• Sentiment has slipped as COVID updates and soft China data dented an otherwise quiet session as DXY and USTs see modest upside
• Chinese Industrial Production & Retail Sales for July both missed expectations
• New Zealand PM Arden says the Auckland restrictions are to be extended for an extra 12 days; settings will be reviewed on August 21st
• RBA Governor Lowe noted that the conditions for a rate increase are not likely to be met for at least 3-years
• Looking ahead, highlights include US Retail Sales, Industrial Production and University of Michigan Survey, Fed's Kaplan

CORONAVIRUS UPDATE

Major newswire tally stated that US coronavirus cases increase by at least 53,276 to a total of 5.27mln on Thursday and deaths rose by at least 1,185 to a total of 167.2k. Major newswire tally stated that California coronavirus cases increased by at least 8,295 on Thursday and deaths rose by at least 193. Elsewhere, Texas cases +6,755 (prev. +6,200) and deaths +255 (prev. +324). (Newswires)

New Zealand PM Arden says the Auckland restrictions are to be extended for an extra 12 days; settings will be reviewed on August 21st, no need to take Auckland to level 4 at this stage. Will extend the wage subsidiary scheme. Additionally, have identified 29 COVID-19 cases all linked to one cluster, adding that they have found the outbreak relatively early in its life. (Newswires)

UK PM Johnson's office said UK infections appears to have levelled off and that the plan to reopen more parts of the economy in England can resume following a 2 week pause, while it also plans to raise fines on those that repeatedly flout rules on facemasks. (Newswires)

French areas of Paris & Bouches-du-Rhone have been declared as red high-risk areas for COVID-19, given increasing infections, according to a Gov't decree. (Newswires)

ASIA

Asian equity markets head into the weekend mixed as the region took its cue from the lackadaisical performance in global peers after both the S&P 500 and Nasdaq failed to carve out fresh record levels in the US but where downside was stemmed by encouraging initial jobless claims data, while participants also digested disappointing Industrial Production and Retail Sales data from China. ASX 200 (+0.6%) was underpinned by outperformance in tech and healthcare, while the largest weighted financials sector was dragged following a 7% decline in NAB’s cash profit for Q3 although shares in the Big 4 bank itself were kept afloat after its revenue rose 10% for the quarter and as it explores a sale of its MLC wealth business. Nikkei 225 (+0.2%) traded indecisively amid an uneventful currency and the KOSPI (-1.2%) was the worst performer following a flare up of virus cases in which the country posted its largest daily increase in cases since March. Hang Seng (-0.2%) and Shanghai Comp. (+1.2%) were choppy after both Industrial Production and Retail Sales missed expectations, although PBoC efforts resulted to a net weekly injection of CNY 490bln and it announced to conduct a medium-term lending facility operation on Monday, while focus also shifts to the US-China talks set for tomorrow. Finally, 10yr JGBs were lower amid spillover selling from USTs in the aftermath of an abysmal 30yr auction, with prices also dampened by weaker demand at the enhanced liquidity auction for longer-dated JGBs.

PBoC injected CNY 150bln via 7-day reverse repos for a weekly net injection of CNY 490bln vs. Prev. CNY 270bln drain last week, while it kept the rate at 2.20% and will conduct an MLF operation on Monday (Newswires) PBoC set USD/CNY mid-point at 6.9405 vs. Exp. 6.9470 (Prev. 6.9429)

Chinese Industrial Production (Jul) Y/Y 4.8% vs. Exp. 5.1% (Prev. 4.8%) Chinese Retail Sales (Jul) Y/Y -1.1% vs. Exp. 0.1% (Prev. -1.8%) Chinese China House Prices (Jul) Y/Y 4.8% (Prev. 4.9%)

US President Trump said TikTok has to be proved to be totally secure and that any deal will have to be substantially beneficial for US, while he also suggested his attitude to China is not friendly. (Newswires)

Aberdeen Standard Investments warned of dramatic undervaluations related to forced delistings of Chinese companies in US and that Trump administration measures could impact USD 1tln of equity investments. (FT)

US

White House Economic Adviser Kudlow said President Trump could extend payroll tax deferral for 6 months after the election but does not plan to eliminate payroll taxes permanently if re-elected. (Newswires)

