• Sentiment remains soft after less accommodative FOMC minutes and US-China tensions remain in focus
• China's Foreign Ministry have decided Hong Kong will be suspending agreements with the US on some areas of legal cooperation
• Australia is reportedly to block China's Mengniu Dairy's proposed AUD 600mln takeover of a number of Australian dairy brands, FT
• FX sees the DXY modestly firmer but meandering around 93.00 with major peers subdued as such and antipodeans taking the brunt; NOK was unfazed by an U/C Norges Bank decision
• Looking ahead, highlights include ECB Minutes, US initial jobless claims, Philadelphia Fed Business Index, Fed's Daly

CORONAVIRUS UPDATE

Major newswire tally stated that US coronavirus cases increased by at least 44,043 to a total of 5.55mln and deaths rose by at least 1,297 to a total of 173.2k. Texas cases +6,474 (prev. +7,282) and deaths +309 (prev. +216).

UK is to place Croatia in its quarantine 'red list' after infection rates tripled in a week. (Telegraph)

Social distancing measures in Hong Kong will not be relaxed until mid-September, when the administration has completed carrying out its population-wide COVID-19 testing, according to sources cited by SCMP. (SCMP)

European Commission President Von der Leyen says the EU will soon come to an agreement with CureVac to secure access to COVID-19 vaccines, "This is the 4th company with which we enter into an agreement. More will follow, to diversify our portfolio". (Newswires)

ASIA

Asian equity markets traded lower across the board amid headwinds from Wall St where stocks faltered in the aftermath of the less accommodative than expected FOMC Minutes which triggered a pullback in the S&P 500 and the Nasdaq from record highs, while Apple shares also retraced the majority of the early gains that had briefly pushed the tech giant to the unprecedented USD 2tln market cap status. ASX 200 (-0.8%) was pressured by a slate of weak earnings and with underperformance seen in energy names, while Nikkei 225 (-1.0%) retreated below the 23,000 level with Tokyo exporters dragged by a predominantly firmer currency. Hang Seng (-1.5%) and Shanghai Comp. (-1.3%) conformed to the downbeat tone after the US State Department either suspended or terminated three bilateral agreements with Hong Kong and reports also suggested the likelihood of a RRR cut this year has declined with the central bank expected to inject liquidity through reverse repos and MLF operations instead. In addition, the PBoC maintained the 1-year and 5-year Loan Prime Rates at 3.85% and 4.65% as expected, while there were reports US and Chinese trade negotiators plan to confer by video in the coming days regarding the Phase 1 trade deal progress and US actions against Chinese tech firms, although this failed to provide any support for stocks. Finally, 10yr JGBs were initially kept afloat by the risk averse tone but with the upside restricted following the post-FOMC pressure in T-notes and with participants sidelined heading into the 5yr JGB auction which turned out to a be a weaker than previous auction and subsequently weighed on prices.

PBoC injected CNY 160bln via 7-day reverse repos for a net injection of CNY 10bln at a rate of 2.20% PBoC set USD/CNY mid-point at 6.9274 vs. Exp. 6.9317 (Prev. 6.9168)

PBoC 1-Year Loan Prime Rate 3.85% vs. Exp. 3.85% (Prev. 3.85%) PBoC 5-Year Loan Prime Rate 4.65% vs. Exp. 4.65% (Prev. 4.65%)

-        The likelihood of the PBoC lowering RRR this year has declined, with the central bank expected to inject liquidity through reverse repos and MLF. (China Securities Journal) 

PBoC says prudent monetary policy will be more flexible and appropriate and will guide market rates towards OMO and MLF rates. (Newswires)

Hong Kong government issued a severe reprimand against US actions on Hong Kong and said it will take action against the US at the WTO. Subsequently, China's Foreign Ministry have decided Hong Kong will be suspending agreements with the US on some areas of legal cooperation following the US ending 3-HK agreements. (Newswires)

Australia is reportedly to block China's Mengniu Dairy's proposed AUD 600mln takeover of a number of Australian dairy brands, FT citing the preliminary view of Australia's Treasurer Frydenberg. (FT)

US 

Chinese Commerce Ministry says that the US and China have decided to hold discussion on trade in the near-term. (Newswires)

UK/EU

Norges Bank stands pat on its Key Policy Rate at 0.00% as expected in a unanimous vote; reiterate the policy rate will most likely remain at today’s level for some time ahead, followed by a gradual rise. New information largely confirms the picture of the economic developments presented in the June Report. Krone has appreciated and is stronger than assumed in the June Report, as is oil. While inflation has risen, expect this to moderate further out. (Norges Bank)

BoE, ECB, SNB and BoJ will reduce the frequency of 7-day USD repos to once a week (prev. three times a week). (Newswires)

German Finance Ministry monthly report states they expect industrial output to rise further in approaching months and that tax revenues stabilized in July with overall tax decline less drastic than feared. (Newswires)

GEOPOLITICS

US President Trump said he is directing Secretary of State Pompeo to notify the UN that the US will snapback Iran sanctions and that the US intends to restore nearly all UN sanctions on Iran, while Secretary of State Pompeo separately commented that the US will hold China and Russia accountable if they attempt to block sanctions snapback on Iran. (Newswires/Fox News)

South Korean spy agency reports that North Korea's Kim Jong Un has delegated some government authority, Yonhap reports. (Newswires) Unconfirmed reports suggest some power has been passed to his sister.

