• European bourses are elevated this morning shaking off the mixed APAC handover and taking direction from Wall St.
• US Secretary of State Pompeo said to expect an administration announcement in the coming days or weeks on China
• US House Speaker Pelosi’s office that there was no agreement on areas of funding Treasury Secretary Mnuchin testified about
• FX sees the USD firmer but within a relatively narrow range to the detriment of major peers with EUR downside exacerbated via EUR/GBP
• Looking ahead, highlights include US ADP Employment, Factory Orders, DoEs, BoE's Bailey, Ramsden, Vlieghe, Broadbent, Haldane, Fed's Williams, Mester

CORONAVIRUS UPDATE

Major newswire tally stated that coronavirus cases increased by at least 43,728 to a total of 6.09mln and deaths rose by at least 1,118 to a total of 184.7k. Texas cases +4,364 (prev. +2,615) and deaths +145 (prev. +26). (Newswires)

NIH's Dr Fauci said a vaccine could be available sooner than anticipated if clinical trials provide overwhelmingly positive results, while there were separate reports that NIH advisers stated that data failed to back the plasma therapy. (Newswires)

ASIA

Asian equity markets were mixed as the region partially sustained the momentum from the fresh record highs on Wall St where risk appetite was spurred once again by strength in big tech names and following better than expected ISM Manufacturing PMI data. ASX 200 (+1.8%) was positive with the advance led by materials as it found inspiration from the similar outperformance stateside and with AMP Capital front-running the largest-weighted financials sector after it announced to conduct a portfolio review amid heightened interest and enquiries regarding its assets and businesses. Nikkei 225 (+0.5%) remained afloat although upside was limited by a mixed currency and with heavy losses seen in Nippon Kayaku on news it will be replaced by SoftBank Corp in the index, while Hang Seng (-0.3%) and Shanghai Comp. (-0.2%) were pressured following another substantial PBoC liquidity drain and with underperformance seen in Hong Kong-listed casinos names which suffered from dismal Macau gaming revenue and with notable weakness in financials. 10yr JGBs were rangebound with price action hampered amid the gains in riskier Japanese assets but with downside also limited by the BoJ’s presence in the market for a total JPY 890bln of JGBs with 1-5yr and 10-25yr JGBs.

PBoC injected CNY 20bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 180bln. (Newswires) PBoC set USD/CNY mid-point at 6.8376 vs. Exp. 6.8318 (Prev. 6.8498)

US President Trump reiterated the deadline for a TikTok deal is September 15th. Negotiations were said to have been complicated over whether its core algorithms will be included in the deal. (Fox/WSJ)

US Secretary of State Pompeo said expect an administration announcement in the coming days or weeks on China and responded that a cold war analogy has some relevance but this is different from the cold war, when asked about the US-China relationship. (Newswires)

Japan's LDP formally decided to conduct its leadership election on September 14th at 0600BST. (Newswires/Jiji)

US

US House Speaker Pelosi’s office that there was no agreement on areas of funding Treasury Secretary Mnuchin testified about and Pelosi later stated that Democrats and White House have serious differences in understanding the gravity of the COVID-19 relief situation, following the call with Treasury Secretary Mnuchin. (Newswires)

Trump’s Administration unveiled a plan to tackle rise in imports of seasonal fruit and vegetables, while USTR is to request an ITC investigation of blueberry imports and will pursue talks with Mexico regarding perishable product imports. (Newswires)

Fed's Barkin (non-voter) says that the Fed will need to keep providing significant and sustained support to the economy as it faces a slowing recovery in the labour market; there will be a time when it is necessary to update current guidance but does not feel an urgency to do it yet. (Newswires) National Convention earlier this month.

