• The US confirmed tariffs on USD 200bln of Chinese imports effective September 24th which will begin at 10% and increase to 25% at year end. Trump vowed further tariffs if China retaliates to these measures
• China Vice Premier Liu He was said to convene a tariff response meeting, while there were separate reports suggested that China will likely not send a delegation to Washington for trade discussions
• Looking ahead, highlights include Hungarian rate decision, APIs, ECB’s Draghi and Villeroy, supply from Germany

TRADE

White House confirmed to impose tariffs on approximately USD 200bln of China goods effective September 24th which will begin at 10% and increase to 25% at year end, while US President Trump warned that if China retaliates he will immediately pursue tariffs on another USD 267bln of Chinese goods although the administration said it remains open to negotiations with China. Furthermore, reports noted that USTR Lighthizer removed about 300 product categories and reduced some subsets, but the total value is still approximately USD 200bln. (Newswires)

China Vice Premier Liu He was said to convene a tariff response meeting, while there were separate reports which cited an unnamed Beijing source that China will likely not send a delegation to Washington for trade discussions following the US announcement of fresh tariffs. (South China Morning Post)

China Commerce Minister said China has confidence and ability to reach this year's targets and will increase opening up to a higher level, while the minister added there is no winner in a trade war and that cooperation between US and China is the only correct option on trade. (Newswires)

China CSRC official said Trump's tactics to pressure China will not work and that China has ample fiscal and monetary policy tools to cope with trade frictions with US. The official added that trade actions by US could negatively impact itself but added that China still looks forward to good trade relations with US in the long term and hopes both sides could sit to negotiate on trade. Furthermore, the official stated the US move on trade has poisoned atmosphere for negotiations, although both sides can sit down to talk about reducing trade deficit and that China will push ahead with financial market opening. (Newswires)
 

ASIA

Asian equity markets were mixed with focus centred on the escalation of trade tensions after the US confirmed tariffs on USD 200bln of Chinese imports effective September 24th which will begin at 10% and increase to 25% at year end, while US President Trump also warned that if China retaliates he will immediately pursue tariffs on another USD 267bln of Chinese goods. This pressured ASX 200 (-0.5%) with the index dragged by commodity-related sectors as well as tech stocks following similar underperformance in their US counterparts, while Nikkei 225 (+1.5%) showed resilience on return from its extended weekend amid reports that Japan is to offer measures to lower the trade surplus with US in an effort to avert auto tariffs. Elsewhere, Hang Seng (-0.8%) declined and Shanghai Comp. (-0.1%) traded choppy as participants digested the tariff announcement and a substantial CNY 200bln liquidity effort by the PBoC, with participants also cautious as they await China’s response as Vice Premier Liu He was said to convene a tariff response meeting. Finally, 10yr JGBs were subdued amid gains in Japanese stocks and after the BoJ Rinban announcement for JPY 690bln of JGBs in the belly to super-long end also failed to spur demand. 

PBoC injected CNY 150bln via 7-day reverse repos and CNY 50bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.8554 (Prev. 6.8509)

UK/EU

Senior EU diplomats are said to predict the UK government will have to go through its darkest hour and stare into the abyss of a no-deal Brexit before it will give in to EU demands. (The Guardian)

EU officials are reportedly insisting on guarantees that the UK cannot renegotiate any agreement on Brexit and is preparing to demand assurances any agreement cannot be unpicked by a future successor. (Times)

Some EU members could put pressure on Ireland to drop its resistance to EU corporate tax reform in return for support on Brexit. (Newswires)

UK PM May has suggested that EU migrants will not get preferential treatment, post-Brexit. (Telegraph)

UK PM May said that there would be disruption in the event of a no-deal Brexit but the UK must make a success of a no deal outcome. (Newswires)

UK Brexit Secretary Raab expects the EU to make concessions, according to German press reports. (Newswires)

Spain is seeking firmer legal guarantees on Gibraltar as part of the Brexit settlement, a decision which could pose further hurdles for the UK as they aim to leave the bloc. (FT)

Italy Deputy PM Di Maio has reportedly once again threatened to seek the removal of Finance Minister Tria. (Newswires)

FX

FX markets were choppy as the early safe-haven flows into the greenback from the US tariff announcement gradually dissipated. The announcement initially spurred a flight into JPY and pressured CNH which in turn weighed on antipodeans due to their heavy China exposure and high beta characteristics, while CAD was also lacklustre following unwavering comments by Canadian PM Trudeau that Canada will stand up for its system of dairy protections in NAFTA talks and that it is the nation’s job to stay strong on NAFTA positions. However, most the price moves in FX later reversed driven by a mild improvement in risk tone which was attributed to the tariffs being telegraphed well in advance and with no immediate tariff retaliation from China.

RBA minutes from September 4th meeting reiterated that board agreed no strong case for near-term rate move and that next move is likely to be upwards if economy proceeds as anticipated. The minutes added that the RBA is to be source of stability and confidence amid gradual progress to targets, while it also stated the recent mild decline in the currency has supported the economy but noted significant global trade frictions are a material risk to the outlook. (Newswires)
 

COMMODITIES

Commodities were lacklustre with demand sapped by the US trade offensive in which it confirmed fresh tariffs on China effective from next week. This kept WTI near the prior day’s lows while there were also recent comments from Russian Energy Minister Novak regarding discussing an output increase with OPEC at the next meeting. Elsewhere, gold slipped back below USD 1200/oz on early safe-haven flows into the greenback, while copper was pressured on the tariff announcement but then recovered most of its losses as risk sentiment slightly improved.

Russia's Energy Minister Novak said he may discuss the possibility of increasing output by more than 1mln BPD at the upcoming OPEC meeting. (Newswires)
 

GEOPOLITICAL

North Korean Leader Kim greeted South Korean President Moon at Pyongyang airport for the summit this week. (Newswires)
 

US

There was much fanfare as 10-year yields once again crossed 3.00% to the upside as the Treasury complex was being sold pre-market (sympathy with bunds was also cited). However, as tech sold-off at the open, and a general fear of trade war escalation lingering in trader’s minds, there was buying action pushing yields back beneath the psychological 3.00% handle. The story remains the same in the short-end with 2-year yields printing fresh decade+ highs. At settlement, however, yields were relatively unchanged on the day, and the curve had very, very modestly steepened. US T-note futures (Z8) settled 1+ ticks lower at 119-04.

White House Economic Adviser Kudlow said the US is ready to negotiate with China anytime if they are ready for serious and substantive talks. Kudlow also said US Treasury Secretary Mnuchin is in touch and is negotiating with Chinese officials, while he forecasts more progress on trade with Canada, EU and Japan. (Newswires)

Source: RANsquawk