• Japanese PM Abe announced a surprise resignation due to ill health; will remain as PM until successor is announced
• European equities see mixed trade, with futures modestly softer, whilst E-mini S&P briefly topped 3,500
• USD/JPY fell in wake of news of PM Abe’s resignation; DXY losses accelerated amid JPY strength bolstering major peers
• 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
• Looking ahead, highlights include US PCE Price Index, Chicago PMI & University of Michigan Sentiment (Final), Canadian GDP, BoE Governor Bailey

CORONAVIRUS UPDATE

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). Texas cases +5,059 (prev. +5,045) and deaths +265 (prev. +229). (Newswires)

Johnson & Johnson (JNJ) Janssen unit is to commence COVID-19 Phase II trials in Spain; trial to commence next week with 190 individuals. (Newswires)

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 (-1.4%) 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 (+0.6%) and Shanghai Comp. (+1.6%) 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 (-0.9%) 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 has resigned, in confirmation of overnight reports; press reports which sparked JPY upside and pronounced Nikkei 225 losses. Abe will continue as PM until a successor is selected. Ruling LDP Party Chief Kishida and party member Ishiba are reportedly both interested in the role. (NHK/Yonhap)

-        Kishida is seen as PM Abe's preferred successor but is weak in voter surveys

-        Ishiba has criticized the BoJ's ultralow interest rates due to negative effects on regional banks and instead called for boosting spending on public works

BoJ reportedly sees no changes in their policy stance following the resignation of PM Abe. (Newswires)

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)

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)

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%)

US

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)

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)

German Chancellor Merkel says the COVID-19 situation will likely become more difficult in the coming months; will be working with European Parliament so the recovery fund can be launched early next year. (Newswires)

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

EU Consumer Confidence Final (Aug) -14.7 vs. Exp. -14.7 (Prev. -14.7, Rev. -15.0)

-        Economic Sentiment (Aug) 87.7 vs. Exp. 85.0 (Prev. 82.3, Rev. 82.4)

-        Business Climate* (Aug) -1.33 (Prev. -1.8)

-        Industrial Sentiment (Aug) -12.7 vs. Exp. -14.4 (Prev. -16.2)

EQUITIES

European stocks see choppy price action, although bourses ultimately trade mixed/subdued (Euro Stoxx 50 -0.5%), as the region came under pressure after the cash open and subsequently nursed some of this downside – with little initial follow-through for European bourses from surprise reports that Japanese PM Abe will be stepping down from his position due to ill health. Participants must be wary of month-end rebalancing, although UBS suggests that this August flows are likely to be considerably less eventful than in July; “This month has seen lower levels of dispersion in global equity markets so far, with the model showing only CAD and NZD expected to see tangible buying pressure at month-end as local equity markets have underperformed SPX.” Overall, Core European bourses see little by way of under/outperformers, although peripheries, i.e. Spain’s IBEX (+0.7%) and Italy’s FTSE MIB (+0.2%) stand as the winners aided by their exposures to the financial sector – which is seeing clear outperformance in Europe amid the high yield environment. Overall, European sectors are mostly lower with no clear risk profile to be extrapolated, although tech resides as the laggard following a week of firm gains. In terms of individual movers; Bayer (-3.3%) sees losses after a judge overseeing the Roundup dispute remarks that they may consider lifting the ban on litigation proceedings as a consumer lawyer says Bayer are not abiding by the USD 11bln settlement, according to sources. Enel (+0.2%) is propped up by reports that Macquarie is reportedly working on a binding offer for the Co’s 50% stake in Open Fiber, according to Il Sole 24.

FX

JPY - Not necessarily the biggest major currency mover, but in focus after Japanese PM Abe announced that he will stand down before his official term ends due to a recurring health problem. In response, Japanese stocks and bonds have fallen on concerns that his brand of expansive policy may not be replicated by the next leader, while the Yen has rebounded firmly with Usd/Jpy sub-106.00 ansd testing support/underlying bids ahead of 105.50 from almost a big figure above and the headline pair decisively through decent option expiry interest between 106.50-60 (1 bn) in advance of the NY cut.

