• Sentiment largely undeterred on EZ flash PMIs but currently bourses are mid-range and modestly firmer in quiet newsflow
• EZ PMIs were softer than expected, with French Manufacturing dropping into contractionary territory
• UK Retail Sales & PMIs were strong; however, DXY remains firm above 93.00 as Cable gave up 1.32 but EUR/USD just retains 1.18 – Brexit updates have been downbeat, but nothing fundamentally new
• US House Speaker Pelosi says timing is not right for a smaller coronavirus relief bill
• Looking ahead, highlights include US Flash PMIs, Canadian retail sales & EZ consumer confidence

CORONAVIRUS UPDATE

Major newswire tally stated that US cases increase by at least 43,422 to a total of 5.59mln and deaths rose by at least 1,068 to a total of 174.3k. Texas cases +4,923 (prev. +6,474) and deaths +234 (prev. +309). (Newswires)

US CDC Director Redfield said the number of new COVID-19 cases is declining in the southern states and thinks they will see lower mortality nationwide, while he is also optimistic for a COVID-19 vaccine this fall. (Newswires)

More medical experts have voiced concerns of a second wave of the virus worsening in winter with experts worried that UK is ill-prepared for a winter peak and that the public is becoming complacent. (Sky News) Separately, a Professor of Medicine at the University of Oxford has warned that people who caught COVID-19 in March might have already lost all of their protective antibodies, suggesting that antibodies could deplete by 10-30% per month. (Telegraph)

South Korea is to consider further raising social distancing rules if virus continues to spread past weekend, according to Yonhap citing KCDC Chief. (Newswires)

Russian Healthcare Watchdog says trial on the Russian COVID-19 vaccine “Sputnik V” being developed by Vektor is due to be completed in September, according to RIA. (Newswires)

ASIA

Asian equity markets traded mostly positive as the region benefitted from the tech-led gains on Wall St where Apple prodded above the USD 2tln market cap status and as firm gains in Tesla, Microsoft, Intel and Facebook also fuelled the big tech resurgence resulting to outperformance in the Nasdaq, although upside was capped in the broader market amid mixed data releases including higher than expected Initial Jobless Claims. ASX 200 (-0.1%) and Nikkei 225 (+0.2%) both initially took impetus from the constructive handover from US peers but with upside in Australia later retraced following soft PMI data and with weakness seen in defensives as well as the top-weighted financials sector, while the Japanese benchmark contended with the effects of a mixed currency and resistance at the 23,000 level. Hang Seng (+1.3%) and Shanghai Comp. (+0.5%) were underpinned amid the continued PBoC liquidity efforts in which it injected CNY 150bln through 7-day reverse repos and CNY 50bln in 14-day reverse repos. This was the first occasion the central bank utilized the latter instrument in around 2 months, and there was also recent confirmation from China’s MOFCOM that the US and China will be conducting the delayed trade discussions in the approaching days. Finally, 10yr JGBs were flat and continue to eye the 152.00 level to the upside despite the gains in Japanese stocks, with mild support provided by the BoJ’s presence in the market for JPY 870bln of JGBs and the central bank also offered to purchase JPY 200bln in corporate bonds from 25th August with a remaining 3-5yrs to maturity. 

PBoC injected CNY 150bln via 7-day reverse repos and CNY 50bln in 14-day reverse repos for a net weekly injection of CNY 160bln vs. CNY 490bln net injection last week with rates kept at 2.20% and 2.35% respectively. (Newswires) PBoC set USD/CNY mid-point at 6.9107 vs. Exp. 6.9108 (Prev. 6.9274)

Japanese National CPI (Jul) Y/Y 0.3% vs. Exp. 0.3% (Prev. 0.1%). (Newswires) Japanese National CPI Ex. Fresh Food (Jul) Y/Y 0.0% vs. Exp. 0.1% (Prev. 0.0%) Japanese National CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.4% vs. Exp. 0.5% (Prev. 0.4%)

Chinese President Xi says China will accelerate the breakthrough of key technologies, will roll out more measures to decrease the companies' burdens and stabilise employment. (Newswires)

US

US President Trump said he would expand energy infrastructure in the second term and create 10mln jobs next year if re-elected, while he threatened tariffs on firms hiring overseas in a 2nd term. (Newswires)

US House Speaker Pelosi says timing is not right for a smaller coronavirus relief bill, according to a PBS interview. (Newswires)

UK/EU

EU Markit Composite Flash PMI (Aug) 51.6 vs. Exp. 54.9 (Prev. 54.9)

-        Manufacturing Flash PMI (Aug) 51.7 vs. Exp. 52.9 (Prev. 51.8)

-        Services Flash PMI (Aug) 50.1 vs. Exp. 54.5 (Prev. 54.7)

French Markit Manufacturing Flash PMI (Aug) 49.0 vs. Exp. 53.7 (Prev. 52.4)

