• APAC stocks took their cue from Friday's sell-off on Wall St post-Powell which saw the S&P 500 close lower by 3.4%.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -1.3% after the cash market closed down by 1.9% on Friday.
• DXY printed a fresh YTD peak overnight, hawkish ECB talk was unable to support EUR vs. USD, JPY lags G10 FX.
• ECB’s Kazakhs said the ECB should discuss 50bps and 75bps hikes in September, Villeroy said a "significant" rate hike is needed.
• Looking ahead, today's calendar sees a lack of tier 1 highlights. Note, today is a UK bank holiday.

US TRADE

• US stocks were sold in the wake of Fed Chair Powell's hawkish-in-tone Jackson Hole speech with price action in stocks framed around Powell's decision to not provide an olive branch to doves, giving little reason for a risk rally after two sessions of strength and with bearish flow dynamics to consider.
• SPX -3.37% at 4,057, NDX -4.10% at 12,605, DJIA -3.03% at 32,282, RUT -3.53% at 1,892.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed’s Mester said she does not expect any rate cuts in 2023 and that the Fed needs to raise rates to a little above 4% and hold for all of next year, while she is not convinced inflation has peaked and doesn’t currently have a ‘lean’ regarding a 50bps or 75bps hike in September with the September rate hike decision to be based on inflation data, not jobs data, according to Reuters.
• US Senator Warren said she is very worried that the Fed will tip the economy into a recession and said that high prices and millions of people out of work are worse than high prices and a strong economy, according to Reuters.
• White House believes new COVID-19 vaccines will be key in controlling a potential surge in the fall and a new COVID-19 booster shot campaign is anticipated to begin in early September.

GEOPOLITICS

RUSSIA-UKRAINE

• Russian Defence Ministry said on Saturday that Ukrainian forces shelled the Zaporizhzhia nuclear power plant three times over 24 hours and that Russian ground-based artillery destroyed a large ammunition depot in the Dnipropetrovsk region containing US-made HIMARS rockets and shells for the M777, according to Reuters. It was also reported that Russian air forces hit a Motor Sich factory in Ukraine’s Zaporizhzhia region where helicopters were being repaired, according to RIA citing the Defence Ministry.
• US State Department said Russia decided to block consensus on the final document at the conclusion of the 10th review conference of the nuclear non-proliferation treaty after weeks of talks as it did not want to acknowledge the grave radiological risk at the Zaporizhzhia nuclear power plant in Ukraine, according to Reuters.
• EU is to suspend the visa travel agreement on preferential treatment with Russia as a first step to curb Russian travel permits, according to FT. There were also comments from EU’s foreign policy chief Borrell that he doesn’t think a visa ban for all Russians would have the required unanimity among EU foreign ministers, according to ORF TV.

CHINA-TAIWAN

• US officials said that two US Navy warships passed through the Taiwan Strait which was the first time since the heightened tensions from House Speaker Pelosi’s visit to Taiwan and National Security Council spokesperson Kirby said the transition through the Taiwan Strait was very consistent with the US policy of a free and open Indo-Pacific. There were also comments from China’s military that it was monitoring US Navy vessels sailing through the Taiwan Strait and it is maintaining a high alert and is ready to defeat any provocations, according to Reuters.
• Taiwan Defence Ministry said China is still carrying out military activities around the island and that it detected 23 Chinese aircraft and 8 Chinese ships around Taiwan on Sunday, according to Reuters.
• UK Foreign Secretary Truss is to declare China an official security threat under plans for a tougher approach to Beijing, according to The Times.
• Russia and China will conduct a series of military exercises this week in a sign of deepening ties between the two nations, according to FT.

APAC TRADE

EQUITIES

• APAC stocks took their cue from Friday's sell-off on Wall St amid higher yields and following hawkish central bank rhetoric from Jackson Hole including from Fed Chair Powell.
• ASX 200 was pressured as underperformance in tech led the declines across all sectors and with better-than-expected Retail Sales doing little to brighten the mood.
• Nikkei 225 gapped beneath the 28K level and shed around 800 points despite a weaker currency and reports of a potential further easing of COVID restrictions.
• Hang Seng and Shanghai Comp declined at the open although losses in the mainland were stemmed after Sichuan resumed power to most industries and participants digested a deluge of earnings releases, while the US and China reached a preliminary agreement on audit inspections.
• US equity futures were pressured as yields continued to climb overnight; ES -0.8%.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -1.3% after the cash market closed down by 1.9% on Friday.

