• Asian equity markets were mostly higher amid tailwinds from last Friday’s gains on Wall St; Japan outperformed
• ByteDance will need the Chinese government’s approval to sell TikTok’s US operations
• US is to declassify documents today which will provide detail regarding security assurances to Taiwan
• UK is reportedly prepared to walk away from Brexit trade discussions if the EU does not back down on its demand for UK to align with EU state aid rules
• UK Treasury is drawing up plans for a GBP 30bln triple tax raid in November
• Looking ahead, highlights include German CPI (Prelim), Fed’s Clarida & Bostic, UK Bank Holiday

CORONAVIRUS UPDATE

US CDC reported COVID-19 cases rose to 5.93mln from 5.89mln the previous day and deaths rose to 182.1k from 181.1k, while a major newswire tally stated that US cases increased by at least 32,076 to a total of 6.01mln and deaths rose by at least 360 to a total of 183.1k. (Newswires) Florida total coronavirus cases rose by 2583 (prev. +3197) and deaths +14 (prev. +150), Texas cases +3759 to a total 610.4k and deaths +90 to a total 12.5k, while a major newswire tally stated that California coronavirus cases increased by at least 2,661 and deaths rose by at least 29. (Newswires)

US FDA Commissioner Hahn commented that he is willing to fast track a vaccine for COVID-19, but insisted it was not to appease US President Trump. There were also separate reports that the HHS expects two more vaccine candidates to enter Phase 3 trial by the middle of next month, while Sanofi (SAN FP) CEO said recent data has increased its confidence in the success of its two coronavirus vaccine candidates. (FT/Newswires)

UK COVID-19 cases +1715 (prev. +1108), according to government data. (Newswires) UK Health Secretary stated that England could face nationwide restrictions and very extensive local lockdowns in the event of a second wave this winter. (Times)

Australia's Victoria state Premier Andrews is reported to reveal plan to exit lockdown on September 6th, with another week of data needed to create a roadmap. (Newswires)

ASIA

Asian equity markets were mostly higher amid tailwinds from last Friday’s gains on Wall St where the S&P 500 extended on record highs and is on course for its best August performance in more than 3 decades, helped by the recent big-tech surge and dovish undertones from last week’s Jackson Hole Symposium. ASX 200 (+0.2%) and Nikkei 225 (+1.8%) were both positive but with gains in Australia’s benchmark capped by mixed fortunes among the mining names and varied data releases, while sentiment in Tokyo was buoyed after stronger than expected Industrial Production which showed the largest M/M increase on record and on hopes of political continuity after reports that staunch Abe loyalist and current Chief Cabinet Secretary Suga is to run in the LDP elections to succeed PM Abe. Furthermore, the biggest gainers in Japan have been the largest general trading companies after Berkshire Hathaway acquired at least a 5% stake in the industry leaders including Itochu Corp. (8001 JT), Marubeni Corp. (8002 JT), Mitsui & Co. (8031 JT), Mitsubishi Corp. (8058 JT) and Sumitomo Corp. (8053 JT). Hang Seng (+1.3%) and Shanghai Comp. (+0.8%) also conformed to the upbeat tone despite mixed PMI data in which headline Manufacturing PMI missed expectations although remained in expansionary territory, while Non-Manufacturing PMI was the highest since January 2018 and Composite PMI also improved. There was a slew of earnings from China including the Big 4 banks which all showed weaker profits and China’s largest oil company Sinopec posted its first loss since 2003, although the weaker results failed to dent the risk appetite with the relevant companies all sitting on respectable gains, while concerns regarding the sale of TikTok after China tightened tech export rules were also brushed aside. Finally, 10yr JGBs were initially lacklustre and briefly slipped below 151.50 with demand for bonds subdued by the heightened risk appetite in Japan, although downside was later reversed amid the BoJ presence in the market for JPY 870bln of JGBs predominantly focused on 1yr-5yr maturities.

