• Japanese PM Abe is reportedly planning to resign due to health reasons, according to NHK; press conference scheduled for 09:00BST
• Asian bourses eventually traded mixed; E-mini S&P rose above 3,500, Nikkei 225 briefly fell as much as 2.5%
• USD/JPY fell in wake of news of PM Abe’s resignation; DXY losses accelerated amid JPY strength
• China’s military said a US warship has been expelled near the Paracel Islands in the South China Sea
• A phone call between White House Chief of Staff Meadows and House Speaker Pelosi did not appear to have resulted in a breakthrough
• Looking ahead, highlights include German GfK, Swiss KOF, EZ Consumer Confidence (Final), US PCE Price Index, Chicago PMI & University of Michigan Sentiment (Final), Canadian GDP, BoE Governor Bailey, supply from Italy

CORONAVIRUS UPDATE

US COVID cases +46,393 (prev. +37,086) and deaths +1,239 (prev. +1,142), while a major newswire tally stated that US cases rose by at least 45,115 to a total of 5.88mln and deaths rose by at least 1,081 to a total of 180.8k. (Newswires) New York COVID cases +791 (prev. +566) and deaths +4 (prev. +3), California COVID cases +4,430 (prev. +6,004) and deaths +143 (prev. +150), while Texas cases +5,059 (prev. +5,045) and deaths +265 (prev. +229). (Newswires)

President Trump is reportedly to announce the administration struck a USD 750mln deal to acquire 150mln tests from Abbott (ABT) to be deployed in nursing homes, schools and other areas with populations of high risk. (Politico)

ASIA

Asian bourses eventually traded mixed as markets digested the Fed’s shift to an average inflation targeting framework, which briefly lifted the S&P 500 to the 3500 level for the first time ever and the Nasdaq to a fresh record intraday high during Wall Street hours. Some of the moves were then reversed as the dust settled and the recent big tech rally stalled - which dragged the Nasdaq into the red, although US equity futures have since caught a second wind overnight with E-mini S&P taking its turn to breach the 3500 milestone. As such, Nikkei 225 (-0.7%) was initially lifted as exporters benefitted from currency weakness, but plunged heading into the cash close amid reports that Japanese PM Abe is planning to resign due to worsening health conditions, while the Hang Seng (+0.7%) and Shanghai Comp. (+0.5%) were supported after this week’s liquidity efforts resulted to a net weekly injection of CNY 200bln and amid a deluge of earnings including blue-chip names PetroChina, and China Vanke, whose shares all traded higher despite posting varied results. Conversely, ASX 200 (-0.7%) bucked the trend as weakness in Australia’s tech and miners spearheaded the declines in the index, with sentiment not helped by the continued deterioration in ties with its largest trading partner China after Canberra’s move to veto the Belt & Road Initiative agreement, while China also suspended imports of beef from Australia's John Dee after finding a banned substance. Finally, 10yr JGBs were lower amid spill-over selling from USTs which were heavily pressured as participants contemplated over the Fed’s tolerance for overshooting inflation, to push the US 10yr yield to its highest since mid-June, while the unprecedented levels seen in the E-mini S&P and a tepid BoJ Rinban announcement added to the dampened mood for bonds.

Japan’s PM Abe is reportedly set to resign, NHK; due to worsening health, (NHK) Press conference due 09:00BST today. (Newswires) If PM Abe does resign, potential successors are said to include the ruling LDP's policy chief Kishida Fumio who is seen as PM Abe's preferred successor, while other names touted include Chief Cabinet Secretary Suga and Defence Minister Taro.

PBoC injected CNY 50bln via 7-day reverse repos at a rate of 2.20% for net weekly injection of CNY 200bln vs. last week's net injection of CNY 160bln. (Newswires)

PBoC set USD/CNY mid-point at 6.8891 vs. Exp. 6.8866 (Prev. 6.8903)

China military said a US warship has been expelled near the Paracel Islands in the South China Sea. (Newswires)

Global Times' Business Source tweeted that Australia’s move to seek legislation to give federal government power to veto Belt & Road deal reached by Victoria state and China could further harm deteriorating bilateral ties, citing experts. In relevant news, China Customs said it suspended imports of beef from Australia's John Dee Warwick after finding a banned substance. (Newswires/Twitter)

Microsoft (MSFT) and Oracle (ORCL) have both submitted bids for TikTok, according to sources who noted the deal could happen within a week, while insider stated the bidding is coming down to MIcrosoft's (MSFT) tech expertise and balance sheet compared to Oracle's (ORCL) political attributes. Furthermore, it was later reported that Bytedance instructed TikTok engineers to draw up US shutdown contingencies and that it is making separate plans to compensate TikTok's US employees and vendors should a shutdown occur. (Newswires/FBN/Twitter)

Tokyo CPI (Aug) Y/Y 0.3% vs. Exp. 0.6% (Prev. 0.6%). (Newswires) Tokyo CPI Ex. Fresh Food (Aug) Y/Y -0.3% vs. Exp. 0.3% (Prev. 0.4%) Tokyo CPI Ex. Fresh Food & Energy (Aug) Y/Y -0.1% vs. Exp. 0.4% (Prev. 0.6%)

UK/EU

UK PM Johnson is to roll out a major drive next week to get UK workers back into the office. (Telegraph)

Senior EU sources reportedly stated that Downing Street has been warned UK PM Johnson has under 2 weeks to save post-Brexit trade and security discussions. (The Times)

A UK/Japan trade deal could be reached in principle this week following a breakthrough in cheese tariffs. UK Trade Secretary Truss and Japanese Foreign Minister Motegi are expected to hold a joint video press conference today. (Telegraph)

