• Asian equities traded cautiously as the region took its cue from the losses seen across most global counterparts
• Chinese Caixin Manufacturing PMI (Aug) 53.1 vs. Exp. 52.6 (Prev. 52.8); highest since January 2011
• USD-selling persisted in Asia trade in which the DXY retreated below 92.00 to extend on 2-year lows
• RBA left the Cash Rate Target unchanged at 0.25% and the 3yr yield target at 25bps as expected
• EU Chief Brexit Negotiator Barnier is unwilling to open discussions on Britain’s latest fisheries proposals until the UK budges on other issues
• Looking ahead, highlights include EZ, UK & US Manufacturing PMIs, EZ CPI, Unemployment, US ISM Manufacturing, ECB's de Guindos, Lane, Fed's Brainard

CORONAVIRUS UPDATE

US COVID cases +37,532 (prev. +44,292) and deaths +473 (prev. +1,006). New York COVID-19 cases +665 (prev. +698) and deaths +1 (prev. +8), Texas cases +2,615 (prev. +3,824); deaths +26 (prev. +90). (Newswires)

A briefing paper for the EU ambassadors’ meeting tomorrow reportedly identifies several potential areas for improving cross-border pandemic coordination. This includes the development of common quarantine rules, improved mapping practices and use of agreed data sources. (FT)

ASIA

Asian equities traded cautiously as the region took its cue from the losses seen across most global counterparts despite Wall St. notching its biggest monthly gain since April and its best August performance in more than 3 decades, while participants also digested encouraging Chinese Caixin Manufacturing PMI data. ASX 200 (-1.8%) underperformed and briefly wiped out all of the prior month’s gains on a collapse below the 6,000 level with the downturn led by hefty losses in tech and energy, while the detention of a Chinese-Australian television anchor further highlighted the souring bilateral relations with China. Nikkei 225 (-0.1%) was indecisive but with downside stemmed by recent currency weakness and political continuity hopes with Chief Cabinet Secretary Suga said to be supported by the largest faction of the ruling LDP and is set to announce an intention to continue with Abenomics and the pandemic response when declaring his candidacy on Wednesday. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (Unch.) swung between gains and losses as mild support was seen following the strongest Caixin Manufacturing PMI reading since January 2011, but with upside also capped after the PBoC drained CNY 230bln from the interbank market and due to lingering US-China tensions after White House trade adviser Navarro stated the US will go after others not just TikTok and WeChat. Finally, 10yr JGBs were higher following the recent gains in T-notes and indecisive risk tone in the region, although some of the gains were reversed after all metrics pointed showed weaker results at the 10yr JGB auction.

PBoC injected CNY 20bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 230bln. (Newswires) PBoC set USD/CNY mid-point at 6.8498 vs. Exp. 6.8493(Prev. 6.8605)

Chinese Caixin Manufacturing PMI (Aug) 53.1 vs. Exp. 52.6 (Prev. 52.8); highest since January 2011. (Newswires)

White House consensus among top economic and national security advisers is that Microsoft (MSFT) is best able to secure TikTok user data from Chinese surveillance, although it was not clear how that impacts bidding, according to reports. (Fox)

The largest faction of Japan’s ruling LDP will back Chief Cabinet Secretary Suga in a bid for the LDP leadership and it was also reported that the LDP leadership race will be a slimmed down format. Furthermore, Japanese Chief Cabinet Secretary Suga is to announce an intention to continue with Abenomics and the pandemic response when announcing his candidacy on Wednesday, while Defence Minister Kono is still undecided whether to run for leadership. (Newswires)

UK/EU

EU Chief Brexit Negotiator Barnier is unwilling to open discussions on the latest fisheries proposals until the UK budges on other issues, according to reports. This comes as part of Barnier's "parallelism" approach whereby multiple aspects of issues need to be agreed before proceeding. (Telegraph) 

UK Chancellor Sunak could increase fuel duty by 5p to help pay for the coronavirus in the Autumn budget. (The Sun)

German government is reportedly less pessimistic about the economy this year and sees a weaker-than-expected rebound next year, according to sources. (Newswires) As a reminder, in April the government forecast a 6.3% contraction in 2020 and 5.2% rebound in 2021.

