• Asian equity markets began the week positive across the board following the record closes for the S&P 500 and Nasdaq Comp on Friday in US
• USD/JPY and JPY-crosses traded choppy in which they initially extended on gains before pulling back while DXY held above the 95.00 level
• Looking ahead, highlights include the German Ifo Survey, US National Activity Index and Dallas Fed Manufacturing Business Index. Note: Today is a UK Bank Holiday

 

ASIA

Asian equity markets began the week positive across the board following the record closes for the S&P 500 and Nasdaq Comp on Friday in US, where Fed Chair Powell reiterated a gradual approach at the Jackson Hole symposium and with sentiment also underpinned by hopes of a looming NAFTA-related agreement between US & Mexico. ASX 200 (+0.4%) and Nikkei 225 (+0.9%) were positive from early trade although gains in Australia were capped as financials lagged, while Tokyo stocks coat-tailed on early currency moves to reclaim the 22800 level where it eventually peaked. Elsewhere, Hang Seng (+2.2%) and Shanghai Comp. (+1.4%) led the broad heightened-risk appetite after the PBoC’s currency stability efforts and with the Hong Kong benchmark the outperformer as nearly all its constituents traded in the green. Finally. 10yr JGBs were flat with demand kept subdued amid gains in riskier assets and with a lack of Rinban operations by the BoJ.

PBoC skipped open market operations for a net daily drain of CNY 120bln. (Newswires)
PBoC set CNY mid-point at 6.8508 (Prev. 6.8710)

Chinese Industrial Profits (Jul) Y/Y 16.2% (Prev. 20.0%). (Newswires)

UK/EU

Reports noted that UK and EU are to agree to push back its Brexit agreement deadline by 4 weeks to a ‘hard deadline’ in mid-November. (Telegraph)

UK PM May is heading to Africa with a number of government ministers and a delegation of UK business leaders in an effort to boost post-Brexit trade links. (Sky News)

Irish Foreign Minister Coveney stated that it is ‘very, very unlikely’ there will be a no-deal Brexit. (Newswires) 

Italian Deputy PM Salvini stated that a prosecutor in Sicily has placed him under investigation for abuse of office, kidnapping and illegal arrest. (Newswires)

FX

In FX markets, DXY remained subdued and just about held above the 95.00 level after last Friday’s declines in the wake of Fed Powell’s comments in which he reiterated a gradual approach and noted no clear signs of inflation accelerating above 2%. In addition, the PBoC’s resumption of the counter-cyclical factor in the CNY midpoint-fixing mechanism which is intended to reduce CNY volatility, had also weighed on the greenback. As such, most currencies have extended gains against USD but with price action across the major pairs contained amid a lack of data releases and ahead of the UK market closure. Elsewhere, USD/JPY and JPY-crosses traded choppy in which they initially extended on gains before pulling back, while MXN outperformed after Trump tweeted a trade deal with Mexico could be reached soon and other reports noted an agreement could occur as early as today.

BoC Governor Poloz commented that a gradual approach to monetary policy is appropriate amid digital disruption, while Poloz had previously commented that inflation is very close to target, that the rise is transitory and the outlook is for higher rates. (Newswires)

Russian opposition leader Alexei Navalny was detained in Moscow. (Newswires)

COMMODITIES

Commodities were quiet overnight as prices took a breather and held on to the majority of recent gains. This saw WTI crude futures flat amid fatigue from Friday’s advances in which prices briefly rose above USD 69/bbl which was attributed to technical buying as well as reports that China’s Unipec resumed US oil purchases. Elsewhere, gold plateaued at a 2-week high above the USD 1200/oz amid the recent pullback in the USD, while copper also remained firm amid a similar tone across the complex and alongside the positive risk tone.

Baker Hughes Rig Count: oil rigs -9 at 860, gas rigs -4 at 182, total rigs -13 to 1044; US drillers cut most oil rigs since May 2016. (Newswires)

Threat of tariffs in US crude is said to have spurred some buyers in China to purchase more crude from Libya, according to sources. (Platts)

Iran’s Oil Minister Zanganeh said some members are interpreting the latest OPEC decision on oil output differently and are acting in accordance with policies of the US. (Newswires)

GEOPOLITICAL

US President Trump asked Secretary of State Pompeo not to go to North Korea at this time as he feels they are not making significant progress on denuclearisation of the peninsula. Trump was also said to not believe China is helping with the process of denuclearisation and added that Pompeo looks forward to going to North Korea in the near future which most likely will be after US trading relationship with China 'is resolved'. (Newswires)

US

There was decent volume in the Treasury complex, as Jackson Hole got underway. Powell’s comments were judged to be on the dovish side, which helped 10s catch a bid; Informa reported that traders priced in a pause after two more hikes, and then the real money bid came back forcing poorly placed shorts to cover. Unsurprisingly, curves continued to flatten with 2s10s and 2s30s finding their customary cyclical narrows. US 10-year T-notes settled 2+ tick lower at 120-16+.

US President Trump tweeted that a trade deal with Mexico could be reached soon, while there were separate reports which noted that US and Mexico were said to be poised for an agreement on NAFTA as soon as this Monday. In addition, there were comments from Mexico Economy Minister Guajardo that sides were practically in the final hours of negotiations. Conversely, Mexico Foreign Minister Videgaray said work on NAFTA with US has not finished and there had been source reports on Friday that Mexican President Elect Lopez Obrador’s stance on oil was said to be keeping US and Mexico from securing a NAFTA deal. (Newswires)

US GOP Senator McCain passed away over the weekend, while Arizona Governor Ducey will have to choose who will fill the vacancy from the Republican Party until a special election is conducted in 2020. (CNN)