UK Lloyds Business Barometer (Aug) -14 (Prev. -22). (Newswires)

ECB’s Villeroy said the ECB’s monetary policy review will focus on pursing symmetrical goal for price growth. (Newswires)

FX

In FX markets, the DXY was subdued and retreated beneath the 93.00 level after the prior day’s whipsawing in the aftermath of Fed Chair Powell’s announcement. The announcement initially resulted to a knee-jerk dovish reaction, although this was later reversed as the prospects and tolerance for higher inflation then weighed on bond prices and lifted yields with the USD in tandem. Nonetheless, the softness in the Greenback resumed overnight, which lifted its counterparts in which EUR/USD breached its 200-hourly moving average at 1.1844 and GBP/USD also gained but with upside initially capped by resistance at 1.3250 after senior EU sources noted Downing Street was warned PM Johnson has under 2 weeks to save post-Brexit negotiations; a level which was breached on JPY induced USD downside post-NHK reports. Elsewhere, USD/JPY surged in the wake of the Fed’s new policy framework, but later slumped as NHK reported that Japanese PM Abe has decided to resign ahead of his press conference at 09:00BST. JPY strengthened as the resignation of PM Abe could represent the end of an era of his reflationist and three arrows Abenomics policies, which have been in place since late 2012. Antipodeans benefitted from the lacklustre USD, a slightly firmer PBoC reference rate and due to their high-beta statuses as US equity futures gradually extended on gains overnight.

COMMODITIES

WTI crude futures were little changed as it continued to test the USD 43/bbl level to the downside with pressure seen during yesterday’s session following as the adverse weather conditions eased with Laura downgraded to a tropical storm and US Energy Secretary Brouillette noting that damage caused seemed light, while refiners are planning to resume operations including Motiva at its Port Arthur refinery which is the largest in US. Elsewhere, gold prices gained as the USD pressure resumed overnight with the precious metal homing in on USD 1950/oz and copper was supported by the mostly positive risk tone.

NHC announced that Hurricane Laura has weakened into a tropical storm, while US Energy Secretary Brouillette said damage from Hurricane Laura appears to be somewhat light. (Newswires)

BSEE estimated offshore oil production cuts at 84.3% (prev. 84.3%) of gulf production; gas at 60.1% (prev. 60.94%). (BSEE)

Motiva plans to restart Port Arthur Texas refinery (636k bpd) today, while Exxon restored stable power supply at its Beaumont, Texas refinery as it prepares to resume operations. (Newswires)

US

Treasuries bear-steepened pronouncedly after the Fed’s framework review launched “flexible” average inflation targeting. 2s unch. at 16bps, 5s +2bps at 31bps, 7s +4bps at 52.5bps, 10s +6bps at 74.5bps, 30s +9.5bps at 150bps; note that 90% of the cumulative OI in September and December futures contracts is now in December ahead of tomorrow’s First Intention day. In typical Fed fashion, the initial spike reaction was faded and then sold hard. Treasuries bolted firmer as Powell confirmed the Fed would be embarking on 2% AIT, with reports of a huge buyer of 20k USU and 50k TYU from a combo of spec and hedge funds, although the strength was soon met with heavy selling as investors digested the announcement and raised their inflation expectations (somewhat), as well as not receiving any mention of a formal asset purchase transition (heavy duration supply has been a key driver of selling pressure in recent weeks); yield curve caps were also not mentioned. Little else mattered for bond yields for the rest of the session. The strong 7-year auction marked the third consecutive stop through for this week’s Treasury auctions, with investors more than willing to nibble on the strong concession. Meanwhile, in STIRs, front Eurodollars also saw some pronounced selling pressure today, although this was a result of Vanguard announcing its Prime Money Market Fund would be reorganised “into a government money market fund and renamed Vanguard Cash Reserves Federal Money Market fund” in late September, and less a function of Fed policy expectations. Looking ahead, Jackson Hole continues, although there is little expected to shake things on the Fed-front, meanwhile, monthly PCE, Chicago PMI and University of Michigan Sentiment (Final) will fill the data slate. There could also be some late month-end buying amid models pointing towards a chunky duration extension post-refunding, as well as no Treasury auctions next week to weigh on investors’ minds.

Fed's Kaplan (voter) said a moderate overshoot on inflation probably means 2.25-2.50% and that as unemployment falls, will look at a range of factors. Furthermore, Kaplan stated that the new framework is not a commitment on what the Fed will do but suggests the US economy may have the capacity to run a hotter labour market than in the past. (CNBC)

Fed's Bullard (non-voter) said it made sense to unveil the framework review today and that the shift will help make up inflation undershoots with the Fed to try to make up for past inflation misses. Bullard added that the proximity of zero rates has a downward bias on inflation and inflation expectations should rise due to the strategy, while it is important for the Fed's credibility for inflation to hit its target. (Newswires)

US President Trump formally accepted the Republican Presidential nomination and pledged to return to full employment and prosperity, while he also vowed to end the reliance on China once and for all and will impose tariffs on companies that leave the US. (Newswires)

US Senate Majority Leader McConnell said the sides are at a stalemate over stimulus at the moment and that Congress is more partisan now than in March. (Newswire)

White House Chief of Staff Meadows and House Speaker Pelosi conducted a phone call which did not appear to have resulted in any breakthroughs. Furthermore, House Speaker Pelosi said she is sticking to her stimulus demands and reiterated Democrats are willing to meet in the middle at USD 2.2trln, as well as willing to resume talks once the GOP starts to take this process seriously. (Newswires)