• Asia-Pac stocks traded mostly lower despite the positive lead from Wall St as the effects of rising rates spooked investors
• In FX markets, the greenback hit a one-month high following upbeat comments from Fed Chair Powell on the economy
• Italy's government agreed on a 2.4% deficit/GDP target in 2019, 2.1% in 2020 and 1.8% in 2021, PM Conte confirmed
• Looking ahead, highlight include, weekly US jobs data, US factory orders, Banxico rate decision, ECB’s Nowotny, Rehn, Coeure, Fed’s Quarles, supply from the UK, France and Spain

ASIA-PAC

Asia-Pac stocks traded mostly lower despite the positive lead from Wall St as the effects of rising rates spooked investors following a concoction of strong US economic data and upbeat comments from Fed’s Powell. ASX 200 (+0.5%) bucked the trend as the index was supported by energy and financial names, while Nikkei 225 (-0.2%) eroded initial gains and fell in the red on currency effects. Elsewhere, Hang Seng (-1.7%) underperformed as the healthcare sector also weighed on the index, while mainland China was closed due to the Golden Week holiday. Finally, JGB yields rose across the curve with the 10yr and 30yr yields hitting levels last seen at the front end of 2016.

US Vice President Pence is to say that US "will not be intimidated" by China following the dispute at the South China sea. According to the excerpts, Pence is also to say that China laid out a strategy in June to split US groups with "covert actors, front groups, and propaganda outlets". In related news, the US Navy is reportedly to propose a "major" show of force to warn China after the South China sea quarrel. (Newswires)

UK

UK PM May's officials plan to rush the Brexit deal through parliament in an attempt to stop Tory rebels from voting down her treaty. PM May's team want MPs to get a meaningful vote two weeks after striking a deal with the EU; according to sources (Newswires)

France warned it would prefer Britain to crash out of Europe without a Brexit deal rather than accept a compromise.  (Telegraph)

Ireland backs UK PM May's plan for an all-UK customs union with the EU. UK PM May suggested the whole of the UK to participate in a customs union with the EU if no solution is found on the Irish border issue. EU's Chief Negotiator Barnier rejected the idea but officials in Dublin privately argued that it could settle the border issue and open the way to a deal. A senior Irish Official said, "it looks like it would solve the issue [of the Irish border], whether the EU accepts it or not is another conversation". (FT)

An increase in the EU’s pension costs and spending promises rose by 10’s of billions of EUR, according to an official report which has subsequently raised the prospect of an increase in the Brexit divorce bill. (Guardian)

EU

Italy's government agreed on a 2.4% deficit/GDP target in 2019, 2.1% in 2020 and 1.8% in 2021, PM Conte confirmed. (Newswires) Later it was reported that the Italian Government are reportedly looking at GDP Growth of 1.5% in 2019, 1.6% in 2020 and 1.4% in 2021.

Italy's Deputy PM Di Maio said the 2019 budget will include a citizen’s income, raise the lowest pensions and tax cuts for companies. (Newswires)

CENTRAL BANKS

Fed Chair Powell (Neutral) said the Fed may raise rates past the neutral level. He is happy where the economy is, unemployment is lowest in 20 years and inflation is at the 2% goal. He expects to see gradual increases in wages, while labour market data shows US pretty close to full employment. He added the next downturn will not look like the last as risks are moderate (Newswires)

Fed's Mester (Voter, Hawk) said doesn't see a risk inflation will pick up "precipitously", gradual pace rate increases still appropriate. (Newswires)

Fed's Brainard (Voter, Neutral) said don't take the US Dollar for granted, while Fed's Harker (Non-voter, Dovish) said labour market has very little slack remaining. (Newswires)

FX

In FX markets, the greenback hit a one-month high following upbeat comments from Fed Chair Powell on the economy, where he also stated that rates may be raised past the neutral level. This sent a ripple effect across the FX space with DXY pushed up to the 96 level, while EUR/USD lost the 1.1500 handle and GBP/USD fell through 1.2950. Elsewhere, USD/JPY rested comfortably above 114.00, albeit off highs, while AUD/USD shrugged off the better-than-expected trade balance data.

Australian Trade Balance (Aug) 1604M vs. Exp. 1400.0M (Prev. 1551.0M, Rev. 1548M) (Newswires)

COMMODITIES

Commodities were mostly lower as WTI and Brent retraced some of the gains to trade just above USD 76/bbl and USD 86/bbl respectively. Traders cite the looming oil-related sanctions on Iran as a catalyst for the recent rallies. Meanwhile, Iran's OPEC Envoy said Russia and Saudi Arabia cannot produce additional oil to replace the Iranian oil cut. Elsewhere, metals are pressured by the firmer dollar across the board.

Russian Energy Minister Novak said there is always a risk of oil prices rising too quickly; he notes oil a bit too high already. (Newswires)

A US State Department spokesperson said that Trump Administration officials are working with OPEC to produce spare capacity that they are "not deploying", accusing OPEC of withholding 1.42mln BPD of spare capacity from the world market. (Platts)

Iran's OPEC Envoy said Russia and Saudi Arabia cannot produce additional oil to replace the Iranian oil cut. (Newswires)

GEOPOLITICS

South Korea Foreign Minister said trust-building should be part of US-NK nuclear talks and added that US Secretary of State Pompeo is to discuss war-end declarations during his visit on Sunday. (Newswires)

US

Treasury yields ticked higher on Wednesday, and the curve bear-steepened, underpinned by solid ADP employment data ahead of this week’s official payrolls, as well as an encouraging non-manufacturing ISM report. Amid this news, traders continued to cite evidence of wage pressures in the US, after Amazon (AMZN) announced it would raise minimum wages for its employees. The probability of an FOMC rate hike in December also edged higher as Treasuries were sold. Front-end yields found fresh decade+ highs, while 10-year yields rose to the highest since July 2011, and 30-year yields rose to the highest since October 2014. Major curve spreads were wider, with 2s10s rising to 30bps (+5bps), 2s30s above 45bps (+5.6bps), 5s30s to 29bps (+25.7bps) , though 10s30s was only modestly steeper. US T-note futures (Z8) settles 4+ ticks higher at 118.26.

White House finds no corroboration of sexual misconduct allegations against Supreme Court nominee Kavanaugh in the FBI report. (WSJ)

Source: RANsquawk