• NOK gets hit by a flatter Norges Bank rate path than expected, SNB a lacklustre event
• UK Retail Sales beats with previous all revised higher, Cable lifted above 1.3200
• Looking ahead, highlights include, SARB rate decision, US weekly jobs, Philly Fed, Existing Home Sales, ECB’s Weidmann and Praet, supply from the US

ASIA

Asia 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 (-0.3%) lagged after it fell short of the 6200 level and Nikkei 225 (+0.1%) extended on 8-month highs as participants awaited the LDP leadership vote where PM Abe and in turn Abenomics, are widely expected to be prolonged for another 3-year term. Elsewhere. Hang Seng (+0.3%) 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)

EU/UK/US

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 birder 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)

Austrian Chancellor Kurz states that discussions on Brexit were more upbeat in the room. (Newswires)

UK PM May is said to indicate no backstop deal in time for October; according to RTE. (Newswires)

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)

UK Retail Sales YY Aug 3.3% vs. Exp. 2.3% (Prev. 3.5%, Rev. 3.8%)

UK Retail Sales MM Aug 0.3% vs. Exp. -0.2% (Prev. 0.7%, Rev. 0.9%)

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)

CENTRAL BANKS

Norwegian Key Policy Rate* N/A 0.75% vs. Exp. 0.75% (Prev. 0.5%). The Norges Bank said the outlook and balance of risks suggested the next move in rates will be in Q1 2019. The rate path is now flattened in comparison to the June meeting, with the policy rate seen at 1.0% vs. prev. 1.1% in 2019, and 1.5% vs. prev. 1.6% in 2020. Norges Bank Governor said he does not rule out a rate hike in December, but a hike in Q1 2019 is almost certain. (Newswires)

Swiss 3M Target LIBOR Rate Q3 -1.25 - -0.25% vs. Exp. -0.75% (Prev. -0.75%). The SNB says that the CHF is highly valued, situation on FX market is still fragile. SNB's Jordan said the stronger CHF is the main reason for retaining expansive MonPol (Newswires)

EQUITIES

European equites have started the day in the green as trade war concerns continue to wane. The FTSE is the underperformer and weighed on by a bid GBP, that is being driven by some positivity coming from the Salzburg Brexit summit and better than expected UK retail sales.

The financial sector outperformance is being driven by recent price action in yields, with returns rising across Europe over the week, and lifting banking stocks.

FX

NOK - An almost classic case of buy the rumour and sell the fact, but with fundamental reason as the Norges Bank confounded hawkish expectations after a unanimously expected 25 bp hike by tweaking down its forward rate trajectory and signalling the next tightening move in Q1 next year rather than December. Governor Olsson subsequently said a hike before year end is not completely off the table, but Eur/Nok has only eased marginally off highs close to 9.6200 vs around 9.5000 ahead of the policy pronouncements. Note, the SEK followed a similar path, albeit within tighter 10.3860-3490 constraints following the Riksbank’s roll back on rate hike timing earlier this month.

NZD/GBP - In contrast to Scandi underperformance, or retracement, the Kiwi and Pound have both been boosted by better than expected data in the form of NZ GDP and UK retail sales (latter on top of CPI yesterday), with Nzd/Usd rallying above 0.6650 and Cable revisiting 1.3200+ levels, while Eur/Gbp has technically breached a key DMA around 0.8863.

EUR - Also firmer vs the Greenback, but the single currency is still finding gains over 1.1700 tough to sustain amidst ongoing Italian budget disputes, Brexit stalemate and yield divergence. Note also, big option expiries spread relatively evenly either side of the big figure may also be keeping the pair relatively rangebound - 1.1600 (1.2 bn), 1.1625-35 (1 bn), 1.1650-60 (536 mn) 1.1670-80 (1 bn), 1.1700 (1 bn) and 1.1730-40 (1 bn).

CHF/CAD/AUD/JPY - All rather muted and tight vs the Usd, with the Franc not really deriving any direction or inspiration from the SNB (policy review a carbon copy of the June quarterly assessment, and Chf still regarded as highly valued, not over or excessively strong) and meandering between 0.9655-80, while the Loonie is hovering just below 1.2900 awaiting more NAFTA news. Aud/Usd remains underpinned within 0.7255-75 parameters, but capped by latest warnings from the RBA about the potential economic cost of an all out trade war, and Usd/Jpy has drifted down marginally following a ‘close’ on Wednesday below 112.50 and a 112.38 Fib, while eyeing 1.1 bn expiries at 112.00-20 for the NY cut.

EM - Lively trade, and mainly more recovery gains with the Try front-running Turkey’s MTP, but conceding some ground once the details revealed weak growth forecasts along with broader adverse effects of sanctions and domestic frailties. Conversely, the Zar continues to fly high into the SARB and Rub unwinds more of its losses amidst CBR projections for further strength by year end

FIXED INCOME

It remains relatively rangebound for core bonds that are still taking a breather after recent bear steepening, and highlighted by Gilts hardly reacting to another UK data beat in the shape of August retail sales, and sticking within 120.64-80 Liffe parameters through a comfortable 10 year DMO auction. Similarly, Bunds are showing little inclination to break from 158.58-78 confines, and interestingly those boundaries essentially align with near term technical support and resistance on a chart from a market contact. Elsewhere, US Treasuries are firmly in outright and curve corrective mode ahead of a busier line up of data and 10 year TIPS supply.

COMMODITIES

The oil market is marginally higher and hanging around recent highs, with traders now looking ahead to comments from the upcoming OPEN/Non-OPEC meeting in Algeria.

Initial comments have been seen from Iran, where they stated a defiant tone vs. the JMMC’s proposed production quota changes, saying the JMMC “have no right to decide on members' production quota” and warned “that they will veto OPEC decisions that harm their interests”.

Libya's petroleum facilities guards close Wafa oil fields airport, according to the NOC

In metals markets, gold is essentially unmoved and hanging within a tight range around the 1200-1205/oz level.  Copper is following in line with most precious metals and is in the red for the day, but still near 3 week highs at USD 275/lb.

An official from China's Baosteel says China's iron ore demand has reached a peak