• Tentative trade ahead of Fed Chair Powell’s speech at Jackson Hole
• AUD the biggest G10 mover overnight as Morrison sworn in as new Prime Minster
• Looking ahead, highlight include, 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 (+0.1%) 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 (+0.8%) was underpinned by a weaker JPY, while Hang Seng (-0.4%) and Shanghai Comp. (+0.2%) were initially 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, but the Shanghai Comp. reversed course close to end of trade, and ended the day up. 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)

Chinese Foreign Ministry says they will keep retaliating if US keeps imposing "unreasonable" trade measures. (Newswires)

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%)

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)

EU/UK/US

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)

US President Trump is said to have offered Italy help with buying government bonds. (Newswires)

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)

Riksbank's Jochnick says rate path shows probability for an October hike, and wants to see broader inflation in the economy; adding the recent weak crown should have an effect on inflation further ahead. (Newswires)

German GDP Detailed YY SA (Q2) 2.0% vs. Exp. 2.0% (Prev. 2.0%)

German GDP Detailed QQ SA Q2 0.5% vs. Exp. 0.5% (Prev. 0.5%)

German GDP Detailed YY NSA Q2 2.3% vs. Exp. 2.3% (Prev. 2.3%)

US President Trump is considering more sanctions on Venezuela, as according to senior administration officials. (McClatchy)

Fed's Kaplan (Non-Voter, Dove) said he 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 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)

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

EQUITIES

European equites have started the flat, with the FTSE MIB the outperforming bourse. This is being driven by banking names, and comes as a result of reports suggesting Unicredit (+0.7%) have hired Rothschild for a deal with SocGen (+1.2%). The gains in banking names are broad based, with the sector outperforming (Stoxx Europe 600 Banking Index +0.4%) and co.’s in the sector leading bourses such as:

CAC (SocGen +1.2% & BNP Paribas +1.0%)

FTSE MIB (Unicredit +0.7%)

DAX (Commerzbank +0.9%)

SMI (UBS +1.5%, Credit Suisse +0.9%)

Shire (+2.4%) are leading the gains in the FTSE 100 as they received approval for a ground-breaking hereditary angioedema treatment.

FIXED INCOME

Fundamental drivers remain few and far between, but Bunds and Gilts have emerged from initial and early bouts of selling pressure to trade above parity at fresh Eurex and Liffe intraday highs of 163.16 and 123.41 (+10 and +11 ticks vs -10 an -7 ticks at one stage). So, ranges are still relatively restrained and volumes seasonally light, but divergence from the core to periphery and US Treasuries a bit more apparent as the clock ticks down to JH. Conversely, Italian BTPs are back under pressure on latest comments from Government officials stressing that the EC’s fiscal mandate will be challenged and withholding budget contributions used a bargaining tool, following not much buck for US President Trump’s offer to buy Italian bonds. Back to USTs, futures are nudging marginal new overnight lows with the curve fractionally steeper before the start of Fed speakers and durable goods data.

FX

AUD - Some calm after the political storm, and a positive market response (so far) to the prospect of former Treasurer Morrison taking over from Turnbull as leader of the Liberal Party and PM. Indeed, Aud/Usd has bounced firmly from circa 0.7235-40 lows to around 0.7290 and eyeing hefty option expiry interest just above at 0.7305 (1.4 bn), while the Aud/NZD cross is back up near 1.0950 having only just held above 1.0900 amidst the unfolding drama overnight. However, the Kiwi has also caught a bid on the more stable situation down under to retest 0.6650 vs its US peer.

SEK - Another major outperformer and gainer, but largely due to Riksbank commentary via Af Jochnick noting inflation rising and nearing target, above forecast Q2 growth and the rate path indicating an October hike. She also acknowledged that recent Krona weakness should underpin price pressures ahead, and on the note Swedish PPI data for July picked up pace from the previous month. Eur/Sek down to 10.5260 from 10.5815 at one stage, with 10.5000 the obvious objective.

EUR/GBP - Also firmer vs the Greenback, but within recent ranges as the DXY pivots around 95.500 awaiting Fed chair Powell and a raft of other FOMC members all attending the Jackson Hole Symposium.  However, the single currency remains capped ahead of 1.1600 and within proximity of decent expiries from 1.1545-55 (1.2 bn), while Cable is back within 1.2800-50 parameters amidst no Brexit progress on the 20% outstanding and make or break sticking points between the UK and EU. Hence, the Eur/Gbp cross remains above 0.9000, albeit not breaching major technical resistance in the 0.9030-35 area.

CAD - Holding pretty flat vs its US rival in a 1.3100-1.3075 range with firmer crude prices providing the Loonie with some traction after yesterday’s NAFTA handshake deadline (albeit for the US and Mexico not Canada) passed without fanfare and talks are now extending into next week, at least. Ahead, BoC Governor Poloz appears from Jackson Hole on Saturday.

CHF/JPY - Narrowly mixed vs the Dollar as the Franc claws back some lost ground to rotate around 0.9850, but Usd/Jpy extends its range break through 111.00 towards 111.50 in wake of softer than expected Japanese inflation data overnight.

EM - The Rub and Zar continue to rebound and are on course to end a turbulent week in better shape than other regional currencies (such as the Try and Brl) still suffering from multiple bearish/negative factors, like sanctions, diplomatic tensions, tariffs, on top of domestic political, economic and fiscal issues. Meanwhile, after no material progress in US-China trade talks, the Yuan is back on the wane and the PBoC has resumed its rising mid-point fixing trend.

COMMODITIES

The oil market is in the green, with both WTI and Brent up ~1.0% and extending gains above USD 68.00/BBL and USD 75.00/BBL respectively. This comes amid reports of continued strike action at Total’s (FP FP) North Sea oil and gas fields alongside a softer USD.

In the metals scope gold is benefitting from a softer USD and is up 0.4% on the day, with the yellow metal set for a 0.3% gain for the week. Copper has pared early losses and is set for its first positive session in three, alongside the best week in four, as the construction material has shed-off trade concerns. Steel prices have seen a recovery (0.5%) as a fall in Chinese steel stocks has been noted, but is still set for it’s worst week in eight (-1.2%).