DXY - Residual or more month end rebalancing could be a factor behind the renewed Greenback weakness, though the aforementioned Yen revival has certainly contributed to the Buck reversing further from Thursday’s post-Fed chair policy revelation recovery highs to lower lows. Indeed, the index is now 100+ ticks down at 92.279 and the ytd trough looms (92.124) amidst broad and increasingly heavy losses across the board, as US stock futures continue to rally or consolidate near record peaks. Ahead, PCE price metrics may well take on greater importance given the switch to average inflation targeting with flexibility, but from a more timely activity perspective Chicago PMI and any big revision to final Michigan sentiment will also be worth watching.

AUD/NZD/EUR/GBP/CHF/CAD - Understandably, all benefiting from their US rival’s demise, albeit to varying degrees. The Aussie has breached 0.7300 and the Kiwi is edging closer to 0.6700, while the Euro has rotated over 360 degrees again only this time from the low 1.1800 area to 1.1900+. Similarly, Cable is nudging nearer 1.3300 from under 1.3200 at one stage and setting minor new 2020 highs in the process, regardless of latest negative sounding Brexit news like senior EU sources claiming a 2 week ultimatum for UK PM Johnson to salvage post-transition trade and security negotiations. Elsewhere, the Franc is eyeing 0.9000 compared to 0.9100 at the other extreme following a significantly better than forecast Swiss KOF leading index and the Loonie has pared more recent declines to trade circa 1.3060 in the run up to Canadian Q2 GDP.

SCANDI/EM - The Sek and Nok have resumed bullish trajectories regardless of Euro strength elsewhere, with the former encouraged by Swedish Q2 GDP contracting a tad less than envisaged, while EM currencies are taking advantage of Usd depreciation almost across the board, as the Zar recovers alongside Gold and even the Try regroups with some assistance from an improvement in Turkish consumer sentiment.

Notable FX Expiries, NY Cut:

-        USD/JPY: 106.00 (658M), 106.50-60 (1BLN), 107.10 (205M) 

FIXED INCOME

Core bonds have embarked on a more concerted recovery mission having succumbed to spill-over selling pressure post-Powell at Jackson Hole and with added momentum from Abe-related JGB weakness overnight. Bunds are leading the revival and just reached 175.67 vs 175.06 at worst, while Gilts have been up to 134.84 compared to 134.32 at the earlier Liffe low and US Treasuries are also paring heavier declines, albeit with the curve still fractionally steeper. The rationale, month end buying and pre-weekend profit taking/short covering, or simply the fact that debt has plunged so far and spreads are gaping too much to warrant a degree of retracement and correction in oversold conditions. Ahead, busy NA data agenda and the JH finale featuring BoE Governor Bailey.

COMMODITIES

WTI and Brent front month futures trade relatively flat in early European hours, with some earlier downside coinciding with losses in stocks in what seems to be a sentiment-driven move; albeit, the magnitude of the price action across the oil complex has been minimal. Focus has now shifted away from developments in the Gulf of Mexico as Hurricane Laura is downgraded to a Tropical Storm and production starts coming back online. Aside from that, news flow for the complex has remained light, with participants eyeing the weekly Baker Hughes Rig Count as the only crude-related scheduled release. WTI October trades on either side of USD 43/bbl, contained within a tight USD 0.3/bbl range, whilst its Brent counterpart similarly oscillates around USD 45/bbl having printed a current 0.4/bbl range. Elsewhere, spot gold and silver gain impetus from the JPY-led USD declines. The yellow metal has reclaimed a USD 1950+/oz status (vs. low 1923/oz), whilst silver eyes USD 27.50/oz to the upside from an overnight base of USD 26.82/oz. Meanwhile, Shanghai copper prices rose 1% and London prices remain supported by the weaker Dollar. Finally, Dalian iron ore futures closed higher by 1.4% amid a softer Buck alongside expectations for firm demand from the steel industry.

Motiva plans to restart Port Arthur Texas refinery (636.5k bpd) today, while Exxon restored stable power supply at its Beaumont, Texas refinery as it prepares to resume operations. (Newswires)