• EU bourses have extended opening losses (Eurostoxx 50 -1.1%) heading into month end as Trump’s trade feuds with the China, EU and Canada sways sentiment
• Major FX pairs are relatively contained. EUR unfazed by soft EZ CPI, GBP awaits Brexit updates and EM once again in focus
• Looking ahead, highlights include Chicago PMI, ECB’s Nowotny and de Guindos

ASIA

Asian equity markets traded mostly lower with sentiment weighed as trade war fears were reignited by reports US President Trump is said to back tariffs on an additional USD 200bln of Chinese goods as early as next week. This subsequently saw all US majors close in the red and both the S&P 500 and Nasdaq Comp. snap their streak of record highs, although losses in most the Asia-Pac region have been stemmed as participants also digested a trifecta of encouraging China PMI data. Nonetheless, ASX 200 (-0.5%) was lower as weakness in miners and profit taking in telecoms led the downside in Australia, while the Nikkei 225 (-0.1%) was initially pressured by a firmer currency but then showed resilience and gradually rebounded throughout the session. Shanghai Comp. (-0.5%) was also weighed by the fresh tariff fears although data helped plug losses including Chinese Official Manufacturing and Non-Manufacturing PMI which topped estimates and with Composite PMI higher than previous, while Hang Seng (-1.0%) was the worst performer as its largest weighted stock Tencent slumped over 5% at the open on government plans to control the amount of new online game releases. Finally, 10yr JGBs were marginally higher with demand supported by early safe-haven flows and with the BoJ also present in the market for nearly JPY 1tln of JGBs ranging from 1yr-10yr maturities.

Chinese Manufacturing PMI (Jul) 51.3 vs. Exp. 51.0 (Prev. 51.2). (Newswires)

Chinese Non-Manufacturing PMI (Jul) 54.2 vs. Exp. 53.7 (Prev. 54.0)

Chinese Composite PMI (Aug) 53.8 (Prev. 53.6)

PBoC skipped open market operations for a net weekly drain of CNY 170bln vs. last week's CNY 40bln net injection. (Newswires)

PBoC set CNY mid-point at 6.8246 (Prev. 6.8113)

Tokyo CPI (Aug) Y/Y 1.2% vs. Exp. 1.0% (Prev. 0.9%). (Newswires)

Tokyo CPI Ex. Fresh Food (Aug) Y/Y 0.9% vs. Exp. 0.8% (Prev. 0.8%)

Tokyo CPI Ex. Fresh Food & Energy (Aug) Y/Y 0.6% vs. Exp. 0.5% (Prev. 0.5%)

BoK kept the 7-day repo rate unchanged at 1.50% as expected, with the decision not unanimous as board member Lee dissented. BoK stated the economy is to maintain growth momentum and rebound in consumption will continue but also commented that pace of investment will slow. (Newswires)

RBA said high debt levels could make future policy decisions difficult and could also make the economy less resilient to shocks. (Newswires)

EU/UK/US

US President Trump has rejected the EU’s proposal to remove car tariffs, stating that the offer is not good enough, while he added the EU is almost as bad as China, just smaller. (Newswires)

US President Trump said he has no regrets appointing Powell as Fed chair and stated he is not being accommodated by the Fed in trade disputes but he is not sure the currency should be controlled by a politician. In addition, Trump stated that AG Sessions job is safe until at least the November elections and declared there will be no pay rises for public sector workers in 2019, while Trump also threatened to withdraw from WTO if it does not "shape up". (Newswires)

US President Trump has once again threatened to withdraw from the WTO unless the organisation treats the US better. (Newswires)

US President Trump stated that a trade agreement with Canada may come by Friday or within a period of time but it will occur, while Canada’s Foreign Minister Freeland was said to be optimistic about NAFTA talks and commented that the both sides are showing constructive attitudes and have a lot of work to do in a short time. However, reports later noted that US & Canada have not made progress yet on Chapter 9 issue in trade discussions and that Canadian Foreign Minister Freeland left talks with USTR after only minutes which will reconvene on Friday morning. (Newswires)

UK and EU negotiators are still a “long way off” in regards to a breakthrough in talks; according to Business Insider citing a senior EU source. (Business Insider)

ECB’s Rehn says markets are reading the ECB rate guidance correctly. (Newswires)

EU HICP Flash YY Jul 2.0% vs. Exp. 2.1% (Prev. 2.1%)

EU HICP-X F,E,A&T Flash YY (Aug) 1.0% vs. Exp. 1.1% (Prev. 1.1%)

EU HICP ex F&E Flash YY Jul 1.2% vs. Exp. 1.3% (Prev. 1.3%)

EQUITIES

European equities are largely on the backfoot (Eurostoxx 50 -1.1%) after extending opening losses. In terms of sectors, IT, materials and consumer discretionary names underperform. Material names are lower on base metal price action while consumer discretionary names are weighed on by autos following comments from EU’s Juncker stating the EU will increase auto tariffs if the US does, hence denting sentiment in the sector. In terms of individual movers, Whitbread (+15.1%) opened higher by over 18% on reports the company proposed the sale of Costa to Coca Cola for GBP 3.9bln, while Whitbread’s CEO added the deal offers a significant premium to anything that could be achieved from spinning off Costa alone.

