• Trade has been tepid with European equities roughly U/C at present as focus turns firmly to the ECB decision
• FX sees the DXY modestly softer but holding above 93.00 while the EUR is a touch firmer
• EU is reportedly mulling legal action against the UK for its attempt to override parts of the Withdrawal Agreement
• BoJ is expected to offer a more upbeat view on the economy, output and exports than that presented in July at its upcoming meeting
• Looking ahead, highlights include ECB policy announcement, US weekly jobs, US PPI, DoEs, ECB's Lagarde, BoC's Macklem & supply from the US

CORONAVIRUS UPDATE

Major newswire stated US cases increase by at least 33,550 to a total of 6.38mln and deaths rose by at least 1,150 to a total of 190.9k. Texas cases +4,000 (prev. +1,421) and deaths +139 (prev. +61). (Newswires)

Two UK companies are to launch, on Thursday, rapid saliva-based COVID-19 tests, with results to be delivered in 20 seconds, according to its developer iAbra. (FT) 

AstraZeneca (AZN LN) CEO says "we should know before year-end whether the potential COVID-19 vaccine will protect people"; cannot say when trials will resume; remains on track to submit trial data by the end of the year. Separately, India's Serum Institute says it is pausing Indian trials of AstraZeneca (AZN LN) vaccine candidate until it restarts trials. (Newswires)

ASIA

Asia-Pac bourses were initially mostly positive, but ultimately finished mixed, after taking advantage of the constructive handover from the US where tech rebounded from the recent sell-off to lift the Nasdaq out of a correction, while vaccine concerns also abated amid reports AstraZeneca may resume trials next week. ASX 200 (+0.5%) and Nikkei 225 (+0.9%) gained from the open with tech and mining names leading the advances in Australia but with upside later reversed amid weakness in financials and ongoing tensions with its largest trading partner China after reports that 6 Chinese citizens either left or were denied entry into Australia for alleged espionage or foreign interference. The Japanese benchmark was kept afloat by recent favourable currency moves and better than expected Machinery Orders data, while Tokyo also lowered its virus alert level by one notch. Hang Seng (-0.6%) and Shanghai Comp. (-0.6%) were somewhat cautious after mixed US-China related headlines with the US said to have revoked more than 1000 visas of Chinese nationals as of September 8th due to ties with the Chinese military, although there were also reports that TikTok’s parent, ByteDance, was in discussions with the US government on possible arrangements that would allow the app to avoid a full sale of its US operations. Focus was also on Yum China shares which declined 4% on an underwhelming Hong Kong debut, although Beigene shares were boosted on its inclusion in the HK-mainland stock connect program, while hefty losses were seen in the IDX Composite (-5.0%) which triggered a circuit breaker intraday after the Jakarta Governor announced to reimpose large-scale social restrictions. Finally, 10yr JGBs were lacklustre following the recent mild weakness in T-notes and rebound in equity markets, with price action in 10yr JGBs also hampered by resistance at the 152.00 level and as all metrics suggested a weaker than previous 20yr JGB auction.

PBoC injected CNY 140bln via 7-day reverse repos at a rate of 2.20% for a net daily injection of CNY 20bln. (Newswires)

PBoC set USD/CNY mid-point at 6.8331 vs. Exp. 6.8329 (Prev. 6.8423)

A US official said the US is blocking visas of certain Chinese graduate students and researchers to prevent them stealing sensitive research. The State Department later stated that the US had revoked more than 1000 visas of Chinese nationals as of September 8th due to ties with the Chinese military, but added that the US continues to welcome legitimate Chinese students and scholars who do not further the CPC's goals of military dominance. (Newswires)

BoJ is expected to offer a more upbeat view on the economy, output and exports than that presented in July at its upcoming meeting, according to sources; policymakers are likely to note that whilst economic conditions are severe, there are some signs of a pick-up. (Newswires)

Japanese Machinery Orders (Jul) M/M 6.3% vs. Exp. 1.9% (Prev. -7.6%). (Newswires) Japanese Machinery Orders (Jul) Y/Y -16.2% vs. Exp. -18.3% (Prev. -22.5%)

US

US House Speaker Pelosi said Senate Majority Leader McConnell does not have the votes to pass the Republican aid bill, while there were also reports that Senate Majority McConnell sounded as negative as he could on prospects for COVID relief in which he stated he doesn’t know and hopes that it not the case regarding whether Congress will leave for election without a relief bill. (Twitter/Politico)