EQUITIES

European equities trade lower across the board (Eurostoxx 50 -1.3%) as market participants digest the fallout of the FOMC minutes which were judged to be less dovish than some had hoped for. Furthermore, geopolitical tensions have been ratcheted up once again in the wake of comments from US Secretary of State Pompeo who warned that the US will hold China and Russia accountable if they attempt to block sanctions snapback on Iran. Separate reports have noted that US and Chinese trade negotiators plan to confer by video in the coming days over Phase One progress, however, no date has been set yet and expectations for the call, should it take place, will likely be relatively low. In terms of the tone of the market in Europe, all sectors trade in the red, with some of the more defensive sectors such as health care and utilities faring slightly better than peers, but ultimately still lower on the day. Basic resources are a laggard in the region following recent declines in both precious and base metals and post-Antofagasta (-4.8%) earnings with the Co. reporting a 22.4% decline in H1 core earnings amid the COVID-19 crisis; note, the Co. will nonetheless pay an interim dividend. Somewhat of a divergence has been seen in the travel & leisure sector with airlines such as IAG (-4.8%), Ryanair (-3.1%) and easyJet (-2.3%) lower as the UK is set to further expand its list of countries which will force travelers to self-isolate upon return. Conversely, hotel names are faring slightly better with Accor (+0.7%) and InterContinental Hotels (+1.0%) supported by reports in French media suggesting that the former could put in a bid for the latter. Elsewhere, as part of a more anti-cyclical bias, banks and auto names are faring relatively poorly this morning, for banks-specifically, some of the laggards are predominantly Spanish names, which could be a reflection of mounting COVID-19 cases in the nation.

FX

DXY - The index oscillates on either side of 93.000 in the aftermath of the FOMC minutes - which pushed back on expectations that further policy action will arrive soon as it indicated that members are not inclined to a forward guidance change and YCC. The release propped up the broader Dollar and index back above the 93.000 mark to a high (yesterday) at 93.059, but thereafter trickled back below the figure as the dust settled in early European hours. The index has since regained traction and printed a fresh intraday peak just under 93.200. with the 21 DMA in proximity at 93.336. US stimulus talks will likely regain focus alongside US-Sino developments, whilst US Philly Fed and the weekly initial and continuing jobless claims, and Fed non-voter Daly are on today’s docket.

AUD, NZD, CAD, GBP, EUR - All softer against the Buck to various degrees, with the non-US Dollars taking their cue from the subdued risk tone across the market, with the antipodeans bearing the brunt of the pressure. AUD/USD remains sub-0.7200 having had dipped below its 21 DMA (0.7165) in early European trade, whilst the NZD/USD meanders around its 50 DMA (0.6550) after side-lining comments from RBNZ Assistant Governor Hawkesby whose speech largely proved to be a rehash of recent communication. The Loonie also see modest weakness, albeit fares better than its antipodean counterparts, with USD/CAD matching Tuesday’s high around 1.3231 but remaining contained within a tight band ahead of BoC Deputy Governor Beaudry’s panel discussion later today.  The core European FX trade in tandem with the Dollar. EUR/USD is edging closer towards 1.1800 to the downside from 1.1868 at best ahead of its 21 DMA at 1.1789 as trades eye the release of the ECB Minutes (Full preview available in the Research Suite). EUR/GBP resides around its 50 DMA (0.9034) having had printed a current parameter of 0.9030-69. Note: EUR/USD sees several large option expiries for today’s NY cut, including EUR 833mln at 1.1800, EUR 2.2bln between 1.1840-50 and 1.4bln at 1.1900.

NOK, SEK - The Norwegian Crown saw little immediate reaction upon the release of the Norges Bank decision, which kept rates unchanged and reiterated forward guidance as expected with focus turning to the September update for a possible tweak to the repo path. The NOK however is weaker on the day but more so a function of the risk tone across the market, with EUR/NOK closer to the top of its current parameter 10.5380-5940, albeit faring better than its Swedish counterpart which sees more pronounced losses despite the Swedish unemployment rate printing below forecasts. EUR/SEK continues gaining above 10.3000 with a current high of 10.3380.

