• Trade war concerns continue to abate as European and Asian equites extend on the previous sessions gains
• UK CPI beats expectations and upbeat Brexit commentary helps Cable improve on 8 week highs
• Looking ahead, highlights include, US Building Permits, Housing Starts, DoEs, BCB rate decision, NZ GDP and ECB’s Draghi

ASIA

Asian equity markets traded positive following the gains in the US as global markets took the well-telegraphed and lower than feared tit-for-tat tariffs between US and China in their stride. ASX 200 (+0.5%) was positive with outperformance in miners and energy names following gains in copper and crude oil, while Nikkei 225 (+1.1%) outperformed on a weaker JPY and better than expected trade data. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp. (+1.1%) were initially indecisive due to the uncertainty from the escalation of trade tensions and after the PBoC slowed down on its liquidity efforts, but then shrugged off the concerns alongside the widespread gains in the region and with risk sentiment also underpinned by comments from Premier Li who noted several measures to support companies and dismissed resorting to a devaluation of the currency. Finally, 10yr JGBs traded lower amid the outperformance of Japanese stocks but with losses contained as participants were somewhat tentative heading into the BoJ which proved to be a non-event.

PBoC injected CNY 40bln via 7-day reverse repos and CNY 20bln via 14-day reverse repos for a net neutral position. (Newswires)
PBoC set CNY mid-point at 6.8569 (Prev. 6.8554)

Chinese Premier Li said China will accelerate steps to opening up the economy and that unilateralism will not resolve issues. Furthermore, Li said China will not resort to forceful stimulus and will not engage in competitive weakening of the currency, nor will it devalue the currency to boost exports. Li also commented they will fine tune policy pre-emptively and will cut taxes and fees as well as ease funding difficulties for companies, while he noted that China's economy maintains steady growth and fundamentals are healthy but difficulties for maintaining growth are increasing. (Newswires)

BoJ kept all monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%. The BoJ also maintained its forward guidance in which it will keep current extremely low rates for an extended period of time and maintained pledge to buy JGBs in a flexible manner so holdings rise at an annual pace of about JPY 80tln. Furthermore, the decision on YCC was made by 7-2 vote with Kataoka and Harada the dissenters as Kataoka dissented on view inflation will speed up to the 2% target and board member Harada said guidance which could clarify price target was needed. (Newswires)

Japanese Trade Balance (JPY)(Aug) -444.6B vs. Exp. -468.7B (Prev. -231.2B, Rev. -231.9B). (Newswires)
Japanese Exports (Aug) Y/Y 6.6% vs. Exp. 5.6% (Prev. 3.9%)
Japanese Imports (Aug) Y/Y 15.4% vs. Exp. 14.9% (Prev. 14.6%)

EU/UK/US

UK CPI YY Aug 2.7% vs. Exp. 2.4% (Prev. 2.5%)

UK CPI MM Aug 0.7% vs. Exp. 0.5%

UK PM May said exit deal is virtually agreed and ruled out a 2nd referendum according to UK press reports, while UK PM May stated that UK and EU are close to an orderly Brexit withdrawal agreement according to a German news article. (Express/Die Welt)

UK PM May urged EU to evolve its Brexit stance and said they can avoid a disorderly Brexit with goodwill and determination. PM May also stated neither side can demand the unacceptable such as customs border between parts of the UK, while she added that Britain is not seeking EU membership rights without the obligations and believes she is proposing a fair agreement, according to a senior Downing Street source. (Newswires)

UK PM May is reportedly to bypass EU Chief Brexit negotiator Barnier in a drive to win over EU leaders, while it is speculated that she will use the Salzburg meeting to seek a compromise solution for the Irish border. (FT)

DUP's deputy leader says Barnier's backstop comment still means a border down the Irish sea, just with different kinds of checks. (Newswires)

Italian Deputy PM Di Maio has stated that Italy are to lift their deficit/GDP ratio level to 2.5%. (Newswires)

US Senate passed stop-gap funding bill to keep the government open through early December and avert a shutdown. (Newswires)

GEOPOLITICAL

South Korean President Moon and North Korean Leader Kim signed join agreement following the conclusion of official summit discussions. North Korean Leader Kim stated they will make the Korean peninsula into a place without nuclear weapons and agreed to visit Seoul. There were also comments from South Korean President Moon that both sides have agreed to eliminate threat of war in the peninsula and agreed measures for denuclearization, while he added North Korea could dismantle Yongbyun nuclear facility and can permit international inspections of dismantlement. (Newswires)

US President Trump tweeted that North Korean Leader Kim agreed to allow nuclear inspections, subject to final negotiations, and permanently dismantle a test site in the presence of international experts, while he added North and South Korea will file joint bid to host 2032 Olympics. (Newswires)

CENTRAL BANKS

BoE's Vlieghe said UK pay growth is increasing quite slowly and several indicators suggest low unemployment is making it difficult for employers to find or retain staff. (Newcastle Chronicle)

EQUITIES

European bourses (Eurostoxx 50 +0.2%) broadly trade with modest gains thus far in the wake of what was a relatively up-beat Asia-Pac session as trade fears (temporarily) dissipated. The FTSE 100 (-0.2%) lags its peers amid the firmer GBP (post-CPI). Losses for the index have been contained by upside in mining names with materials the outperforming sector; in-fitting with price action in the complex overnight.