FX

USD-selling persisted in Asia trade in which the DXY retreated below 92.00 to extend on its 2-year lows which follows on from the recent strong month-end sell signals and a flattening of the yield curve after comments from Fed Vice Chair Clarida which suggested yield curve control remains a future policy option. This benefitted its major counterparts with EUR/USD gaining momentum towards 1.2000 and with GBP/USD also climbing to breach resistance at 1.3400. Elsewhere, JPY-crosses held on to recent gains although USD/JPY retreated from a failed attempt at the 106.00 handle and owing to the USD-woes, while USD/CNH slipped beneath the 6.82 level for the first time since July last year in the aftermath of a stronger PBoC reference rate setting. Furthermore, antipodeans also took a swipe at the greenback with AUD/USD supported by better than expected Building Approvals and Current Account data, while RBA policy decision was non-eventful as the central bank maintained the Cash Rate Target and 3yr Yield Target at 0.25% as unanimously forecast, while it reiterated its forward guidance and refrained from jawboning the currency but increased the Term Funding Facility and made it available for longer.

RBA left the Cash Rate Target unchanged at 0.25% and the 3yr yield target at 25bps as expected, RBA reiterated forward guidance that it will not increase rates until progress is being made towards full employment and it is confident inflation will be sustainably within the 2%-3% target band, while it decided to increase the size of the Term Funding Facility and make the facility available for longer. Furthermore, it stated that wage and prices pressures remain subdued which is likely to continue for some time and that inflation is expected to average between 1 and 1½ per cent over the next couple of years. (Newswires)

Australian Building Approvals (Jul) 12.0% vs. Exp. -2.0% (Prev. -4.9%). (Newswires) Australian Current Account Balance (AUD)(Q2) 17.7B vs. Exp. 13.0B (Prev. 8.4B) Australian Net Exports Contribution (Q2) 1.0% vs. Exp. 1.1% (Prev. 0.5%)

COMMODITIES

WTI crude futures nursed Monday’s losses and reclaimed USD 43.00/bbl amid recent supply-related headlines as Iraq submitted a plan to OPEC for additional cuts of 400k BPD in August and September, while Kazakhstan plans additional cuts of 95k BPD for the same period and it was also reported that UAE's ADNOC is to cut October crude oil term supplies to Asia customers by 30%. Elsewhere, gold prices gained on the back of a weaker USD which saw the precious metal approach the USD 1990/oz level and copper also amid the gains across the complex but to a lesser extent due to the somewhat cautious risk tone.

Iraq submitted a plan to OPEC that proposes additional cuts of 400k BPD in August and September, while Kazakhstan plans additional cuts of 95k BPD over the same two-month period, according to sources. (Newswires)

US envoy said the US is preparing tighter oil sanctions on Venezuela. (Newswires)

Goldman Sachs raised 2020 Brent crude price forecast to USD 43.63/bbl from USD 40.51/bbl and raised 2021 forecast to USD 59.38/bbl from USD 55.63/bbl. (Newswires)

GEOPOLITICAL

US Secretary of State Pompeo hopes to have an arms control deal completed with Russia by year-end. (Newswires)

US

The Treasury curve settled flatter to start the week, courtesy of remarks by the Fed vice chair Clarida; amid Clarida's remarks, he stated that while yield curve targeting was not something that the Fed would imminently deploy, it was a tool in the kit, but the Fed would reassess in the future if market conditions changed markedly. That was a more lukewarm endorsement of the tool than traders took away from the July meeting minutes, and accordingly, the Treasury curve -- which had been slightly steeper on the day -- began narrowing. The narrowing impulse may have also benefited from a chunky month-end extension in the Treasury complex, with month-end factors still in play on Monday, according to some desks. Further out, the consensus view still seems to be that record-sized Treasury issuance will add a steeper bias to the curve. T-note futures (Z0) settled 5 ticks higher at 139-08.

Fed’s Bostic (non-voter) disagrees more aggressive balance sheet policy is needed now in the middle of the crisis, while he added there is a risk in thinking the Fed can get the economy back on track by itself and calls on more fiscal support. (Newswires)

Fed's Daly (non-voter) said wage growth readings give a false signal on labour market recovery and that wages spike reflects job losses among low-wage workers, not a jobs recovery. (Newswires)

US President Trump asked the Federal Appeals Court to delay the subpoena of his tax returns and plans to ask the Supreme Court to consider the request if it is rejected by the Appeals Court. (Newswires)

US Treasury Secretary Mnuchin said House Speaker Pelosi and Senate Minority Leader Schumer do not want to negotiate in good faith regarding COVID-19 relief legislation. Furthermore, Mnuchin continues to discuss aid with Senate Majority Leader McConnell and congressional GOP, while he hopes McConnell will introduce another relief bill next week. (Newswires)

The Hill-HarrisX poll showed former VP Biden kept a 9-point lead vs. US President Trump at 47% vs. 38% (prev. 47% vs. 38%) conducted on Aug. 25th-28th, while Emerson College national poll shows former VP Biden leads President Trump by 2 points at 49% vs. 47% (prev. 4-point lead at 50% vs. 46%) conducted Aug. 30th-31st. (The Hill/Twitter)