The White House is said to have discussed unilateral aid for airlines among other executive orders. (Washington Post)

SurveyUSA Minnesota poll showed Biden at 49% vs. President Trump at 40%, conducted Sept. 7th. (Newswires)

UK/EU

EU is reportedly mulling legal action against the UK for its attempt to override parts of the Withdrawal Agreement, while Brussels reportedly accused UK PM Johnson of deliberately wrecking trade negotiations and pushing Britain towards a no-deal. Subsequent reports noted the legal action could be triggered today if talks do not go well; additionally, legal advice from European Commission (EC) states that the EC can take legal actions against the UK on several grounds, but legal action will not be ready before the end of the transition, according to RTE's Connelly. (Telegraph/The Times/Twitter)

US House Speaker Pelosi commented that if UK violates the international treaty and Brexit undermines the Good Friday accord, there will be absolutely no chance of a US-UK trade agreement passing Congress, according to Twitter sources. (Twitter)

UK RICS Housing Survey (Aug) 44 vs. Exp. 25.0 (Prev. 12.0, Rev. 13). RICS said 83 of surveyors expect an increase of demand for homes with gardens although declines are expected for urban and tower block homes, while it added that 12-month sales expectations worsened last month. (Newswires)

GEOPOLITICAL

India & Japan have signed a pact for reciprocal provisions of supplies and services between their military/defense forces, according to sources. (Newswires)

China's Foreign Ministry says the Australian Embassy obstructed China's law enforcement, actions were beyond the scope of consular protection. (Newswires)

Greek Deputy Foreign Minister has called on EU leaders to consider "severe" economic sanctions on Turkey. (Newswires)

Yemen's Houthis announce drone and missile attacks on Saudi capital Riyadh; says an 'important target' was attacked. (Newswires)

EQUITIES

European stocks trade mixed (Euro Stoxx 50 -0.1%) having experienced directionless trade throughout much of the morning, following on from a mixed/choppy APAC session. Fresh fundamental news flow has been relatively light as participants gear up for the ECB policy decision (full preview available in the research suite). Sectors are mostly lower with no clear risk profile to be derived – Basic Resources, Banks and Oil & Gas stand are the laggards, with the latter on account of softer oil prices, whilst Autos, Travel & Leisure reside on the other side of the spectrum. In terms of individual movers, Akzo Nobel (+3.5%) remains buoyed as the group continues to see improving trends in Q3, with total revenue expected to be close to prior year’s levels – thus providing support to the European Chemical sector. Nexi (+5.2%) remains a top gainer in the region after sources stated that the Co. and SIA are close to clearing a hurdle to a potential merger. Finally, Morrison (-5.1%) trades at the bottom of the Stoxx 600 following their trading update which noted that COVID-19 continues to have a significant and widespread impact on business.

Tesla (TSLA) aims for ‘first completion’ of Gigafactory Texas in May 2021. (Elektrek)

Japan Display (6740 JT) - Q1 net loss JPY 16.29bln vs. Prev. loss JPY 78.91bln, operating loss JPY 7.01bln vs. Prev. JPY 27.07bln, recurring losses JPY 8.8bln vs. Prev. JPY 31.21bln.

TikTok's parent company ByteDance is reportedly set to miss the US deadline for the sale of TikTok US operations, sources state. (Newswires)

FX

USD/EUR/GBP - Not much movement in G10 currencies compared to the frantic price action that panned out on Wednesday, but the ECB policy meeting and press conference from President Lagarde hold potential to spark another bout of volatility along with the extraordinary joint committee convene between the EU and UK arranged after yesterday’s controversial IMB. In the interim, Usd/major pairs are mixed and relatively rangebound as inferred by the DXY holding within a tight range just above 93.000 (93.281-036) ahead of US claims, ppi and wholesale inventories. Meanwhile, the Euro is meandering between 1.1839-01 and well flanked by decent option expiry interest (down to 1.1775 and up to 1.1900 – full details on the headline feed at 6.56BT), with Cable pivoting 1.3000 and Eur/Gbp hovering nearer the upper end of 0.9105-0.9075 parameters.

