• European bourses remain positive after a mixed APAC lead with US futures modestly positive as well
• USTR Lighthizer and Treasury Secretary Mnuchin spoke with China Vice Premier Liu He on Monday regarding implementation of the Phase 1 trade agreement
• Officials from both sides see progress and are committed to taking next steps required to ensure success of the deal
• DJIA Reshuffle: Salesforce.com (CRM), Amgen (AMGN) and Honeywell (HON) are to replace ExxonMobil (XOM), Pfizer (PFE) and Raytheon (RTX) as of August 31st
• DXY has continued to slip but still holds 93.00 as such peers are largely bolstered; debt declines with the US yield curve steeper ahead of USD 50bln in 2yr supply
• Looking ahead, highlights include US Consumer Confidence, Fed Discount Rate Minutes, Fed's Daly, supply from the US

CORONAVIRUS UPDATE

Major newswire tally stated that US cases rose by at least 37,854 to a total of 5.76mln and deaths rose by at least 482 to a total of 177.3k. Texas cases +2,847 (prev. +4,923) and deaths +25 (prev. +234), Major newswire tally stated that California cases increased by at least 8,003 and deaths rose by at least 106. (Newswires)

NIH's Fauci warned against a premature approval of a COVID-19 vaccine which could undermine trials of other candidates and said they should not receive emergency use authorization without proof of safety and efficacy. (Newswires)

AstraZeneca (AZN LN)/Oxford University COVID-19 vaccine group’s Pollard has said there could just be enough safety and efficacy data for the COVID-19 vaccine candidate to be given to regulators before year-end. (BBC)

ASIA

Asian equity markets were mixed after trading mostly higher as the region initially took impetus from the fresh record highs on Wall St where cyclicals outperformed and with risk appetite also spurred by COVID-19 plasma treatment hopes, as well as reports US and China’s top trade negotiators held a constructive conversation on the Phase 1 agreement. ASX 200 (+0.5%) was led by tech and financials although gains in the benchmark index were capped by resistance at the 6200 level and amid headwinds from a deluge of earnings, while Nikkei 225 (+1.4%) outperformed as exporters cheered recent currency weakness and with the government to ease the ban on foreign residents returning to the country. Hang Seng (-0.3%) and Shanghai Comp. (-0.4%) also began higher after the PBoC boosted its liquidity efforts with a total CNY 300bln of reverse repo operations and following talks between USTR Lighthizer, Treasury Secretary Mnuchin and China’s Vice Premier Liu He in which both sides saw progress and were committed to taking the next steps required to ensure the success of the deal. However, gains later faded given that discussions were not much of a surprise and with the PBoC distancing itself from lowering capital requirements for bank, while Hong Kong was also cautious ahead of Chief Executive Lam’s announcement on social distancing arrangements later today as the current restrictions which limits public gatherings to two people are set to expire. Finally, 10yr JGBs were lacklustre with price action contained below the 152.00 level after weakness in T-notes and demand sapped by the gains in stocks, with the 20yr JGB auction doing little to spur prices despite printing improved results.

PBoC injected CNY 250bln via 7-day reverse repos and CNY 50bln via 14-day reverse repos for a net daily injection of CNY 200bln with the 7-day reverse repo rate maintained at 2.20% and 14-day maintained at 2.35% PBoC set USD/CNY mid-point at 6.9183 vs. Exp. 6.9189 (Prev. 6.9194)

PBoC Vice Governor Liu said it is unnecessary to lower regulatory requirement on banks' capital adequacy ratio. It was also reported that a PBoC official stated the PBoC's determination to maintain a normal monetary policy and China's monetary policy direction, as well as its flexible and appropriate monetary policy approach will not change. (Newswires)

USTR Lighthizer and Treasury Secretary Mnuchin spoke with China Vice Premier Liu He on Monday regarding implementation of the Phase 1 trade agreement and discussed steps China took to make structural changes called for in the deal. Furthermore, officials from both sides see progress and are committed to taking next steps required to ensure success of the deal, while China noted the sides had a constructive conversation on the trade agreement and on strengthening macroeconomic policy coordination. (Newswires)

India government is seeking to phase out equipment from Chinese companies including Huawei from its telecoms network amid border tensions, although there hasn't been any formal ban announcement. (FT)

UK/EU

German GDP Detailed QQ SA* (Q2) -9.7% vs. Exp. -10.1% (Prev. -10.1%, Rev. -2.0%)

-       YY NSA* (Q2) -11.3% vs. Exp. -11.7% (Prev. -11.7%, Rev. -1.8%)

German Ifo Business Climate New (Aug) 92.6 vs. Exp. 92.1 (Prev. 90.5, Rev. 90.4)