FIXED INCOME

After a bit of stock-taking and upside extension when Gilts re-joined the fray, the 10 year EU benchmarks have retreated relatively sharply, with Bunds retesting 162.83 intraday lows (-15 ticks vs +15 ticks at best) and their UK equivalent down to a fresh Liffe base at 122.02 (-6 ticks vs +20 ticks at one stage). A firm rebound in BTPs has undermined core debt alongside cash bourses paring some losses, while for Eurex contracts there is also ongoing roll activity from Sep18 to Dec18 futures to contend with on top of pre-week/month end positioning. Back to Liffe, market contacts and a Ran client notes what looks like short position building in Dec18 Short Sterling puts with 10k lots of the 99.125 strike sold at 4 ticks following a sale at the same price 11k times on Thursday. Turning to US Treasuries, a firmer tone persists amidst marginal curve flattening, but price action could pick-up on SOMA and with a long holiday weekend ahead.

FX

CHF/CAD - The G10 outliers as the Franc continues to rally on a combination of safe-haven demand, short covering and currency portfolio rebalancing for the end of August, with Usd/Chf extending down through 0.9700 towards 0.9650 and not too far from key chart support at 0.9628 (50% Fib). Meanwhile, Eur/Chf is probing below 1.1300 and a US bank predicts 1.1200 before 2018 bows out, but the SNB may have other ideas and intervention has already been mentioned in some circles. Conversely, yesterday’s Canadian GDP data misses are still weighing on the Loonie that is pivoting around 1.3000 vs its US counterpart ahead of PPI and raw material prices later, but more importantly waiting to see if a NAFTA deal can be tied up today.

JPY - Also benefiting from month end-related demand and risk aversion amidst heightened US-EU/China import tariff tensions, with Usd/Jpy reversing further from near 112.00 highs to circa 110.70 and Jpy crosses strong bar Chf/Jpy for the aforementioned reasons.

EUR/GBP - Both slightly firmer vs the Greenback and on a par with each other as the single currency meanders between 1.1690-60 and Cable circles 1.3000 ahead of more Brexit talks and less positive EU vibes about the 2 sides still being a long way from resolving the NI backstop. The cross has been volatile, albeit rangy around the 21 DMA at 0.8972, with stops and/or RHS orders for month end from 0.8975-80 pushing the pair up towards 0.8990 at one stage. Back to Eur/Usd, option expiries abound from 1.1675 (1.1 bn), through 1.1700-05 (1.7 bn) to 1.1720-25 (1.85 bn).

AUD/NZD - No real sign of any lasting comfort from better than expected Chinese PMIs overnight, as the Aussie and Kiwi remain on track to end a torrid week with extended losses vs their US counterpart due to increased US-China and global trade threats. Aud/Usd has tumbled through 0.7250 and Nzd/Usd is struggling to hold 0.6650 as the cross rotates around 1.0900, but hefty option expiry interest may exert influence in Aud/Usd into the NY cut (almost 1.2 bn at 0.7250).

EM - Interestingly, Turkey got a bit more purchase from latest measures to halt Lira losses via prolonging tax exemptions on wealth repatriation by 6 months, increasing withholding tax on up to 1 year foreign currency deposits and setting taxes on Try deposits of up to 1 year at 0% than Argentina with its eye-catching (watering) 1500 bp rate hike on Thursday. Indeed, Usd/Try reversed sharply from just over 6.7900 to sub-6.3800 before settling around 6.5000 amidst more verbal intervention.

COMMODITIES

WTI and Brent futures are softer on the day while the former is still holding onto the USD 70/bbl handle heading into the end of the month. Next month will be interesting as the OPEC and non-OPEC technical committee meet on 11th to potentially discuss a production strategy, while the JMMC are to meet in Algeria on the 23rd. Elsewhere, gold is benefitting from the softer dollar while copper lags on reports the US may impose tariffs on USD 200bln worth of Chinese goods as soon as next week. Separately, the Shanghai Futures Exchange are to launch copper options on September 21st.