• European bourses are modestly firmer but off highs as month-end approaches
• DXY is attempting to stage a recovery as FX peers remain mixed amidst the UK Summer Bank Holiday
• US FDA Commissioner Hahn commented that he is willing to fast track a vaccine for COVID-19
• Chinese PLA troops reportedly violated previous consensus achieved between China & India and undertook a provocative military movement
• Chinese PMIs were mixed but all remained in expansionary territory for August
• Looking ahead, highlights include German CPI (Prelim), Fed’s Clarida & Bostic, UK Bank Holiday (desk operating as normal)

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)

One of President Trump’s top medical advisers is urging the White House to embrace a controversial “herd immunity” strategy to combat the pandemic; Washington Post reports. (Washington Post)

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 (+1.1%) 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 (-1.0%) and Shanghai Comp. (-0.2%) 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)

PBoC says China is to use DR rates (Deposit finance Inter-agency bond repurchase rate) as the key benchmark rate, according to a white paper. (Newswires)

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)

Japan LDP Candidate Ishiba says there is no need to radically change "Abenomics" stimulus policy including monetary easing for the time being; don't think weaker the JPY the better; there is room for further fiscal stimulus. (Newswires)

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)

US

China’s Commerce Ministry says they are commencing an anti-dumping investigation into certain glycol ether imports from the US; investigation will commence from today. (Newswires) Relatively in-fitting with prior reports

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)

German Saxony State CPI MM (Aug) -0.3% (Prev. -0.5%); YY (Aug) 0.1% vs. Prev. 0.2%

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

GEOPOLITICAL

Chinese PLA troops reportedly violated previous consensus achieved between China & India and undertook a provocative military movement; a move which was reportedly pre-empted by India, according to ANI. Subsequently, a meeting between the two sides has commenced. (Twitter)

EQUITIES

European stocks kick the week off on a firm footing (Euro Stoxx 50 +0.3%) but have drifted off of opening highs heading into month end, as the region coattails on the lead from Wall Street on Friday; while, initially at least, brushing off the overall downbeat APAC performance. Note, UK markets remain closed on account of Summer Bank Holiday. Sectors trade modestly higher across the board with a mild cyclical/value bias; utilities are the marked outperformer on the back of Suez (+18.8%) after Veolia (+3.4%) is offering to purchase ~30% of the group from Engie (+6.3%) for EUR 15.50/shr, amid speculation, since confirmed, that such a move would be a precursor to launching a takeover bid. Other notable movers include Sanofi (+0.3%), whose CEO noted that recent data has increased confidence in the success of the group’s two COVID-19 vaccine candidates. Nestle (+0.7%) is higher after stating it is to purchase Aimmune for USD 34.50/shr totaling USD 2.6bln, with the deal expected to close in Q4. On the other end of the spectrum, Natixis (-2.0%) is pressured as its H20 asset management arm is to temporarily suspend some of its funds, albeit this is not set to have a financial impact on Natixis.

FX

USD - It remains to be seen whether the Dollar succumbs to remaining month end selling and the usual 4 pm scramble to complete portfolio rebalancing requirements, but for now the Buck is clawing back lost ground and declines against the Yen in particular after Japanese PM Abe confirmed his departure last Friday. In fact, the Greenback on a firmer footing vs most G10 counterparts and the DXY has bounced from a 92.142 low to 92.480 at best awaiting comments from Fed’s Clarida and Bostic alongside the Dallas Fed manufacturing business index for any further opinion on the new flexible average inflation targeting regime.

JPY - Not quite zero from hero, but the Yen has retreated further from post-Abe peaks amidst reports that staunch supporter and current Cabinet Secretary Suga is in the running to become new LDP leader. Usd/Jpy is now nudging through 105.90 and also taking on board remarks from another challenger to takeover as PM, as Ishiba contends that there is no need to radically change Abenomics or monetary easing, adding that a weaker Yen is not preferable in his view.