-       Current Conditions New (Aug) 87.9 vs. Exp. 87.0 (Prev. 84.5)

-       Expectations New (Aug) 97.5 vs. Exp. 98.0 (Prev. 97.0, Rev. 96.7)

-       Ifo Economists: German Economic recovery is fragile, sees GDP growth of ~7% in Q3

Informal Brexit talks between UK Chief Brexit Negotiator Frost and EU Chief Brexit Negotiator Barnier scheduled for this week could be downgraded to a phone call, according to Express' Barnes; Barnier unsure on whether to travel to London given serious doubt cast on the possibility of an agreement. (Twitter)

European Commission has granted financial support of EUR 87.3bln (Prev. EUR 81.4bln) to 16-member states (Prev. 15) under the SURE programme; which can provide up to EUR 100bln in total. (Twitter)

GEOPOLITICAL

US Secretary of State Pompeo tweeted that in addition to continuing UN arms embargo, the UN sanctions we are restoring on Iran will re-impose accountability for other forms of malign activity by Iran. (Newswires)

Iran's top nuclear official says talks with IAEA Chief Grossi in Tehran was constructive, via Tasnim; new period of co-operation will commence. (Tasnim)

Russian Defence Ministry says a Russian armoured vehicle was attacked while on a joint Russian-Turkish patrol in Syria. (Newswires)

EQUITIES

Stocks in Europe trade with modest gains (Euro Stoxx 50 +0.6%) albeit off highs, as sentiment somewhat improved following the mixed APAC lead. Some suggest that the “constructive” US-Sino trade call is spurring risk assets. However, it is worth remembering that there has been no new progress/developments in terms of trade, and in the grand scheme of things, US-Sino relations remain at all-time-lows on a number of fronts – e.g. geopolitics, capital markets and technology. On the data front – the German Ifo survey showed optimism in the country has increased, but economists noted that the German recovery is fragile and stocks were largely unfazed by the release. Sectors are mostly in the green, although the cyclical tilt seen at the open has somewhat faded, but nonetheless, financials and travel & leisure hold their top positions in the region, whilst materials and energy lag amid the price action in their respective complexes. In terms of individual movers, Aveva (+3.9%) holds onto gains after announcing a proposed acquisition of Osisoft for an enterprise value of USD 5bln. Nokia (+0.5%) and Ericsson (+1.2%) remain firm after reports noted that the Indian government is looking to phase out equipment from Chinese companies including Huawei from its telecoms network amid border tensions – with Nokia and Ericsson potentially to gain from this. On the flip side, Swisscom (-1.0%) is subdued after Swiss competition watchdog opened a probe into the Co. amid suspected abuse of market position within the broadband sector.

DJIA Reshuffle: Salesforce.com (CRM), Amgen (AMGN) and Honeywell (HON) are to replace ExxonMobil (XOM), Pfizer (PFE) and Raytheon (RTX) in the DJIA, effective before the open on August 31st and prompted by Apple's 4-1 stock split reducing the tech sector weighting. (Newswires) In premarket trade: CRM +3.3%, AMGN +4.0%, HON +3.9%; XOM -0.9%, PFE -1.4%, RTX -1.4%.

Ant Group is reportedly seeking a valuation of over USD 200bln in its Hong Kong IPO. according to SCMP. (SCMP)

Apple (AAPL) - Co. is reportedly planning the start of online sales in India next month. Separately, Federal Judge in the Epic Games case is inclined to grant relief regarding Epic’s Unreal Engine, according to reports. (Newswires)

FX

EUR/GBP/CHF/JPY - As the DXY hovers just above the 93.000 level within a confined 93.012-351 band, major Dollar counterparts are also sitting close to big figures awaiting firm breaks or clearer direction, like the Euro in wake of an encouraging German Ifo survey on balance. To recap, 2 out of the 3 metrics exceeded expectations, but the more forward looking outlook reading missed consensus remains the institute was reserved in describing the economic recovery as fragile. Hence, Eur/Usd was toppy ahead of yesterday’s peak and hefty option expiry interest close by at 1.1850 in 1 bn. Meanwhile, Cable continues to pivot 1.3100 ahead of CBI trades and amidst the ongoing threat of Britain leaving transition without a Brexit trade deal, and the Franc is still tethered to 0.9100 after a dip in Swiss Q2 payrolls was largely nullified by an upward revision to the previous quarter. However, the Yen has retreated through 106.00 and into a lower range on a loss of safe-haven premium and with US Treasury yields backing up before this week’s auctions amidst curve re-steepening.