ByteDance could continue talks with potential buyers of TikTok and technically skip the government approval by excluding sensitive technology transfers in any deal, according to SCMP sources. (SCMP)

UK/EU

UK BRC Shop Price Index (Aug) Y/Y -1.6% (Prev. -1.3%). (Newswires)

Riskbank’s Jansson will not hesitate to support a rate cut if inflation expectations fall sharply, however there are limits to policy rates given that the rate is currently at 0%; would not be worried if inflation overshot for a while. (Newswires)

GEOPOLITICAL

US extended the travel ban to North Korea citing a serious risk of arrest and long-term detention. (Yonhap)

US Department of Defence report stated that China could exceed US in missile development and shipbuilding, while it noted China has already equalled or even surpassed US in some modernization areas for the military and will likely double its nuclear arsenal stockpile during the next 10 years. (SCMP) Subsequently, Global Times Chief Editor says "low-200s is an underestimation of China's nuclear warhead stockpile. As for whether China's nuclear warheads will be doubled in a decade, it depends on how much the US threatens China's security.". Most recently, China's Foreign Ministry rejects US reports that China are expected to double their nuclear warhead stockpile. (Twitter/Newswires)

Saudi Crown Prince and US President Trump Senior Adviser Kushner discussed prospects of a peace process in the region, as well as the need for Israel and Palestine to return to negotiations. (Newswires)

EQUITIES

European stocks continue grinding higher, with solid gains thus far (Euro Stoxx 50 +2.3%) in spite of a relatively mixed APAC performance, with news flow also on the light side ahead of the US market entrance and a slew of notable Central Bank speakers. Broad-based gains are seen across the bourses with no clear out/underperformers. Sectors reside firmly in the green across the board but lack a clear risk bias; Banks, Insurance and Oil & Gas stand as the laggards, amid a low-yield environment and as energy prices recede. In terms of individual movers and shakers, earnings see the likes of Barratt Developments (+6.9%) underpinned as forwards sales improved alongside a future dividend policy based on a dividend cover of 2.5x. Credit Suisse (+0.9%), although firmer, underperforms the wider markets as Swiss regulators have commenced enforcement proceedings against the Co. Elsewhere ITV (+3.2%) has brushed off its relegation from the FTSE 100, whilst the Euro Stoxx 50 shake-up sees Adyen (+1.8%), Prosus (+1.2%), Vonovia (+2.5%), Pernod Ricard (+3.2%) and Kone (+1.3%) replacing SocGen (-0.2%), Fresenius (+1.8%), Orange (+1.3%), Telefonica (+0.3%) and BBVA (-0.6%). Finally, Novartis (+2.1%) is buoyed after announcing that it is to launch its SARS-CoV-2 rapid antigen test in countries accepting the CE mark.

FX

USD - It may well be too premature to suggest that the rot has stopped, but the Buck is bouncing further from Tuesday’s 2020 low (91.737) and seemingly gleaning more traction from the US manufacturing ISM, with considerable assistance via independent weakness in rival currencies. Tests and ultimate rejections of big figure and psychological levels in several Dollar/major pairs have also contributed to the revival, as the DXY reclaims 92.500+ status ahead of ADP, factory orders and more Fed speak, with Williams and Mester scheduled to orate.

CHF/EUR/AUD - The Franc has lost more ground vs the Greenback and Euro to sub-0.9100 and 1.0850 at one stage respectively in wake of verbal intervention from SNB’s Maechler yesterday that could be deemed a warning of something official at the upcoming September quarterly policy meeting, while the single currency has pulled back through 1.1900 after its short-lived foray above barriers at 1.2000 amidst weak Eurozone data and dovish/downbeat ECB commentary. However, Eur/Usd may yet find support around 1.1850 and be drawn towards decent option expiry interest at 1.1875 (1 bn). In similar vein, the Aussie has been undermined Q2 GDP missing consensus and suffering a record q/q contraction, thereby condemning the country to its first technical recession in over a quarter of a century. In response, Aud/Usd has fallen below 0.7350 from 0.7400+ and Treasury Minister Frydenberg fears that Victoria’s lockdown will be a big drag for the current quarter resulting in slightly negative ‘growth’ or stagnation at best.

GBP/JPY - Also making way for the broad Buck renaissance, as Cable recoils from lofty 1.3480+ peaks to the low 1.3300 area awaiting a blast from the BoE and a Brexit ‘progress’ report via EU chief negotiator Barnier, while the Yen is back under 106.00 amidst a pronounced upturn in risk sentiment, dovish rhetoric from the BoJ and LDP leadership challengers.