GBP - The next weak major link, and perhaps the Pound is taking note of Brexit news and media speculation suggesting that the UK is prepared to walk away from negotiations with the EU if Brussels does not back down on its demand for alignment with state aid rules. Cable is struggling to keep hold of 1.3300, albeit with volumes lighter than normal due to the August Bank Holiday.

AUD/NZD/EUR - Also unwinding recent gains/outperformance vs the US Dollar as the Aussie fades ahead of 0.7400 in wake of mixed data (Q2 business inventories fell 3 times more than forecast, but company profits rebounded from -7.5% to +15%) and pre-RBA, while the Kiwi has stalled around 0.6750 following deteriorations in ANZ business sentiment and the activity outlook. Elsewhere, the Euro is straddling the 1.1900 handle amidst benign German state, Spanish and Italian national CPI data, but also wary of hefty option expiry interest at the strike in 1.5 bn.

CAD/CHF - The Loonie is bucking the broad trend and holding 1.3100+ status against the backdrop of firm crude prices and awaiting Canadian data in the form of building permits and ppi, while the Franc is meandering between 0.9050-25 after an acceleration in Swiss retail sales and not really hindered by latest increases in bank sight deposits.

SCANDI/EM - The aforementioned buoyancy in oil and no change in daily FX purchases by the Norges Bank for September appear to be underpinning the Nok, while the Try has derived some support from Turkish GDP defying expectations for a steeper contraction and the Cnh via another firmer PBoC Cny midpoint fix rather than somewhat mixed official Chinese PMIs.

Notable Option Expiry, NY Cut:

-        EUR/USD: 1.1800 (1.1BLN), 1.1865-70 (600M), 1.1900 (1.5BLN)

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%)

FIXED INCOME

Bunds only got one tick closer to Friday’s 175.82 intraday Eurex high, at 175.78 before buyers threw in the towel and the ensuing price action has almost all been to the downside as the 10 year German benchmark hit a fresh 175.22 session base. The firm tone in EU stocks may be keeping debt futures depressed, although it’s debatable whether any actual asset-switching or reallocation trades have occurred. Instead, bear-steepening into the rebound is more likely to be weighing as markets continue to ponder the implications of the Fed’s new inflation remit and the simple funding dynamics of fiscal spending due to COVID-19. Hence, US Treasuries have backed off even though duration extensions are supportive. Ahead, 2 Fed speakers and Dallas Fed manufacturing before the month draws to an end.

COMMODITIES

WTI Oct and Brent Nov futures continue grinding higher in early European trade as the benchmarks remain supported by overall sentiment. An uptick in prices coincided with source reports that UAE's ADNOC are reportedly to cut October crude oil term supplies to Asia customers by 30% across all grades. In terms of Gulf of Mexico developments, BSEE estimates of shut in for Gulf of Mexico production at 69.76% vs. Prev. 82.13% following Hurricane Laura. Meanwhile, Goldman Sachs which anticipates Brent prices to reach USD 65/bbl by Q3 next year. WTI Oct has tested USD 43.50/bbl to the upside (vs. low USD 42.90/bbl), whilst Brent Nov is yet to convincingly breach USD 46.50/bbl after printing an overnight base at USD 45.80/bbl. Elsewhere, spot gold falls victim to the firming Dollar and trickles lower from overnight highs of USD 1976/oz closer towards USD 1950/oz. Spot silver conversely remains supported around the USD 27.75/oz area. In terms of base metals, Shanghai copper posted its fifth consecutive month of gains – with robust construction and infrastructure activities keeping the red metal buoyed.

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)

Chevron (CVX) El Segundo, California refinery (290k BPD) has reported a malfunction. (Newswires)

UAE's ADNOC are reportedly to cut October crude oil term supplies to Asia customers by 30% across all grades, according to sources. (Newswires)

UAE does not plan to exceed its OPEC quota by 900k bpd in October, according to sources cited by energyintel. (Twitter)

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)