sheets would be boosted by stimulus. The net effect of negative policy rates depends on these, among other, factors.

BoE Governor Bailey said negative rates are in the toolbox but do not think BOE is about to use them, that is not the current plan and stated BOE could do more QE, as well as implement new forms of forward guidance. Bailey said further stimulus depends on downside risks coming to fruition. BOE would need to see a lot more evidence that economy is evolving per the BOE's central case, and repeated BOE is ready to act if needed (Newswires)

RBI held rates steady (consensus was for a cut), RBI to take measures to improve the flow of credit; announces measures for MSMEs to restructure debt. (Newswires)

EQUITIES

A choppy day in European stock markets [Euro Stoxx 50 -0.4%] as losses seen at the open where met with a bout of buying – which took most of Europe into positive territory – but price action thereafter reversed. UK’s FTSE 100 (-1.3%) remains the underperformer in the region in the aftermath of the BoE monetary policy decision, which prompted a firmer GBP thus providing unfavourable currency conditions. On the other side of the spectrum, DAX (Unch) has remained somewhat resilient amid post-earning gains from a number of heavyweights including Siemens (+2.7%) and Adidas (+4.0%) who hold 8.3% and 4.4% weightings respectively. Sectors are mostly lower with the exception of industrials – which benefits from the broader losses across materials – but broader sectors do not show a particular risk bias. The breakdown paints a similar picture and sees Industrial Goods & Services leading the gains, with Travel & Leisure now flat after Lufthansa (Unch) trimmed gains, albeit the Co. reported less dire-than-expected numbers. Individual movers again are largely oriented around earnings: Adecco (+1.1%), Credit Agricole (-0.5%), ING (-0.2%), Glencore (-5.9%) – with the latter narrowing its FY20 copper production guidance after reporting deteriorations in both revenue and adj. EBIT.                                             

FX

EUR/GBP - The cross has drifted back down towards 0.9000 following a much more pronounced Euro retreat from post-German data peaks relative to Sterling after a less pessimistic BoE near term outlook via the latest MPC minutes and MPR. Indeed, Eur/Usd has reversed sharply from 1.1915 to circa 1.1840, while Cable is holding firm on the 1.3100 handle between 1.3113-82 even though the Dollar has clawed back losses against most major counterparts and vs GOLD that has been instrumental in terms of the Greenback’s downfall. Back to the Pound, post-policy meeting comments from Governor Bailey underlined the message that NIRP remains under review and in the toolbox, but not currently on the agenda.

DXY/NZD/CAD/AUD - Consolidation, short covering and a technical rebound may all be contributing to the broad Buck bounce after the index breached the prior ytd low, but held close to 92.500 at 92.495 in the run up to Friday’s jobs data. However, 93.000 is capping the recovery for now as US Treasury yields and the curve stabilises amidst dip and block buying after Wednesday’s post-Quarterly Refunding bear-steepening and a bumper NFP print could yet prompt renewed Dollar selling given the likely boost to overall risk sentiment. Nevertheless, the Loonie has pared gains from 1.3250+ towards 1.3300, Kiwi is back below 0.6650 and Aussie sub-0.7200 against the backdrop of retracements in crude and commodities.

CHF/JPY - Both displaying degrees of resilience in the context of the aforementioned Greenback revival, as the Franc maintains 0.9100+ status and Yen stays comfortable afloat of 106.00 within a raft of hefty option expiries spanning 105.00 to 106.25 – for full details check out the headline feed at 7.30BST. Ahead, Japanese household spending data may provide some independent impetus for the Jpy before the monthly US labour report.

SCANDI/EM - The Norwegian and Swedish Crowns have been undermined by waning risk appetite on top of the downturn in oil prices, with Eur/Nok and Eur/Sek hovering around 10.6400 and 10.3100 respectively even though the single currency remains well off early highs, but the Turkish Lira is plunging further below 7.0000 vs the Dollar and looks destined to revisit record lows (7.2690), at least, as the rout continues and some market participants speculate whether the CBRT is compliant if not complicit with Try depreciation as a means of addressing the country’s deteriorating finances having depleted reserves and approaching the limits of monetary easing. Conversely, a Rupee rebound after the RBI confounded consensus for a 25 bp rate cut and remained on hold, while the Czech Koruna is anticipating the CNB to stand pat later.                   

FIXED INCOME

Core debt was already mounting a recovery from worst levels before Spanish and French auction results revealed relatively healthy demand despite ongoing COVID outbreaks in both countries, but Eurozone peripheral bonds have subsequently picked up the baton to reach new peaks and the rest are tagging along. Bunds are still outpacing Gilts post-BoE on another NIRP pushback and other elements of the MPR that improved from the previous report, and have been up to 177.45 (+35 ticks vs -18 ticks at worst) vs 138.29 for the 10 year UK future (+16 ticks compared to -27 ticks at the esrly Liffe low), while US Treasuries are rebounding further from yesterday’s Quarterly Refunding related lows with the curve re-flattening after decent block and dip buying overnight. Ahead, challenger jobs and IJC before Friday’s NFP.

COMMODITIES

WTI and Brent futures remain in the doldrums in early European trade as a firmer Dollar and subdued risk sentiment weighs on prices amid a lack of fresh fundamental catalysts for the complex, whilst analysts at JPM have trimmed their H2 2020 pol demand forecast by 1.5mln BPD – potentially on account of second wave woes. On the docket, traders will be eyeing the possible release of Saudi Aramco’s OSPs for September – which could come later this week or early next week according to sources. Expectations point towards an OSP cut to their flagship grade to Asia amid the easing of supply cuts from OPEC+. Elsewhere, spot gold ekes mild gains relative to recent performance and trades on either side of USD 2050/oz, whilst spot silver remains the outperformer, some analysts cite the sharp recovery in global industrial activities coupled with constrained mining activity as factors behind the rally. Finally, Shanghai base metals had. a session of firm gains with prices hitting multi-month highs – with Nickel prices closing higher by almost 3% after a key miner Philippines reimposed lockdown measures, whilst Dalian iron ore rose some 3% on a rosier Chinese steel demand outlook

JPM has cut H2 2020 oil demand assumption by 1.5mln BPD; marks to market Q3 Brent price forecast to USD 41/bbl; raises 2020 average Brent forecast to USD 42/bbl (prev. 40/bbl). (Newswires)