CHF, JPY - Both modestly firmer against the USD as the risk averse tone persists during early EU hours, with EUR/CHF straddling around the 1.0800 (vs. 1.0842 at best) mark whilst USD/JPY encounters a barrier at 106.00 to the downside from a high of 106.21.

EM - EM FX conforms to the overall risk tone with broad-based losses seen across most pairs. USD/TRY gears up for the CBRT’s rate decision where no change is expected to the One-Week Repo rate amid a number of “backdoor” policy tightening measures taken up by the bank to stem the Lira’s freefall, although some have flagged the possibly of hikes to its overnight lending rate alongside its late liquidity window, currently at 9.75% and 11.25% respectively. Meanwhile, the CNH remains resilient to broader USD action after the PBoC left its LPR setting unchanged, whilst Chinese press noted that  the likelihood of the PBoC lowering RRR this year has declined, with the central bank expected to inject liquidity through reverse repos and MLF.

RBNZ Assistant Governor Hawkesby said the balance sheet will continue to expand as it supports the economy while the size and composition of the balance sheet will become a more active instrument for monetary policy decisions. Furthermore, Hawkesby added that it is not necessarily the case that the central bank's balance sheets should revert to their former levels  and reiterated the view that a lower or negative OCR, funding for lending programme, foreign asset purchases and interest rate swaps remain possible options. (Newswires)

Notable FX Expiries, NY Cut:

-        EUR/USD 1.1725 (309M), 1.1750-55 (1.0BLN), 1.1760-65 (670M), 1.1770 (586M), 1.1800 (833M), 1.1840-50 (2.2BLN), 1.1900 (1.4BLN), 1.1925 (322M), 1.1950 (1.26BLN), 1.1975 (581M), 1.20 (585M)

-        USD/JPY 105.00 (281M), 105.85 (230M), 106.00 (280M) 106.50 (290M), 107.00-10 (1.25BLN), 107.20 (210M)

-        AUD/USD 0.7100 (703M), 0.7120-25 (810M), 0.7225 (291M), 0.7300 (700M).

-        USD/CAD 1.3245-50 (1.13BLN)

FIXED INCOME

Treasuries were firmer once again overnight continuing the theme of the past week however volumes were notably higher and activity was skewed towards the long-end of the curve; in sharp contrast to volumes of some 70% of the average seen in the prior session. Overnight action was largely driven by the much-anticipated FOMC minutes ahead of next week’s Jackson Hole Symposium and September’s gathering; Fed watcher Tim Duy described the minutes as being somewhat of a disappointment as it walked back expectations of further policy action arising soon. The release caused some mild steepening, largely being attributed to Fed participants downplaying the benefits YCC would provide; ultimately, the move was short-lived as evidenced by the curve being back to bull-flattening this morning. Note, the 20-year auction saw slightly lower demand but not to a degree sufficient to spark a broad reaction as the relatively soft long-end supply caused last week. In terms of where we currently stand, it has been a quiet morning for Europe the monitoring of China comments drawing attention but ultimately little to sway the fixed space. Supply from France and UK I/L were similarly uneventful. As such, major peers are modestly firmer as sentiment remains soft post a less accommodative FOMC and sees peers largely mid-range; albeit, they have picked up slightly most recently towards session highs with Bunds printing a new peak just shy of 177.00. Looking ahead, the schedule isn’t too eventful with the account from the ECB’s July meeting on the docket but not too much is expected from this (primer available on the Newsquawk headline feed/research suite). Afterwhich, the usual weekly US jobless data and additional Fed speak rounds off the session; IJC reading will be monitored to see if claims are below the 1mln mark for the 2nd consecutive week, or if they have creeped back above – as the top end of the forecast range indicates.

COMMODITIES

WTI and Brent October futures hold onto modest losses in the aftermath of the FOMC-induced USD strength and the fallout of the JMMC meeting – which in a nutshell reaffirmed the commitments to the OPEC+ deal, made no recommendations for changes to the output target and emphasised the importance of compliance; laggards set to submit their over-compliance plans to the JMMC by August 28th. Note, Argus media citing delegates stated that OPEC+ needs a cumulative 2.3bln BPD of cuts over the next two months to make up for the stragglers’ shortfalls, albeit journalists with access to the ministers’ memo of the meeting say there is no such mention. WTI October meanders around USD 42.75/bbl (vs. high 42.98/bbl) while its Brent counterpart trades on either side of USD 45/bbl (vs. high 45.18/bbl). Elsewhere, spot gold and silver remain impaired by post-FOMC losses sub-USD 1950/oz and below USD 28/oz respectively as a firmer Dollar persists, having had traded within a USD 25/oz intraday range thus far. In terms of base metals, LME copper prices remain subdued by the Dollar and as the red metals track the equity sell-off, whilst Dalian iron ore futures ended the overnight session lower by over 1% against the same backdrop.

Source: Newsquawk