NZD/AUD/CAD - The Kiwi is holding above 0.6500 in advance of NZ trade data and the Aussie has gleaned more indirect support from another firm PBoC CNY fix that in turn has given the CNH fresh impetus to test 6.9000 vs the Greenback. Aud/Usd is meandering between 0.7152-82 following mixed independent impulses overnight via an improvement in ANZ weekly consumer confidence in contrast to labour data revealing a 1% decline in jobs for the month to August 8 and 2.8% drop in the state of Victoria for a national fall of 4.9% relative to mid-March (pre-pandemic or the ‘first’ wave as such). Conversely, the Loonie is licking wounds beneath 1.3200 and detached from choppy oil prices following Canada’s appeal to the WTO against US soft lumber levies.

SCANDI/EM - Marginal Nok outperformance even though Norwegian GDP was a bit weaker than forecast in Q2, but the Try has not derived much traction on the back of a rise in Turkish manufacturing sentiment and the Rub is not tracking the firm tone in Brent against the backdrop of ongoing geopolitical/diplomatic tensions that are also weighing on the Lira.

Australia Bureau of Statistics said payroll jobs declined 1.0% for the month to August 8th and payroll jobs in Victoria state fell 2.8% during the same period, while it added payroll jobs nationally on August 8th were around 4.9% below mid-March levels. (Newswires)

Notable FX Expiries, NY Cut:

-      EUR/USD: 1.1770 (256M), 1.1800 (607M), 1.1825 (266M), 1.1850 (1BLN)

-      USD/JPY: 105.25-30 (1.6BLN), 105.50 (253M), 105.75 (220M), 106.10 (250M)

FIXED INCOME

The Ifo survey may have exacerbated selling pressure, but a solid looking Schatz sale has not stopped the rot as core bonds plumb fresh lows, and the same goes for Gilts on a significantly worse CBI volume of sales balance vs expectations. Indeed, Bunds have now been down to 176.23 (-79 ticks) and their UK equivalent 136.80 (-41 ticks), with long end DMO supply still to make room for and recent offerings at that end of the curve hardly snapped up. Meanwhile, US Treasury futures are deeper in negative territory and the curve steeper before Redbook, housing data, consumer confidence, Richmond Fed, FOMC Discount Rate minutes, bumper 2 year note issuance and Daly.

COMMODITIES

WTI and Brent front month futures remain relatively flat in early European trade, with the benchmark only some USD 0.2-0.3/bbl off overnight lows. Traders are keeping a keen eye on the developments in the Gulf of Mexico as Tropical Storm Laura is forecast to evolve into a major hurricane before making landfall late-Wednesday, whilst Marco was downgraded to a Tropical Depression. On that front, the latest update from the Search Results Bureau of Safety and Environmental Enforcement (BSEE) estimates around 82.4% of current oil production shuttered – with the next release scheduled for 1400ET/1900BST. WTI Oct resides around USD 42.50/bbl (vs. low ~42.30/bbl), whilst its Brent counterpart trades around USD 45.25/bbl (vs. low USD 45.08/bbl). Traders will now be eyeing the weekly release of the Private Inventories in the absence of macro headlines – albeit price action could be muted as hurricane developments are timelier. Elsewhere, spot gold trades choppy within a tight range on either side of USD 1930/oz whilst spot silver sees similar action around 26.50/oz – both moving in tandem with the Buck ahead of Fed Chair Powell’s speech on Thursday. In terms of base metals, Dalian iron ore prices fell some 3.5% whilst Shanghai steel rebar edged lower as downstream demand recovery missed market forecasts. Conversely, Shanghai nickel prices rose almost 2% at one point amid dwindling Chinese port inventories.

Storm Laura is becoming better organised over the South-Eastern Gulf of Mexico, expected to become a Hurricane later today, via NHC; additionally, expected to become a major hurricane over the Gulf on Wednesday. Prior to this, the NHC said the centre of Laura was passing through the Isle of Youth and that hurricane and storm surge watches have been issued for parts of the Northwest Gulf Coast, while it noted that Marco has weakened to a remnant low; will not be advising on Marco any further. (Newswires)

Motiva's Port Arthur Texas refinery (636k bpd) will be completely shut on Tuesday, while Total’s Port Arthur refinery (225k BPD) went into minimum production ahead of the storms and also plans a shutdown today. Furthermore, Chevron said it has shut-in facilities and evacuated all personnel in the Gulf of Mexico due to the tropical storms and BP also shut-in production, as well as evacuated all personnel from its platforms and in the Gulf of Mexico due to tropical storms. (Newswires)

UBS lifts its 2021 gold price forecast to USD 2,100/oz (Prev. USD 1850/oz) and 2022 to USD 2,000/oz (Prev. USD 1750/oz)