NOK/SEK - Little independent impetus or direction via Scandinavian inflation data (headline as forecast and core firmer in Norway vs mostly softer than expected Swedish CPI and CPIF), but wavering risk sentiment following the midweek session recovery and a downturn in crude prices have pushed the Crowns back down within 10.6720-10.6210 and 10.3516-10.3206 respective parameters.

CHF/JPY/CAD/NZD/AUD - The Franc is outperforming above 0.9100 vs the Greenback and just shy of 1.0750 against the Euro for no apparent or obvious reason other than consolidation off recent lows, while the Yen is retracing towards 106.00 where heavy expiries reside (2 bn) ahead of almost as much from 105.85 to 105.80 (1.9 bn), and with latest BoJ source reports about a looming economic assessment upgrade largely shrugged aside. Elsewhere, the Loonie retains some post-BoC momentum in advance of Governor Macklem’s speech, with Usd/Cad straddling 1.3150 and the Antipodean Dollars are essentially idling vs their US counterpart as Nzd/Usd and Aud/Usd rotate around 0.6680 and 0.7275. Next up for the Kiwi, NZ manufacturing PMI and food price index reads for August, while the Aussie will continue to monitor Chinese diplomatic developments and daily PBoC fixes for the Cny. Talking Yuan, market observers report that Usd 3 bn options for Cnh to hit 8 in one year went through during Asian trade and for reference the pair is now circa 6.8400, so devaluation and/or a major Buck rally envisaged by the aggressor.

EM - The Rand is lagging in wake of a much wider than anticipated SA Q2 current account deficit, but for once the Lira is showing a degree of resilience in the face of Greek calls for tough EU sanctions against Turkey and data revealing a rise in unemployment. Indeed, Usd/Try has defended attempts on 7.5000, thus far at least.

FIXED INCOME

Only the Eurozone periphery remains afloat in bond land, as the core retreats from best levels in advance of Thursday’s headline events and stocks find a base following earlier pull backs from yesterday’s recovery highs. However, for Gilts and US Treasuries forthcoming supply could be an issue given not so comfortably 10 year auctions on Wednesday and notably less avid investor demand for long end UK debt, with the added uncertainty caused by IMB attempts to change parts of the WA. The 10 year benchmarks are teetering just above 173.39, 173.75 and 139-08+ lows vs 173.91, 136.21 and 139-14 at one stage, as the countdown to the ECB continues, the EU and UK prepare to convene, US data arrives and long bonds go under the hammer.

COMMODITIES

WTI and Brent front month futures have been drifting lower in early European trade after relatively sideways overnight price action, with the benchmarks straddling figures just below USD 38/bbl and USD 40.50/bbl respectively. A few updates for the complex – the EIA STEO revised its US oil supply forecasts lower by 210k BPD for 2020. However, after September, “EIA expects U.S. crude oil production to decline slightly, averaging just under 11.0mln BPD during the first half of 2021 because EIA expects that new drilling activity will not generate enough production to offset declines from existing wells.” Meanwhile, the delayed Private Energy Inventory report adds further to the bearish narrative after printing a surprise build of 3mln bls vs. Exp. -1.3mln bbls during the last week – traders will be eyeing confirmation via today’s EIA DoE’s released at 1600BST/1100ET. Elsewhere, participants are keeping an eye on the storage situation given the touted demand decline amid a resurgence in COVID-19 cases, with sources via EnergyIntel noting that traders and international oil companies are actively booking VLCC supertankers for the next 6-12 months – suggesting participants are looking for storage of oil as opposed to sales – reflected in the curve contango. Also note, ahead of the JMMC meeting on the 17th, sources stated that the recent price decline was causing concern in Riyadh, but not yet panic - adding that there was not a need for a "bigger cut" at this point. Elsewhere, spot gold and silver remain relatively contained within tight ranges just sub-USD 1950/oz and around USD 27/oz respectively ahead of the ECB policy decision later today. In terms of base metals LME copper prices have been declining alongside stocks, with participants keeping an eye on the easing COVID-19 measures in Chile.

US Private Energy Inventories (w/e Sept 4th) crude +3mln (exp. -1.3mln, prev. -6.4mln). (Newswires)

Traders and international oil Co's are actively booking VLCC for the next 6-12 months, according to sources cited by EnergyIntel. (Twitter)