-        Composite Flash PMI (Aug) 51.7 vs. Exp. 57.2 (Prev. 57.3)

-        Services Flash PMI (Aug) 51.9 vs. Exp. 56.3 (Prev. 57.3)

German Markit Manufacturing Flash PMI (Aug) 53.0 vs. Exp. 52.5 (Prev. 51)

-        Composite Flash PMI (Aug) 53.7 vs. Exp. 55 (Prev. 55.3)

-        Services Flash PMI (Aug) 50.8 vs. Exp. 55.1 (Prev. 55.6)

UK Flash Services PMI (Aug) 60.1 vs. Exp. 57 (Prev. 56.5)

-        Manufacturing PMI (Aug) 55.3 vs. Exp. 53.8 (Prev. 53.3)

-        Composite PMI (Aug) 60.3 vs. Exp. 57.1 (Prev. 57)

EU Chief Brexit Negotiator Barnier: At this stage an agreement seems unlikely. no progress at all on fisheries, far from agreeing essential issue of the dispute mechanism, disappointed and surprised that discussion are not spreading up; still no willingness on UK side to take on board EU priorities regarding fisheries and state aid - level playing field is non-negotiable condition for market access. (Newswires)

UK Chief Brexit Negotiator Frost: clear a deal will not be easy, discussion was useful but little progress; other significant areas to resolve (aside from just LPF and fisheries). (Newswires)

Prior to this: Sources in the UK government have refused to confirm the existence of its supposed draft FTA, however, the Times has revealed that UK Chief Brexit Negotiator Frost presented a "consolidated legal text" this week, in a move that has been regarded as "desperate" by EU officials. (Times) 

UK GfK Consumer Confidence (Aug) -27 vs. Exp. -25.0 (Prev. -27.0). (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said it would be an enormous mistake not to extend the conventional arms embargo on Iran and that if UN sanctions are violated, US will do everything it can to enforce them. France, Germany and the UK are not supporting the US move to restore Iranian sanctions but call on Iran to reverse all measures inconsistent with its nuclear commitments and return to full compliance immediately. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.3%) have held onto opening gains despite a brief dip lower in the wake of French PMI metrics. However, the pessimism surrounding the August outturn for France was short-lived for broader European assets with equities paring declines ahead of the German release. The German release painted a slightly less downbeat picture with a firmer manufacturing outturn alongside a softer than expected services, with the eventual EZ-wide release posting a miss on expectations for both sectors but ultimately remaining in expansionary territory. IHS Markit noted “the eurozone stands at a crossroads, with growth either set to pick back up in coming months or continue to falter following the initial post-lockdown rebound”. Nonetheless, sentiment for European equities remains afloat in what has been a relatively choppy week in terms of price action for the region. Sectoral performance in Europe is broadly firmer with the exception of energy names which are tracking crude prices lower. Travel & Leisure names are faring the best thus far with some reprieve been granted to the likes of Ryanair (+1.6%) and easyJet (+1.4%), however, with the UK continuing to add more countries to its quarantine list (albeit, has removed Portugal), it’s difficult to see how much conviction will be placed upon a recovery in the sector. Elsewhere, individual movers include Kingspan (+7.4%) post-earnings, Wirecard (+5.4%) amid reports that it has found a suitor for its UK assets, whilst Accor (+2.6%) shares continue to remain supported alongside talk of a potential bid for InterContinental Hotels. To the downside, laggards are relatively sparse with Maersk (-2.8%) and Saipem (-2%) lower on the day following downgrades at JP Morgan Chase and Bernstein respectively.

Facebook (FB) is to be questioned by an Indian parliamentary panel on the controversy over content policies. (Newswires)

FX

EUR, GBP - Sub-par French Flash PMIs triggered the losses in the Single Currency, with the French manufacturing metric surprisingly falling back into contraction, whilst Germany and EZ held their heads above the 50 threshold, but largely missed forecasts. EUR/USD has receded from its 1.1882 high and took out an interim support area around 1.1840-45 to test 1.1800 to the downside. Participants will now be eyeing any updates on the Belarus front in regard to sanctions, with little on the docket in terms of scheduled events. Conversely, UK Retail Sales and PMIs topped forecasts across the board but gains Sterling were short-lived as the currency succumbs to the Buck, whilst Brexit talks remain in limbo as officials suggest no progress has been made on outstanding points in the latest round of negotiations. Cable has given up its 1.3200 status (vs. high 1.3255) and continues declining in light of pessimistic comments from both the EU and UK Chief Brexit negotiators, with the former nothing that at this stage, a deal seems unlikely and both sides highlight the little progress mate. EUR/GBP has recovered off lows amid the latest Brexit headlines, with the cross initially dipping below the Aug 13th low ~0.8948 before rebounding to session high at 0.8980.

DXY - Propped up by the post-PMI Euro - the index is back around 93.000 from an overnight base of 92.570 , with the highs from Wednesday (93.059) and Monday (93.124) the next points of resistance ahead of yesterday’s peak at 93.248. Looking ahead to today, the calendar remains light with US Markit PMIs and Existing Home Sales the only scheduled events.

