• Asian equity markets began the week with a subdued tone after Trump reportedly told advisers to proceed with tariffs on a further USD 200bln of Chinese goods
• China reportedly may not participate in planned trade discussions with the US if the Trump administration goes ahead with additional tariffs
• The EU is secretly preparing to accept a frictionless Irish border after Brexit in a move that raises the prospect of PM May striking a deal by the end of the year
• Looking ahead, highlights include EZ CPI, US NY Fed manufacturing, ECB’s Coeure

TRADE

US President Trump was said to want to go ahead with USD 200bln in China tariffs despite talks and told advisers to proceed with the tariffs according to reports on Friday which cited people familiar with the matter. Furthermore, separate reports over the weekend stated that the tariffs will go into effect within weeks and that an announcement could be made within days, while the tariffs are said to likely be set at about 10% but could be raised to 25% if China does not appear willing to comply to US trade demands at proposed meetings in Washington on September 27th-28th. (Newswires)

China reportedly may not participate in planned trade discussions with the US if the Trump administration goes ahead with additional tariffs. (WSJ)

The White House said US President Trump has been clear that himself and the administration will continue to take action to address China's unfair trade practices. (Newswires)

G-20 ministers issued statement which noted that they discussed ways to improve the WTO and that said there is urgent need to improve the WTO, while it also noted that they stepped up dialogue on international trade. G20 ministers also stated the EU-Mercosur free trade deal involving Argentina, Brazil, Paraguay, Uruguay and Venezuela is 'in the final stages' of negotiation. (Newswires)

ASIA

Asian equity markets began the week with a subdued tone amid the absence of Japanese participants due to public holiday and with sentiment dampened by trade concerns after US President Trump reportedly told advisers to proceed with tariffs on a further USD 200bln of Chinese goods which could be announced as early as today. Furthermore, reports noted the tariffs could be set at about 10% and raised to 25% if China shows an unwillingness to adhere to US demands at proposed meetings later this month, while China was said to consider abandoning discussions if the US proceeds with the tariffs. This pressured both ASX 200 (+0.4%) and KOSPI (-0.8%) from the open with healthcare the underperformer in Australia as the sector faces scrutiny from a royal commission inquiry, although the index later recovered amid strength in utilities, tech and financials. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-1.1%) were negative and took the brunt of the Trump tariff threats, while gambling stocks saw heavy losses after Macau shut down its casinos and floods hit the territory due to Typhoon Mangkhut.

PBoC skipped reverse repos and instead injected CNY 265bln via 1yr Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.8509 (Prev. 6.8362)

Chinese House Prices (Aug) Y/Y 7.0% (Prev. 5.8%). (Newswires)

UK

The EU is secretly preparing to accept a frictionless Irish border after Brexit in a move that raises the prospect of PM May striking a deal by the end of the year, according to Confidential diplomatic notes seen by The Times. In a concession to British concerns, EU negotiators intend to use technological solutions to minimise customs checks between Northern Ireland and the Irish Republic (Times) Further to this, the FT reported that the EU are in discussions with Brussels over allowing British officials (as opposed to EU ones), to check goods bound for Northern Ireland, in a bid to unlock stalled talks on the “backstop” plan for the Irish border. (FT)

Former UK Foreign Minister Johnson has continued to criticise UK PM May’s Chequers proposal by stating that May was leading the nation towards a ‘spectacular political car crash’. (Newswires)

Spain are reportedly to seek concessions concerning Gibraltar in Brexit accord, according to sources. (Newswires)

London Mayor Kahn has called for a second EU referendum, criticising the government's handling of Brexit negotiations with the EU. (BBC)

UK Environment Secretary Gove has stated that MPs could undo the Chequers deal once the UK has left the EU, adding that the PM’s proposal was the “right one for now”. (Guardian)

BoE’s Carney at last Thursday’s UK cabinet briefing, reportedly told the cabinet that the domestic economy could receive a GBP 16bln lift if PM May was able to negotiate a deal with the EU based on her Chequers proposal. (FT)