PBoC injected CNY 20bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 80bln. (Newswires) PBoC set USD/CNY mid-point at 6.8605 vs. Exp. 6.8550 (Prev. 6.8891)

Chinese NBS Manufacturing PMI (Aug) 51.0 vs. Exp. 51.2 (Prev. 51.1). (Newswires) Chinese Non-Manufacturing PMI (Aug) 55.2 vs. Exp. 54.2 (Prev. 54.2) Chinese Composite PMI (Aug) 54.5 (Prev. 54.1)

China’s Foreign Minister Wang Yi stated that the situation in the Xinjiang region and Hong Kong was an internal affair for China and that other countries should not interfere. (Newswires)

ByteDance will need Chinese government approval to sell TikTok’s US operations after Beijing imposed restrictions on exports of artificial intelligence technologies with speech recognition and evaluation added to its export control list, while other reports noted that TikTok deal talks slow following the new restrictions by China. (Newswires/WSJ)

US is to declassify documents today which will provide detail regarding security assurances to Taiwan; as part of an attempt to counter what is perceived as China's increased willingness to use military force against Taiwan. (FT)

Japanese Chief Cabinet Secretary Suga is reportedly to run in LDP elections to succeed PM Abe. It was also reported that Japan's next prime minister is to be elected in a special session of parliament to be held as early as September 17th, while other reports later noted the ruling LDP will hold a leadership vote on September 14th. (Newswires/Nikkei/Jiji)

Japanese Industrial Production (Jul) M/M 8.0% vs. Exp. 5.8% (Prev. 1.9%); Japan’s government raised its assessment of industrial production which it stated is picking up and the government noted that the Industrial Output increase was the largest M/M growth on record going back to January 1978. However, an official stated that Japan factory level remains low with a rebound will likely be moderate and that they are closely watching effects of a resurgence in virus cases but expect factory output to continue uptrend. (Newswires)

UK/EU

UK is reportedly prepared to walk away from Brexit trade discussions if the EU does not back down on its demand for UK to align with EU state aid rules, while UK Chief Brexit Negotiator Frost reportedly told EU’s Barnier the UK is not willing to compromise on this point. (CityAM)

UK Treasury is drawing up plans for a GBP 30bln triple tax raid in the November budget that will target pensions, second homes and businesses to plug the gap in finances resulting from the pandemic fallout. (Sunday Times)

UK government is set to offer railway firms fresh funding to keep trains operating during autumn and winter season which could cost several of billions. (FT)

UK Trade Secretary Truss will reportedly inform MPs that discussions with Australia are to intensify, and a deal could see agreement regarding financial services, telecoms and technology as components. Assisting in the process to join the CPTPP. (Telegraph)

S&P affirmed Denmark at AAA; Outlook Stable, while Fitch affirmed Ireland at A+; Outlook Stable and affirmed Norway at AAA; Outlook Stable. (Newswires)

FX

In FX markets, the DXY remained subdued heading into month-end where recent models had suggested the potential for USD-selling, with the appetite for the Greenback also spoiled by the constructive risk tone and ongoing stimulus stalemate with the Trump administration’s offer to sign a USD 1.3tln COVID relief bill said to have been rejected by House Speaker Pelosi. As such, the Greenback’s major counterparts were kept afloat with EUR/USD holding above the 1.1900 level where a large option expiry of EUR 1.4bln resides ahead of today’s New York cut, while GBP/USD briefly posted a YTD high but then came off its best levels amid the absence of UK participants on Monday for bank holiday and with the UK reportedly prepared to walk away from Brexit negotiations if the EU does not back down on its demand for alignment with EU state aid rules. Elsewhere, USD/JPY was briefly lifted on the back of the potential policy continuation with Chief Cabinet Secretary Suga said to run for PM although most of the initial rebound has since been faded, while antipodeans traded sideways after mixed data from both China and Australia, as well as the firmer reference rate setting by the PBoC which has helped keep AUD/USD and NZD/USD near 2-year and 1-year highs respectively.