NZD/CAD - The Kiwi is holding up relatively well courtesy of strong NZ terms of trade and the absence of any direct currency remarks from RBNZ Governor Orr, with Nzd/Usd revisiting the upper end of the recent range (just shy of 0.6700) and Aud/Nzd reversing from 1.0900+ to sub-1.0850 before consolidating circa 1.0860 in the run up to Australian trade data on Thursday. Elsewhere, the Loonie is sitting tight between 1.3084-53 parameters before Canadian labour productivity, trade tomorrow and the next NA jobs report head to head the following day.

SCANDI/EM - The Swedish and Norwegian Krona are back on upward trajectories on the back of buoyant, if not exuberant risk appetite, as Eur/Sek eyes 10.2900 and Eur/Nok hovers around 10.4000 irrespective of Norway’s Q2 current account surplus shrinking by more than 1/3rd, but perhaps taking heed of Norges Bank Deputy Governor Bache downplaying the prospect of lower rates in contrast to pretty standard and neutral comments from Riksbank’s Jansson. Conversely, most EM currencies are conceding ground due to the Dollar’s impressive comeback (DXY up to 92.685 at best for reference), aside from the Renminbi that remains resilient following another bullish PBoC midpoint Cny fix.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1825-35 (900M), 1.1845-50 (600M), 1.1875 (1BLN), 1.1895 (527M), 1.1935 (413M), 1.1950-55 (400M), 1.1995-1.2000 (550M)

-        USD/JPY: 105.55 (830M), 105.65-75 (1BLN), 105.95-106.00 (800M), 106.50 (1.1BLN)

Australian GDP (Q2) Q/Q -7.0% vs. Exp. -5.9% (Prev. -0.3%)

Australian GDP (Q2) Y/Y -6.3% vs. Exp. -5.2% (Prev. 1.4%)

Australian Bureau of Statistics said GDP suffered largest quarterly decline on record, while private demand detracted 7.9ppts from GDP and services fell 17.6%. There were also comments from Australian Treasurer Frydenberg that the Victoria lockdown will weigh heavily on Q3 GDP which he expects to be slightly negative or flat and noted that any tax cut announcements will come in the October budget. (Newswires)

RBNZ Governor Orr said they have been effective in lowering interest rates across the board and are actively preparing a package of additional tools to use if needed, while the options include negative wholesale rates, more QE, direct lending to banks and ongoing forward guidance. (Newswires)

FIXED INCOME

The 10 year EU benchmarks have drifted down from best levels, at 176.46 for Bunds and 135.61 for Gilts, but remain underpinned in the aftermath of Germany’s Bobl auction that was not quite 2 times oversubscribed in stark contrast to the demand building for the inaugural green bond and Greek syndication. However, US Treasuries are still depressed and the curve is re-steepening on the back of Tuesday’s manufacturing ISM that has boosted the Dollar ahead of ADP, factory orders and more Fed speakers that will be scrutinised for further opinion on AIT, YCC and policy leanings in general. On that note, Barkin has already delivered guidance along the lines of the official stance given signs of the jobs market recovery stalling.

COMMODITIES

WTI and Brent front month futures have given up earlier gains despite a distinct lack of complex-specific news flow during early European hours, and after the benchmarks were underpinned overnight by the larger-than-forecast draw in Private Inventory stockpiles (-6.4mln barrels vs. Exp. -1.9mln). Traders will be on the look-out for confirmation from the EIA release later today forecasting a headline crude draw of 1.887mln barrels. Before that, some short term USD/sentiment-induced action may arise from the ADP National Employment release ahead of Friday’s US jobs figures. WTI Oct resides around USD 43/bbl (vs. high 43.21/bbl) and Brent Nov lost its USD 46/bbl status (vs. high USD 46.05/bbl). Elsewhere, precious metals have been slightly subdued predominately due to a modest revival in the Dollar. Spot gold hovers within a tight range in European trade, around the USD 1965/oz mark having notched a current range of USD 1956-73/oz. Similarly, spot silver remains caged on either side of USD 28/oz. In terms of base metals, copper prices pulled back amid a firmer Buck and following a downbeat performance in Chinese stocks markets. Conversely, Dalian iron ore futures touched a two-week high on a robust steel demand outlook and improving global economic activity.

US Private Energy Inventories (w/e Aug. 28th): Crude -6.4mln (exp. -1.9mln, prev. -4.689mln)