UK/EU

UK Transport Minister Shapps announced to impose 14-day quarantine on arrivals from France and Netherlands effective 0400BST on Saturday and noted that if the quarantine was not announced now, we would be failing to act on an infection rate which is too high. Furthermore, Shapps added that Malta, Monaco, Aruba, Turks and Caicos have also been included to the quarantine list, while French Junior European Affairs Minister Beune said the UK quarantine on arrivals from France will result to a reciprocal measure and hopes things will return to normal soon. (Newswires/Twitter)

The US ambassador to the UN has appealed to the UK, Germany and France to put forth a compromise measure to extend the Iranian arms embargo. (FT)

EU GDP Flash Estimate QQ (Q2) -12.1% vs. Exp. -12.1% (Prev. -12.1%)

-          GDP Flash Estimate YY (Q2) -15.0% vs. Exp. -15.0% (Prev. -15.0%)

GEOPOLITICAL

US seized 4 vessels of Iranian fuel cargo recently that was sent to Venezuela without the use of force after federal prosecutors filed a suit for their seizure last month. Subsequently, Iranian Official remarked that None of the Iranian ships or gasoline cargo belonging to Iran have been seized by the US. (WSJ/Newswires)

EQUITIES

European stocks continue to bleed in early trade [Euro Stoxx 50 -1.7%] despite a mostly positive APAC handover, with little by way of fresh catalysts to spur the sell-off, although participants note of possible squaring ahead of the weekend following this week’s rally alongside some positioning ahead of US retail sales. Broad-based losses are seen across major bourses, with DAX cash and Sept futures back below the 13,000-mark, Euro Stoxx 50 cash under 3,300 and CAC cash sub-5,000. Sectors are firmly in the red with energy underperforming, whilst the detailed breakdown sees Travel & Leisure the clear laggard after the UK imposed the 14-day quarantine rule to travelers from France and Netherlands – a move France said will see reciprocal action. As such, pronounced losses are seen across easyJet (-7%), IAG (-6.2%), Tui (-5.2%), Air France-KLM (-5.7%), Ryanair (-4.7%), and Lufthansa (-3.5%).  Upside movers are scarce with only some 9 stocks within the Stoxx 600 in positive territory at the time of writing; Qiagen (+3.2%) are the top mover, supported by a broker upgrade. Some smaller earnings-related movers include Hapag-Lloyd (+11%), Maersk Drilling (-8.4%) and Clas Ohlson (-0.2%). Finally, Atlantia (-3.0%) is pressured after Italian PM Conte noted that there are still details that need ironing out in Autostrade’s agreement with the government. The PM also noted that any deal will not prevent the government from launching legal action against the Co. in the case of “serious negligence”.

FX

JPY/USD – The 2 renowned safe haven currencies remain in lock-step, but Usd/Jpy continues to respect and reject triple-top resistance around the 107.00 level where Japanese exporters are reported to have selling/hedging interests. This could also be a top line for the MoF and BoJ in similar vein to defences of 105.00 fairly recently, and 104.00 not that long ago. However, the Greenback has survived another test of its own with assistance from significantly higher US Treasury yields, a steeper curve and signs that global stock markets are losing momentum amidst the ongoing spread and re-emergence of COVID-19. Indeed, the DXY is back above 93.000 following Thursday’s fall to 92.922, albeit tentatively heading into more top tier data (retail sales, ip and Michigan sentiment) and Saturday’s US-Sino showdown, while the Yen holds a relatively firm line between 107.03-106.68 parameters.

AUD – A very marginal ‘outperformer’ and straddling 0.7150 vs its US counterpart in wake of supportive Aussie jobs data in contrast to Chinese retail sales and ip missing consensus overnight. Resilience also coming after rhetoric from RBA Governor Lowe reaffirming no willingness to intervene directly to weaken the Aud even if he and the Bank would like to see it depreciate, or desire to devalue via negative rates.

GBP/EUR/CHF – All marginally weaker against the Buck in comparatively quiet, consolidative trade, as Sterling retreats from 1.3100+ again, the Euro retests bids around 1.1800 and the 200 HMA and the Franc pivots 0.9100. Note, hefty option expiry interest may also be weighing on the single currency given 1.1 bn at 1.1825 and 1.1850 ahead of almost double that size at the 1.1900 strike, though 1.1 bn at 1.1750 should provide some underlying support.

