• Asian equity markets traded mixed amid a weak lead from Wall St, a lack of progress during US-China trade discussions and a change of leadership in Australia
• AUD was supported as Australian Treasurer Morrison becomes the new PMI
• Looking ahead, highlights include German GDP, US durable goods and Fed’s Chair Powell to speak at the Jackson Hole Symposium

ASIA

Asian equity markets traded mixed as the region digested the weak lead from Wall St, a lack of progress during US-China trade discussions and change of leadership in Australia. ASX 200 (+0.4%) traded choppy amid the tumultuous political climate, although sentiment later improved after Treasurer Morrison beat former Home Affairs Minister Dutton to become the PM. Elsewhere, Nikkei 225 (+0.7%) was underpinned by a weaker JPY, while Hang Seng (-0.8%) and Shanghai Comp. (-0.4%) were the worst performers following the stalemate at US-China trade talks and with the biggest movers amongst Hong Kong’s large caps also dictated by earnings. Finally, 10yr JGBs were uneventful with demand subdued amid strength in Tokyo stocks, although downside was also stemmed by the BoJ’s presence in the market for JPY 950bln in 1yr-10yr JGBs and following softer than expected CPI data.

PBoC refrained from reverse repos but later injected CNY 149bln through 1yr Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.8710 (Prev. 6.8367)

White House official said trade talks between US and China have concluded and that discussions included structural issues related to China and how to achieve trade fairness, while China Mofcom stated that US and China had constructive and candid exchange regarding trade and will keep in touch on next steps. However, there were earlier reports that US-China trade talks didn't provide any visible sign of progress which reduces prospects of an agreement soon, according to sources which added that China seemed unready to offer new solutions to US concerns related to trade deficit and coerced transfer of tech. (Newswires/WSJ)

Japanese National CPI (Jul) 0.9% vs. Exp. 1.0% (Prev. 0.7%). (Newswires)
Japanese National CPI Ex. Fresh Food (Jul) 0.8% vs. Exp. 0.9% (Prev. 0.8%)
Japanese National CPI Ex. Fresh Food & Energy (Jul) 0.3% vs. Exp. 0.3% (Prev. 0.2%)

UK/EU

UK Chancellor Hammond has warned of "large fiscal consequences" if the UK leaves the EU with no-deal, stating that UK GDP could take a hit of up to 10.3%. (Sky News)

Italy’s Deputy PM and Five-Star leader Di Maio stated his party will vote to suspend EU funding next year if the European Commission does not get a deal for other states to take in some of migrants on an Italian coastguard ship today. (Newswires)

FX

In FX markets, price action was mostly quiet overnight as the greenback held on to recent gains against its major counterparts, which kept EUR/USD and GBP/USD near the prior day’s lows with the latter testing 1.2800 to the downside. AUD was initially subdued by the US-China stalemate and leadership uncertainty in Australia but was later supported by news of Treasurer Morrison’s win who was seen to be the more politically-stable option. Elsewhere, USD/JPY was higher on broad strength in the greenback, while MXN and CAD languished after Thursday passed without the announcement of the previously-speculated NAFTA handshake agreement.

Australian Treasurer Morrison won the party vote to become Liberal Party leader and the next Australian PM via 45 vs. 40 votes. This was after outgoing PM Turnbull was forced to hold a party meeting and leadership vote which was contended by Morrison, Foreign Minister Bishop and Peter Dutton. (Newswires)

COMMODITIES

Commodities saw mild gains overnight in which WTI crude futures broke back above USD 68.00/bbl and Brent reclaimed the USD 75.00/bbl level amid reports of a continuation in North Sea oil strikes. Gold prices were marginally higher as the precious metal attempted to nurse its recent USD-induced losses, while copper also continued its rebound inline with the marginal upside seen across the complex.

North Sea Oil strikes are reportedly to continue as talks with Total have broken down. (Newswires)

GEOPOLITICAL

US Secretary of State Pompeo announced he will be making a 4th visit to North Korea and is reportedly planning the visit on August 27th. (Newswires)

US

The US Treasury sold $14bln of 5-year TIPS, which sold at the highest yield since 2009, stopping through by 0.1bps. On Thursday, the curve was mixed, though once again, there were new cyclical flats for the 2s5s and 2s10s, as has become almost customary on a daily basis. US 10-Year T-notes settled 1 tick lower at 120-19.

Fed's Bostic (Voter, Dove) said the FOMC has spent some time discussing the yield curve and that outlook is for above trend expansion in the coming quarters, while he also noted trade uncertainty as the chief downside risk. (Newswires)

Fed's Kaplan (Non-Voter, Dove) said the job of the Fed is to make decisions independent of politics and that impact of trade dispute on the US economy is so far modest but could affect business sentiment. Furthermore, Kaplan sees 3-4 hikes in the next 9-12 months and stated he is comfortable with 4 hikes this year, while he also commented that officials will ignore political pressure or attacks and that he hopes Fed can get to the neutral rate without seeing a yield curve inversion. (Newswires)

Mexico Economy Minister Guajardo said Mexican NAFTA negotiators are prepared to stay in Washington over the weekend if needed and later added they will have to work on NAFTA into next week, while Mexico Foreign Minister Videgaray said NAFTA discussions in Washington will continue 0930EDT today. In related news, Canadian PM Trudeau said they are encouraged by NAFTA progress and that they hope for a win-win-win NAFTA deal, while there were also comments from Canadian Foreign Minister Freeland that Canada would need to 'agree to any final conclusion' achieved on rules of origin in NAFTA talks between the US and Mexico. (Newswires)

US President Trump sought advice on the possibility of a Manafort pardon, although Trump lawyer Giuliani advised him against pardoning Manafort. (Washington Post/Newswires)

Manhattan DA is said to be considering charges against 2 Trump Organization officials. (NYT