Australian Business Inventories (Q2) -3.0% vs. Exp. -1.0% (Prev. -1.2%). (Newswires) Australian Gross Company Profits (Q2) 15.0% vs. Exp. -7.5% (Prev. 1.1%)

New Zealand ANZ Business Confidence (Aug) -41.8% (Prev. -31.8%). (Newswires) New Zealand ANZ Activity Outlook (Aug) -17.5% (Prev. -8.9%)

COMMODITIES

WTI crude futures mildly prodded above USD 43/bbl and Brent crude futures also reclaimed the USD 46.00/bbl level as they benefitted from the heightened risk appetite and amid bullish forecasts by Goldman Sachs which anticipates Brent prices to reach USD 65/bbl by Q3 next year. However, the gains in oil were only marginal overnight as operations continue to resume in the Gulf of Mexico with the recent BSEE estimates of shut in for Gulf of Mexico production at 69.76% vs. Prev. 82.13%. Elsewhere, gold prices eked marginal gains to trade around USD 1970/oz with the precious metal supported by recent USD weakness, while copper gained on the constructive risk tone.

Baker Hughes Rig Count stated oil rigs -3 at 180 (prev. +11), NatGas +3 at 72 (prev. -1) and Total unchanged at 254 (prev. +10). (Newswires)

BSEE estimated approximately 69.76% (prev. 82.13%) of the current oil production in the Gulf of Mexico remains shut-in and estimated approximately 49.87% (58.84%) of natural gas production in Gulf of Mexico remains shut-in. (BSEE)

US Gulf of Mexico output was down 1.29mln bpd of oil and 1.35 bcf of nat gas according to the regulator, while energy firms are returning crews to Gulf of Mexico offshore facilities with 171 of 310 evacuated now reoccupied. (Newswires)

Total Port Arthur, Texas (185k BPD) said an early assessment post Hurricane Laura is positive and they were taking measures to restart operations. (Newswires)

Goldman Sachs brought forward its forecast for higher long-dated prices and sees 3-year forward Brent to reach USD 58/bbl by end-2021, while it added lacklustre fundamentals could still pressure spot prices in short-term but finds risk-reward on long deferred prices as compelling and sees Brent prices to rally to USD 65/bbl by Q3 2021. (Newswires)

Saudi Aramco has discovered two oil and gas fields north of the kingdom, according to Saudi Energy Minister Abdulaziz. (Newswires)

US

The Treasury curve bull-steepened on Friday, with yields lower by around 2bps from 2s through 10s, although 30s yields continued higher after the Fed's Thursday announcement that it would be moving to an average inflation targeting regime, where it would allow price pressures to run hot during periods of full-employment, in order to make up for shortfalls during downturns. The overall feel of Treasury trade was lacklustre, with the creep of summer making itself known. Some desks said price action to the upside had also fallen due to dwindling summer volumes. Others also cited typical Friday afternoon rate-locking for the upcoming week's pipeline of new corporate issuance, with underwriters more inclined to lock in rates amid this week's sell-off in the long-end. Elsewhere, some also suggest that month-end factors are still in play, with Treasury duration set to extend by a hefty 0.15 years, which may lead some players to wait for a better entry point to sell the complex. T-note futures (U0) settled 9 ticks higher at 139-08 and t-note futures (z0) settled 8+ ticks higher at 139-03.

Fed's Harker (voter) said the Fed is looking for inflation to slightly overshoot, not run hot and expects US economy to end the year down 5% or 6% with unemployment at 9%. Furthermore, he forecast unemployment ending next year around 7% and 3% GDP growth for 2021. (Newswires)

Fed's Mester (voter) said the key thing is wanting to anchor inflation expectations and how much inflation is allowed above 2% will depend on the economy, while she added the US economy could end the year at a contraction of 6% Y/Y (median Fed view -6.5%) and unemployment could stay elevated. (Newswires)

Fed's Bullard (non-voter) said could let inflation run above target by around 0.5% for quite a while given the extensive undershoot, while he added policy is right for the moment and reiterated that that the Fed is not even thinking about thinking about raising rates. (Newswires)

White House Chief of Staff Meadows said President Trump is willing to sign a USD 1.3trln COVID relief bill although added that House Speaker Pelosi rejected that offer. (Newswires)

Senate Majority Leader McConnell said the Senate will likely will not come back into session in the approaching week and are coming back after Labor Day, while there was some thought of coming back next week to begin working. (Newswires)