British Chambers of Commerce lowered UK 2018 GDP growth forecast to 1.1% from 1.3%. (Newswires)

UK Visa consumer spending in August rose 0.4% Y/Y in August vs. Prev. decline of 0.9% Y/Y in July. (Newswires)

UK Rightmove House Prices (Sep) M/M 0.7% (Prev. -2.3%). (Newswires)
UK Rightmove House Prices (Sep) Y/Y 1.2% (Prev. 1.1%)
 

EU

A few ECB policymakers wanted last week's policy message to state that risks were tilted to the downside, according to sources. (Newswires)

ECB's Makuch said he could consider leaving position early to ensure a smooth transition prior to the next election. Furthermore, Makuch stated we’re not underestimating the risks and based on what we know now, the development is stable and risks are balanced with some downside risks to GDP growth, while he added we don’t see any reason to spread a gloomy mood or panic. (Newswires)

Spain is to propose a tax on large tech platforms and approve financial tax, while Spain is to also propose a tax increase for the highest earners and will increase pensions in line with inflation, according to PM Sanchez. (Newswires)

S&P affirmed Portugal at BBB-; Outlook revised to Positive from Stable, affirmed Austria at AA+; Outlook Stable and affirmed Finland at AA+; Outlook Stable. S&P also affirmed Denmark at AAA; Outlook Stable and affirmed Luxembourg at AAA; Outlook Stable. Moody’s affirmed EU at AAA; Outlook Stable. (Newswire)

FX

FX markets were flat across the board amid a lack of data points and fresh news catalysts from over the weekend. This kept the DXY virtually unchanged just below the 95.00 level, while EUR/USD and GBP/USD languished near Friday’s lows and failed to make any meaningful recovery against the greenback in the aftermath of the better than expected US Industrial Production data and safe-haven flows. Elsewhere, USD/JPY was choppy around 112.00 amid the absence of Japanese participants, and CNY was pressured from the tariff fears which in turn restricted price action in the China-exposed AUD.
 

COMMODITIES

Commodities lacked firm direction overnight in which WTI crude futures kept to within a tight range below short-term resistance at USD 69.00/bbl. Elsewhere, attempts to nurse some of Friday’s losses in gold were hampered as the greenback held on to recent gains, while copper underperformed with losses of nearly 1% as tariff concerns weighed on risk appetite.

US Baker Hughes Total Rig Count (07 Sep) 1055 (Prev. 1048). (Newswires)
US Baker Hughes Oil Rig Count (07 Sep) 867 (Prev. 860)
US Baker Hughes Gas Rig Count (07 Sep) 186 (Prev. 186)

US Energy Secretary Perry said a number of things in Saudi Arabia give him confidence that they will maintain and maybe increase output, while he added that Saudi Arabia is working on a solution with Kuwait over border issue. (Newswires)

Saudi Arabia Energy Minister Al-Falih and Russian counterpart Novak met over the weekend in which they pledged to continue working on cooperation. (Newswires)

The U.S. Treasury has reduced the impact of sanctions on Rusal by allowing customers to negotiate some new contracts, just as the global aluminum industry was bracing for further turmoil ahead of an Oct. 23 deadline. (Newswires)
 

GEOPOLITICAL

US Secretary of State Pompeo said Iran forces fired rockets towards the US embassy in Baghdad this week, while Pompeo also commented that Russia has actively worked to undermine UN sanctions on North Korea. (Newswires)
 

US

The treasury complex edged lower with the 10yr yield hitting the 3% level briefly due to the strong Uni of Mich Sentiment data, which posted above 100, the moves are also attributable to the upward revisions to retail sales. The data was all consistent with markets expectations for two more Fed rate hikes this year. Nonetheless, the yield failed to go above 3% and traded below for the rest of the trading session after the level was hit, acting as key resistance. Yields were by c.3bps at settlement whilst spreads were narrower with the exception of 2s5s which widened by less than 1bps. US T-note futures (Z8) settled ticks 8 lower at 119-05+.

Fed named Mary Daly as new San Francisco President, currently Head of Research at San Francisco Fed and effective on October 1st. (Newswires)