• Oil breaks USD 82.00 to the upside and hits 4 year highs as OPEC’s rhetoric continues to lift the market
• ECB’s Praet highlights there was nothing new in Draghi’s speech yesterday, EURUSD vigorously falls to as low as 1.1732
• Looking ahead, highlights include, US consumer confidence, APIs, BoE’s Vleighe, ECB’s Praet, Makuch, Coeure, supply from the US

ASIA

Asian stocks traded mixed with the region indecisive following a lacklustre lead from Wall St. where both S&P 500 and Dow slipped from all-time highs on trade related concerns. ASX 200 (flat) losses were initially led by weakness in the financial sector but the index recovered later in the session. The Nikkei 225 (+0.3%) was choppy in lock-step with an indecisive currency. The Shanghai Composite (-0.6%) underperformed on the return from the long weekend and took its first opportunity to react to China’s cancellation of trade discussions, while the PBoC conducted a net liquidity drain and China was also reportedly to create a national system to monitor government spending. Elsewhere, Hang Seng and KOSPI are closed due to public holidays. Finally, 10yr JGBs were marginally lower in which prices tested the 150.00 level to the downside coinciding with weakness in T-notes, while the BoJ’s Rinban announcement was for a relatively reserved JPY 475bln.

PBoC injected CNY 60bln via 14-day reverse repos for a net daily drain of CNY 90bln. (Newswires)
PBoC set CNY mid-point at 6.8440 (Prev. 6.8357)

China's Vice Commerce Minister said China is willing to promote US-China trade in a fairer fashion and is hoping US takes more positive steps as well, although he added trade talks with the US are hard to proceed as US has abandoned mutual understanding and the restart of trade talks depends completely on the US. (Newswires)

China's NDRC Vice Chairman said China is able to offset trade risks through expanding domestic demand and that China will give more support for Chinese firms to expand into international markets including EU, Japan and Africa, while he reiterated the domestic economy is resilient. (Newswires)

BoJ Minutes from July meeting noted that most members stated it was appropriate to continue persistent easing and a few said it was appropriate to adopt forward guidance to strengthen commitment to reach target. Most members agreed to the proposal that Governor Kuroda should make it clear at the briefing that yield would be allowed to move both directions at double the current range and some members said flexible control of long-term yields would contribute to maintaining and improvement of market function. (Newswires)

Japan's Chief Cabinet Secretary Suga confirmed US-Japan trade talks are to take place on Tuesday 25th September. (Newswires)

BoJ's Kuroda said the BoJ will not adjust monetary policy with inflation still half-way through the Bank's 2% inflation target and states that likelihood of interest rate differential widening between US and Japan would lead to increase in USD/JPY (all things equal. (Newswires)

EU/UK/US

UK PM May said it was always clear there would come a critical point in Brexit negotiations and now is the time to hold nerve, while there were separate reports the UK cabinet is said to give PM May's Brexit plan 2 weeks for progress. (Newswires/The Sun)

UK PM May is to meet US President Trump on Wednesday to discuss Brexit and a post-Brexit trade deal, according to a British official. (Newswires)

In the UK, EU migrants will not be given preferential treatment after Brexit and the number coming to the UK will fall significantly under Government plans. (Telegraph)

EU trade commissioner Malmstrom said EU talks with the US are still in an exploratory phase. (Newswires)

Swedish PM Lofven has been defeated in a confidence vote by Parliament; as expected. (Newswires)

An Italian Government Source said that the ruling coalition are willing to keep deficit/GDP below 2%. (Newswires)

GEOPOLITICS

Foreign Policy Head Mogherini said EU will set up a legal entity to facilitate legitimate financial transactions to allow continued trade with Iran. (Newswires)

US President Trump and South Korea's Moon discussed the continuation of sanctions against North Korea. (Newswires)

CENTRAL BANKS

Norges Bank's Olsen says that rate hikes can be expected to be gradual and is a response to the solid activity in the Norwegian economy. (Newswires)

BoE's Vlieghe said the QE unwind need not have a material effect on yield curve shape or economy if well communicated and gradual, and that more communication from the BoE can be expected as QE unwind approaches. He added that they are not at the point yet that the BoE would change its smooth Brexit assumptions, says his own central forecast of 1-2 rate hikes per year is broadly right assuming wage and productivity growth picks up. (Newswires)

ECB's Praet stated that there was nothing new in ECB Draghi's speech yesterday. It will take months before higher wages lift inflation and things are moving slowly but in the right direction. (Newswires)

EQUITIES

European equities have started the day higher with the FTSE MIB the marked outperformer as reports suggest the Italian Government are set to announce a deficit/GDP under 2%. Next are leading the gains in the FTSE and the Stoxx 600 after the UK retailer reported inspiring earnings and upwardly revised FY guidance for profits by GBP 10mln.

