• Asian equity markets eventually traded mixed despite the early tailwind from US where strength in blue chip financials fuelled the outperformance in the DJIA
• UK Chequers plan was said to cause divide among EU leaders with some countries calling for EU to engage with the UK and with others unwilling to make concessions
• Looking ahead, highlights include, SNB, Norges, SARB rate decisions, US weekly jobs, Philly Fed, Existing Home Sales, ECB’s Weidmann and Praet, supply from Spain, France, UK and US

ASIA

Asian equity markets eventually traded mixed despite the early tailwind from US where strength in blue chip financials fuelled the outperformance in the DJIA and with the S&P 500 just about kept afloat by gains in materials and energy. ASX 200 (-0.2%) lagged after it fell short of the 6200 level and Nikkei 225 (+0.4%) extended on 8-month highs as participants awaited the LDP leadership vote for PM Abe and in turn Abenomics; a vote which he won heading into the EU session. Elsewhere. Hang Seng (Unch.) and Shanghai Comp. (-0.1%) were choppy amid a lack of fresh drivers and after PBoC liquidity efforts still amounted to a net daily drain, while focus in Hong Kong was on Hong Kong’s 2nd largest tech IPO this year Meituan Dianping which rose around 7% on its debut. Finally, 10yr JGBs were marginally higher after prices found support ahead of the 150.00 level and which also coincided with a mild overnight recovery in T-notes, although price action was restricted amid a 20yr auction which showed weaker results across all metrics.

PBoC injected CNY 40bln via 7-day and CNY 30bln via 14-day reverse repos for a net daily drain of CNY 30bln. (Newswires)
PBoC set CNY mid-point at 6.8530 (Prev. 6.8569)

UK/EU

UK Chequers plan was said to cause divide among EU leaders with some countries calling for EU to engage with the UK and with others unwilling to make concessions, while leaders are to meet Thursday afternoon without PM May to discuss their response to the proposal. (Times) In related news, Lithuania’s President said there was a standstill and currently no progress after PM May spoke at the EU leaders' dinner, while the Slovakia PM also said no progress was made on Irish border issue after PM May spoke at Salzburg dinner. (Newswires)

UK PM May reiterated ahead of dinner with EU leaders that Chequers is the right proposal and only credible option, while she also repeated that the EU will need to evolve its position as the UK has done. PM May also ruled out a second referendum again and emphasised the UK will leave EU, while there were earlier reports that UK PM May is said to reject Barnier's Brexit proposal for the Irish border. (Newswires/Times)

UK Brexit Minister Raab said we need the EU side to move in our direction in Brexit talks and it will be a lose-lose for both sides if we don’t get that movement. Raab also ruled out a second referendum and said Chequers is the only credible plan, while he also believes a deal is close and that it is a little late in the day for an alternative Brexit proposal. (Newswires)

EU's Juncker said the EU and the UK are far away from a Brexit deal, while Irish PM Varadkar also stated UK and EU are no closer to a Brexit deal than they were in March and reiterated Ireland would suffer in a no-deal scenario. Furthermore, Austrian Chancellor Kurz said we will arrange a special EU summit on Brexit in November. (Newswires)

UK PM May ally Mike Penning labelled the Chequers plan 'dead as a dodo'. (Telegraph)

Telegraph reports showed a leaked Conservative Party dossier from April related to plan to replace PM May and which ranked her possible successors. (Telegraph)

Italian economy minister Tria is looking for a 2019 deficit cap of 1.8%, according to sources. (Newswires) This followed comments from Italian PM Conte that next year’s budget will not exceed 2% of output. (Newswires) Furthermore, reports also suggest that Italy are looking at a selective VAT hike. (Newswires)
 

FX

In FX markets, the greenback was lacklustre with the DXY stuck around the 94.50 level. This kept trade in EUR/USD uneventful and GBP/USD also struggled for direction amid a lack of progress and standstill following PM May’s Salzburg dinner address. Elsewhere, high-beta currencies held on to most their recent gains with AUD/USD flat and USD/CAD near a 1-month low, while NZD/USD outperformed after New Zealand GDP for Q2 topped estimates and grew at the fastest pace in 2 years.

New Zealand GDP (Q2) Q/Q 1.0% vs. Exp. 0.7% (Prev. 0.5%). (Newswires)
New Zealand GDP (Q2) Y/Y 2.8% vs. Exp. 2.5% (Prev. 2.7%, Rev. 2.6%)

COMMODITIES

Commodities traded higher in which WTI crude futures extended on the prior day’s strength despite the narrower than expected draw in DoE headline inventories as it still showed a decline in inventories as opposed to the surprise API build. Elsewhere, gold prices saw modest gains amid a lacklustre greenback and silver eyed weekly high, while copper also conformed to the mild upside in the complex.
 

GEOPOLITICAL

US is said to be ready to immediately resume negotiations with North Korea on nuclear disarmament, while Secretary of State Pompeo said he invited his North Korean Foreign Minister Ri to talks in New York next week amid UN general assembly. (Newswires)

US

Bear-steepening was the theme once again, with steepening, with major curve spreads widening by between 1-3bps. As 10-year yields continue to rise, strategists have begun to question high far they will need to rise before markets react with a tantrum. There wasn’t any signs of discomfort in Wednesday’s trade, with the 10yr yield climbing to a high around 3.09%. Earlier in the week, GS said it wouldn’t be considered a meaningful sell-off until 3.05% was cleared, which could then open the door to 3.109%, the high from May. The 5-year sector was also capturing attention, with yields closing in on decade-highs. US T-note futures (Z8) settled 7+ ticks lower at 118-18.

US President Trump is set to nominate Former Fed economist Nellie Liang for seat on Fed board. (WSJ)

US is said to drop 'buy American' demand from NAFTA negotiations, according to reports. (Newswires)

Canadian PM Trudeau reiterated Canada will defend its supply chains and commented that he needs to see a certain amount of movement on NAFTA. (Newswires)