• Tria’s Parliamentary budget testimony fails to support BTP’s after suggestion of Italian budget watchdog rejection
• US-China Trade talks on hold unless Xi does not produce a list of concessions as according to US officials
• Looking ahead, highlights include, Fed’s Kaplan, ECB’s Villeroy, Fed’s Evans, BoE’s Broadbent, Fed’s Harker, BoE’s Carney

ASIA

Asia-Pacific stocks traded mixed as the region followed a similar picture painted on Wall St, where the Dow rose for the first time in three days, the S&P closed little changed and the Nasdaq pulled back for a third straight session. ASX 200 (-1.0%) was pressured by the healthcare and lT sectors, while Nikkei 225 (-1.3%) was playing catch-up to yesterday’s slump while also subdued by a firmer currency, after re-entering the market from a long weekend. Elsewhere, Hang Seng (-0.1%) and Shanghai Comp. (+0.2%) traded choppy and with no firm direction for most of the session, before finding a firmer footing in the green following yesterday’s mass sell-off. Finally, US Treasury yields continued to rise with the 30yr hitting 4-year highs and the 10yr revisiting levels last seen in 2011. 

PBoC set CNY mid-point at 6.9019 (Prev. 6.8957) (Newswires)
PBoC skipped open market operations for a net daily drain of CNY 60bln

US Officials warned China that US President Trump will not engage in trade talks with Chinese President Xi at the G20 summit if China does not produce a detailed list of concessions; according to two people briefed on negotiations. Chinese officials said they have such a list but will not present it without some guarantee of it being received in a stable political climate in Washington. US officials have been frustrated in what they see as unwillingness from China. (FT)

US Treasury Secretary Mnuchin may hold non-trade bilateral discussions with officials from Chinese Finance Ministry and the PBoC, while top trade negotiators from China and US are unlikely to meet this week during the IMF and World Bank annual meetings; according to a senior US Treasury Official. (Newswires)

IMF World Economic Outlook Report cut 2018 and 2019 global growth forecast to 3.7% (Prev. 3.9%) citing trade war frictions and EM turmoil. China’s 2019 growth forecast was revised lower to 6.2% (Prev. 6.4%) and 2018 unchanged at 6.6%. (Newswires)

According to the Chinese Foreign Ministry China will not use the Yuan in their trade dispute, additionally labeling remarks from the US treasury as groundless speculation. (Newswires)

EU/UK/US

Ex- Junior Brexit Minister Baker says that nearly 80 colleagues are set to vote down the Chequers amendments. (Newswires)

IMF cut EZ 2018 growth forecast to 2.0% (Prev. 2.2%) while leaving 2019 unchanged at 1.9%. (Newswires)

IMF cut US 2019 growth forecast to 2.5% (Prev. 2.7%) while affirming 2018 at 2.9%. (Newswires)

German Trade Balance, EUR, SA Aug 18.3B vs. Exp. 16.4B (Prev. 15.8B)

Italian fiscal plan likely to be rejected by the Italian budget watchdog, according to Il Sole. Italian Deputy PM Salvini stated the government will not change the budget plan; believes it will generate wealth. Italy's Finance Minister Tria stated that strategy of debt containment has not been efficient and sees need for a boost to economic growth. He added that a constructive dialogue is underway with the European Commission. Italian Finance Minister Tria says that they will do what they have to do if the spread hits 400-500 bps, their goal is to make the spread reflect economic fundamentals adding that if a financial crisis happens they will do as Draghi did. (Newswires)

CENTRAL BANKS

ECB's Vasiliauskas (Hawkish) sees elevated risks to global growth. (Newswires)

Riksbank's Skingsley says that economic development is advancing in such a way to justify gradual tightening, adds that a rise in rates won't tighten policy, but rather reduce expansion. (Newswires)

EQUITIES

Major European indices trade lower (Euro Stoxx 50 -0.4%), with the equity space dragged on by reports that Italy’s fiscal plan may be rejected and statements from Salvini confirming the plan will not change.

Sectors are in the red with the exception of energy, which is up just under 1% following supply concerns stemming from Hurricane Michael’s impact on the Gulf of Mexico.

FX

G10 - It’s not quite déjà vu, but price action and trends remain broadly the same with the USD firm and outperforming all its major rivals bar the JPY amidst sour or at least fragile risk sentiment. Indeed, Usd/Jpy is slipping back towards 113.00 again having dipped just below the big figure overnight, and is currently testing the 200 WMA around 113.18. However, decent option expiry interest at 113.25 (1.1 bn) may keep the headline pair afloat, and there is a key Fib circa 112.73 providing underlying support. Conversely, the GBP and NZD are at the foot of the G10 table as Cable retests stops/bids at 1.3050 after another retreat from 1.3100 ahead of yet another UK parliamentary presentation on Brexit, while the Kiwi is pivoting 0.6450 and lagging its more resilient AUD counterpart with the cross up near 1.1000 and Aud/Usd holding close to 0.7100. Elsewhere, the EUR remains top-heavy at 1.1500 vs the Greenback and against the Pound ahead of 0.8800 due to ongoing Italian budget jitters, with the former pairing extending mult-month losses to just above 1.1440 and closer to technical support ahead of 1.1400 at 1.1422. The CAD awaits Canadian housing starts after nothing from BoC’s Lane so far, and eyeing option expiries at 1.2950 and 1.2975 in 800 mn+, while the CHF remains relatively confined between 0.9920-50 vs the Dollar and around 1.1400 vs the Eur. DXY underpinned amidst all the above and poised to revisit 96.000.

EM - Aside from further YUAN depreciation an air of consolidation pervades, with the TRY cautious within 6.0810-1340 trading parameters ahead of the Government’s plan to tackle inflation.

COMMODITIES

Both WTI and Brent are up by over 0.6% and testing USD 75/BBL and USD 85/BBL respectively following supply concerns from the Gulf of Mexico where just under 20% of crude oil production has been halted in preparation for hurricane Michael alongside evidence that Iranian crude exports are declining.

In the metals scope, gold is uneventful, with the yellow metal trading within a thin USD 4/oz range . Aluminium has fallen slightly amidst reports that Norsk Hydro are preparing to resume their aluminium refinery at half capacity in the coming weeks; currently -0.15% on the day. Iron ore futures in China are up by over 3% in today's session, with prices supported by increased restocking demand at steel mills.

Hurricane Michael is currently a Category 1 Hurricane in the Gulf of Mexico. Which is currently travelling north and may intensify into a Category 3 Hurricane when it makes landfall at around 07:00 ET on Thursday. Prompted evacuation of 13 oil platforms and has led to a halt of just under 20% of oil production from the gulf of Mexico.

FIXED INCOME

More choppy trade in Italian BTPs during and following the latest budget commentary from Rome, but ultimately nothing to prevent another sell-off in futures and ramp up in yields as even Economy Minister Tria appears to be sticking to coalition party lines. 119.00 has now been clearly breached to a 118.26 low, but Bunds have only bounced circa 30 ticks from their 157.61 Eurex session base amidst hefty cash offerings and with the overall trend in bonds still bearish. Similarly, Gilts still below par, albeit very close to a new Liffe peak of 119.93 (-3 ticks vs -28 ticks at one stage) and acknowledging a bumper 2071 syndication that was avidly sought after. US Treasuries midway between overnight ranges and steeper again awaiting the return of cash markets after Monday’s holiday and long weekend. Back to the 10 year Italian benchmark, and turning to techs, if 118.00 gives way there is support around 117.71, but little else and losing that chart level is likely to see inverse-correlations to core bonds return with more vigour.