JPY - USD/JPY had been ebbing overnight in light of the weaker Dollar during APAC hours, but the JPY holds onto gains in early EU hours despite the Dollar rebound as PMI-related haven flows keeps the Japanese currency buoyed. USD/JPY dipped below 105.50 from 105.80 at best ahead of the weekly base at 105.104. Note: USD/JPY sees around USD 550mln in options rolling off at 105.00 at the NY cut.

AUD, CAD, NZD - All narrowly softer in what is a Dollar story. AUD/USD as dipped back below 0.7200 (vs. high 0.7215), whilst Westpac raised its year-end forecast to 0.7500 from 0.7200 as their case of a momentum stall is still not convincing. NZD/USD remains contained within a tight current range of 0.6525-0.6550, with overnight comments from the RBNZ Chief economy noting that the Central Bank has scope to act aggressively if needed. Similarly, the revival of the Dollar and declines in the crude complex sees the Loonie yield, with USD/CAD testing resistance at 1.3200 (vs. low 1.3159) ahead of Canadian Retail Sales, with today’s option expiries seeing USD 505mln at 1.3225 alongside a sizeable USD 1.7bln between 1.3250-60.

EM - Mixed trade across EMs but the Lira stands out as the outperformer after the CBRT lifted the TRY interest rate on swap transactions from 8.25% to 9.75% yesterday to match the lending rate. Furthermore, the Turkish President is expected to announce “good news” today in regard to an energy discover in the black sea, most likely natural gas. USD/TRY has trades sub-7.2500 from a high of 7.3380.

Australia Preliminary Retail Sales (Jul) M/M +3.3% (Prev. +2.7%); Y/Y +12.2%. Australian Bureau of Statistics stated that retail turnover increased in all states and territories in July aside from Victoria. (Newswires)

RBNZ Chief Economist Young Ha said pandemic restrictions in Auckland played a part in the August policy decision and projections, while he adds they are more likely to experience downside risks than upside risks. There were also comments from RBNZ official Buckle that they are facing considerable uncertainty and the central bank has scope to act aggressively if needed, while the he added the decision on negative rates is contingent on the health of the economy when the time comes and if we have those tools available. (Newswires)

FIXED INCOME

Debt saw a slightly subdued but overall little changed start to the European day with core counterparts all softer and very much rangebound as focus for the session surrounds the Flash PMI readings for August. Prior to this, UK retail sales were stronger than expected and have taken sales above the initial pre-lockdown level. Attention will now turn to how the release reacts for August given the Gov’t schemes to boost consumption and how they react in the aftermath to the furlough scheme ending in October after that. Returning to the aforementioned Flash PMIs where the French numbers initially missed on expectations across the board. As such, debt received a modest bid. Subsequently, further upside was generated on Germany in-spite of 2/3 measures beating expectations; support which continuing on the EZ wide reading, which missed across the board elevating Bunds towards their current session high of 177.27 surpassing yesterday’s 177.17 peak; albeit, still some way to go before last week’s high of 177.64. For Gilts, the stellar August PMIs, particularly services which benefited from the VAT cut and further easing of broad restrictions, saw Gilts initially pare back some of the upside seen in sympathy to EZ releases. However, this was short-lived and Gilts remain at session highs of 137.18 but off the week’s high of 137.40. Today we saw a number of updates on the Brexit front, which ultimately didn’t phase fixed much, as while the comments are pessimistic on the week negotiators reiterate a deal remains a possibility ahead of September’s next negotiating round. Stateside, USTs are modestly bid in sympathy with EZ peers but the move is very moderate and the yield curve is essentially unchanged; focus will be on the US flash PMIs to round out the week ahead of any updates on Fed guidance alterations at next week’s Jackson Hole Symposium.

COMMODITIES

WTI and Brent October futures have waned off overnight highs, albeit with the magnitude of price action relatively small thus far. Crude-specific news flow has remained light, but the contracts saw a sentiment-driven leg lower amid the overall down-beat flash PMIs from the EU. Both contracts trade lower by some USD 0.20/bbl apiece, with WTI testing USD 42.50/bbl to the downside (vs. high 42.96./bbl) whilst its Brent counterpart dipped below USD 44.75/bbl  from around USD 45/bbl at best, with only the weekly Baker Hughes rig count slated on the calendar. Elsewhere, spot gold and spot silver yield to the post-PMI Dollar strength, with the former losing further ground below USD 1950/oz (vs. high 1956/oz) whilst latter briefly dipped below USD 27.00 from 27.54 at best. In terms of base metals, copper continued to grind lower with the Shanghai inventories again posting another rise in stocks. Dalian iron ore prices fell overnight as the steel-demand-driven rally somewhat fizzled whilst China’s iron ore portside stockpile rose to four-month highs.