In terms of individual movers and shakers, Danske Bank sit at the foot of the Stoxx 600 after recent money-laundering troubles forced the co. to cut guidance and remove their CEO. Kingfisher (-5.0%) shares were dealt a blow after announcing a 15% decline in profits with markets also unimpressed by the latest update from Adecco (-4.8%) after the co. forecast a slowdown in revenue growth. To the upside, Babcock (+4.8%) leads the charge for the Stoxx 600 after sticking to their guidance, whilst Commerzbank (+2.8%) are also seen higher after a broker upgrade at RBC.

FX

GBP - Among the G10 outperformers, but off best levels on a combination of technical selling around resistance, profit taking and the realisation that 2.7% y/y UK CPI vs the 2.4% consensus will not materially change the BoE policy outlook in the near term at least. Indeed, that rests largely on Brexit developments and the kind of deal that appears to remain on course to be agreed by November. Cable spiked above 1.3200 at one stage, but ran in to heavy offers above the big figure and up to 1.3215, while Eur/Gbp retreated from 0.8900 again before testing but not clearing its 100 DMA around 0.8863 or stops below convincingly.

AUD/NZD -The antipodean Dollars continue to benefit from US-China trade relief in light of reduced tariffs on both sides and the prospect that the next set of proposed import charges may yet be avoided altogether if Washington and Beijing talk to each other before September 24. Aud/Usd is trying to extend relief gains beyond 0.7250 having overcome chart resistance around 0.7229, while the Kiwi is hovering above 0.6600 ahead of NZ GDP data that will be the next domestic focus, if not driver.

EUR/CAD - Also bid vs a broadly soft Greenback, but the single currency is still struggling to make a clean break above 1.1700 amidst reported decent offers between 1.1720-50, while the Loonie is around 1.2950 in the run up to more NAFTA talks and testing the first band of offers seen up to 1.2940.

JPY/CHF - The ‘safe-havens’ are still lagging the major field with Usd/Jpy pivoting a 112.38 Fib, but the pair holding or capped just in advance of 112.50 barrier interest, while the Franc has reversed relatively sharply from near 0.9600 peaks yesterday back below 0.9650 and under Eur/Chf pre-SNB quarterly policy review tomorrow.

EM - The revival across the region has resumed, and with the Try and Zar prominent ahead of potentially key/pivotal events on Thursday in the form of the SARB policy meeting and Turkish medium term economic plan. The Rand is back above 15.0000 vs the Usd, and firmly in spite of softer than forecast SA inflation data that should confirm no change in official rates, while the Lira has recovered from recent wobbles to trade over 6.3000 again vs the Dollar

FIXED INCOME

Only a very marginal fresh Eurex intraday high, and perhaps scant recognition of what can only be deemed a very well received 2028 Bund offering by all the usual measures used to gauge the success of a tap or new issue, bar perhaps the elevated yield, although that was part of a general ratchet up that improved its attraction. 10 year futures just traded at 158.75, +2 ticks vs -32 ticks at worst, Gilts rebounding from post-UK CPI lows to 120.86 (but notably Short Sterling still as much as 4 ticks adrift) and US Treasuries also paring losses.

COMMODITIES

WTI and Brent crude futures trade relatively unchanged and in close proximity to recent Saudi-inspired highs with last night’s unexpected build in the API survey providing a minimal drag on prices. Focus throughout the week will likely begin to turn towards this weekend’s meeting in Algiers which will see OPEC and OPEC+ producers take stock of their latest strategy adjustment in June with Iranian production likely a hot-topic for the event.

In metals markets, spot gold is modestly firmer alongside a slightly softer USD with the yellow metal maintaining a USD 1200/oz handle. Elsewhere, copper in Shanghai hit a one-month high overnight amid support from the broader risk-appetite, with sentiment also propelling zinc to trade with gains of circa 3%. Finally, plans for Chinese infrastructure spending helped underpin steel rebar prices with the metal posting its best daily performance in a week.

US API Weekly Crude Stocks (14 Sep) +1.249M vs. Exp. -2.700M (Prev. -8.636M). (Newswires)