CAD/NZD/SEK/NOK – The Loonie also looks bound by big expiries in the absence of any inertia from oil ahead of Canadian manufacturing sales, with 1.5 bn running off at the NY cut very close to the top of the range (1.3250 vs 1.3248) and 1.1 bn below the base (at 1.3175 vs 1.3206). Meanwhile, the Kiwi continues to lag on the back of dovish RBNZ policy guidance and the pandemic resurgence, as Nzd/Usd pulls back further from 0.6600 and under 0.6550, while Aud/Nzd picks up pace beyond 1.0900.

EM – No major adverse reaction to the aforementioned disappointing Chinese macro releases as attention is trained on the upcoming US-China meeting and the Yuan hovers around 6.9500, but other EMs are feeling the effects of the mini-Usd revival and a downturn in risk sentiment. In fact the Try has slipped to a new, albeit slender, record low circa 7.3765 after weaker than expected Turkish ip, the Rub has reversed through 73.0000 against the backdrop of softer Brent crude prices and the Mxn is sub-22.0000 following the latest Banxico rate cut, shrugging off 1 dissenter voting for a 25 bp ease rather than -1/2 point.

RBA Governor Lowe said the view is that best course of action is to continue with current package and they considered the possibility of a regular program of bond purchases, while he stated the conditions for a rate increase will not likely be met for at least 3 years and hopes cash rate will not be this low for 5 years but it is possible. Furthermore, Lowe stated that have not ruled out a separate bond-buying program or other adjustments to the package and stated that negative rates are extraordinary unlikely for Australia, while he would like AUD to be lower but added cannot say that the currency is overvalued and that they are not prepared to intervene in FX to weaken AUD. (Newswires)

FIXED INCOME

It could simply be a case of post-supply relief rather than anything else, but the fact that equities are reversing relatively sharply suggests that the broad rebound in debt is at least partly due to renewed safe-haven demand. Indeed, the 3rd leg of the US Quarterly Refunding was far from well received and may yet take some digesting, while upcoming 20 year issuance could warrant extra concession. However, Bunds, Gilts and Treasuries have all clawed back lost ground from 175.25, 136.54 and 138-28+ lows posted either early today or at one stage on Thursday to stand at 175.80, 136.84 and 139-05+ respectively before topping out again. Ahead, primary US consumption and production data plus an early snapshot of sentiment for the current month via prelim Michigan survey, but tomorrow’s US-China event is casting a shadow over trade/positioning for the weekend.

COMMODITIES

WTI and Brent front month futures see a session of losses thus far, with the benchmarks pressured on a number of fronts – including the Israel/UAE deal providing some stability in the region, whilst the UK quarantine rule on France and Netherlands further dampens jet fuel demand as flagged by the IEA oil market report yesterday. Furthermore, participants will also be keeping stock of US-Sino sentiment heading into the weekend meeting, which comes against the backdrop of heightened tensions, although very little is expected to develop on the trade front. WTI Sept and Brent October are down some USD 0.50/bbl apiece and trade below 42/bbl and 45/bbl respectively, with eyes on retail sales for a possible sentiment-driven move ahead of the weekly Baker Hughes rig count. Elsewhere, spot gold is uneventful on either side of USD 1950/oz as the yellow metal trades in lockstep with the USD ahead of Tier 1 US data, albeit prices are set for the first weekly decline in ten weeks, whilst spot silver oscillates on either side of USD 26/oz. In terms of base metals, Shanghai copper closed lower amid sub-par Chinese retail sales and industrial output data, coupled with Shanghai warehouse copper stocks rising. Conversely, Dalian iron ore futures closed higher by almost 2% as the metal remains underpinned by steel producers’ demand alongside supply woes. Reports also note that China produced record amounts of crude steel last month amid infrastructure boosts. Finally, China’s aluminium output hit a record high last month as smelters were incentivized to restart production and launch new capacity by the rally in prices. 

EU Commission has instigated an anti-dumping investigation into China's aluminium flat-rolled products following on from complaints. (Newswires)