Evonik shares are languishing close to the foot of the Stoxx 600 after RAG-Stiftung reduced its holding in the co. to 64.3%.

The energy sector is extending on the gains seen yesterday and is the outperforming sector off the back of rising oil prices.

FX

DXY - The index is clinging to recovery gains just above the 94.000 level as the clock begins to tick down to Wednesday’s FOMC meeting, but largely due to dovish/bearish impulses from the BoJ and resultant JPY weakness vs the Greenback alongside other major counterparts on a cross basis. Indeed, Usd/Jpy looks poised to probe 113.00 as Governor Kuroda effectively endorsed further upside potential given ongoing easy policy in Japan vs more normalisation in the US. Technically, 113.24  forms the 200 WMA, and the 2018 high so far is 113.40, assuming the big figure is surpassed and that could be down to the Fed via September’s SEP and/or the tone of the accompanying statement given that another 25 bp hike seems baked in.

GBP/EUR - The Pound is in pole position among G10s, partly due to the aforementioned lack of yen for the Jpy and perhaps positive sounding Brexit deal vibes from German Chancellor Merkel amidst all the divergence at home. Cable is retesting offers/resistance around 1.3150 and bids/support circa 0.8950 vs the single currency as ECB’s Praet plays down hawkish inflation comments from President Draghi, or at least perceptions and the rather ‘vigorous’ market reaction. Eur/Usd has eased back towards 1.1750 vs 1.1800+ yesterday, and from a chart perspective has retreated through a key Fib again (1.1780).

NZD/SEK - The Kiwi and Krona are both holding up well around 0.6650-30 vs the Usd and 10.3430-3120 vs the Eur respectively, ahead of the RNBZ policy meeting overnight and after Sweden’s no confidence vote against the PM. NZ rates are widely, if not unanimously seen on hold yet again, but firmer than forecast GDP data may warrant attention via less chance of a cut from a rise in easing prospects last time. Meanwhile, the demise of Swedish PM Lofven was also largely anticipated, and he remains defiant in defeat or at least hopeful that he can cross political divides to form a new Government and return to power. Back down under, NZ trade data later may also provide some impetus.

CAD/AUD/CHF - All extending losses vs the Greenback, or perhaps shouldering the weight of the Dollar’s partial revival, with the Loonie slipping further from recent highs to circa 1.2960 and still mainly contingent on NAFTA instead of still bid/rising crude prices, the Aud capped below 0.7250 and hampered by the lack of US-China trade talks, and the Franc underperforming around 0.9650 and down through 1.1350 vs the Eur amidst latest Italian fiscal reports suggesting compliance with EU budget rules.

FIXED INCOME

Post-Praet recovery gains in Bunds relatively short-lived (back above 158.00, but not beyond the 158.21 Eurex peak vs 157.85 at worst), as Italian bonds rebound further and test 127.00+ levels in wake of pretty comfortable CTZ and BTPei offerings and after latest Government assurances that the 2019 budget shortfall will be capped below 2%. In fact, peripheral paper may also be gleaning more encouragement that core debt from attempts by Praet to manage expectations following the fright from Draghi inflation comments on Monday, while Gilts are sitting just off fresh Liffe lows of 120.37 (-33 ticks) amidst BoE Vlieghe’s remarks that could be construed as hawkish vs the MPC consensus given his preference for 1-2 hikes per year vs a single adjustment flagged as recently as August. On that note, Short Sterling futures have slipped a tad further to as much as 4 ticks below par, even though he qualified his views by adding wage price conditionality. Elsewhere, US Treasuries are rooted near overnight session lows ahead of more supply, and the FOMC tomorrow with uncertainty over the latest dot-plots and other SEP forecasts, plus the tone of the policy statement and Fed chair Powell’s press conference.

COMMODITIES

The oil market is adding to the gains seen yesterday, with the fossil fuel hitting over 4 year highs, and Brent breaking USD 82.00 to the upside in European trade as the production-shy rhetoric from OPEC remains fresh in traders minds.

In the metals scope, gold is uneventful and trading within an exceedingly thin range of USD 3/oz with the yellow metal consolidating around the USD 1200/oz, as traders look ahead to tomorrows anticipated hike from the FOMC. Copper is seeing further weakness, with the construction material down over a percent, as market participants express demand concerns amid continued US-Sino trade tensions.