FX

• DXY rose to a fresh YTD high of 109.48 after Fed Chair Powell stuck to the hawkish script at Jackson Hole.
• EUR/USD was subdued by the firmer buck and despite hawkish comments from ECB officials.
• GBP/USD slipped beneath 1.1700 with no respite for the currency amid thinner volumes ahead due to the UK bank holiday on Monday and with Goldman Sach forecasting a UK recession in Q4.
• USD/JPY climbed on diverging BoJ-Fed policies and with Asian currencies sold against the buck.
• Antipodeans declined in tandem with stocks and after CNH weakened beyond 6.9000 for the first time in two years.
• SNB’s Jordan said there is no need to adjust the definition of price stability or broaden SNB’s mandate, while he added they are prepared to act decisively if price stability is at threat and that unconventional monetary policy instruments are likely to continue to have an important part to play in Switzerland, according to Reuters.

FIXED INCOME

• 10yr UST futures remained pressured after Fed Chair Powell’s comments last week and with other Fed officials echoing a hawkish message which spurred bear flattening overnight and lifted the US 2yr yield to its highest since late 2007.
• Bund futures extended on losses and slipped firmly beneath the 149.00 level with some ECB policymakers wanting to discuss a 75bp hike in September.
• 10yr JGBs futures suffered some spillover selling from global peers but with downside somewhat stemmed given the BoJ’s ongoing ultra-dovish stance and after Governor Kuroda reiterated the transitory view on inflation.

COMMODITIES

• Crude prices reversed their initial losses amid ongoing supply concerns and quiet news flow over the weekend regarding the Iran nuclear deal.
• Austrian Chancellor Nehammer called for an EU-wide cap on power prices and said they must decouple the price of electricity from the gas price and bring it closer to actual production costs, while he added that they must finally stop the madness that is occurring in energy markets and cannot let Russian President Putin determine the European power price, according to Reuters.
• US temporarily waived truck driver hours of service rules to transport fuel to Illinois, Indiana, Michigan and Wisconsin following the unanticipated shutdown of BP’s Whiting refinery, according to Reuters.
• Spot gold declined amid a firmer dollar and upside in yields.
• Copper prices were heavily pressured amid the firm losses across stocks.
• Ukraine PM Shmyhal said Ukraine will permit merchant sailors to leave Ukraine if they receive approval from their local military administrative body, according to Reuters.
• UN Coordinator for the Black Sea Grain Initiative said Ukrainian silos are still stocked with millions of tonnes from previous harvests and that much more grains need to shift to provide room for the new harvest, according to Reuters.

CRYPTO

• Bitcoin recovered some of the losses from its weekend decline but remained below 20,000.
• Monetary Authority of Singapore is considering further measures to reduce the harm to consumers from cryptocurrency trading and MAS will issue public consultation on new measures by October, according to Reuters.

NOTABLE APAC HEADLINES

• Chinese authorities informed the US Department of Agriculture that Chinese customs will suspend meat imports transported by Tyson Fresh Meat (TSN) from Monday after its pig trotters failed inspection, according to Global Times.
• BoJ Governor Kuroda reiterated the view regarding transitory inflation in Japan in which he stated they have 2.4% inflation but is almost wholly caused by rising international commodity and food prices, while they expect inflation to approach 2% or 3% by year-end but decelerate again to 1.5% next year.
• BoK Governor Rhee said it is premature to say inflation has peaked and that rates will increase until it is clear that inflation is falling. Rhee also commented they will intervene in FX markets if speculative forces are seen and that the KRW’s movement is in line with EUR and other major currencies, while he noted that a weakening KRW from the rally in USD is a bad factor for inflation and that BoK policy tightening is unlikely to end before the Fed, according to Reuters.

DATA RECAP

• Chinese Industrial Profits YTD YY (Jul) -1.1% (Prev. 1.0%)
• Australian Retail Sales MM Final (Jul) 1.3% vs. Exp. 0.3% (Prev. 0.2%)

EU/UK

NOTABLE HEADLINES

• UK Tory leadership frontrunner Truss is reportedly mulling cutting the 20% VAT by 5% across the board to help ease the cost-of-living pressures under a nuclear option, while other options include a more modest 2.5% reduction, according to a source cited by The Telegraph. Furthermore, Truss is under renewed pressure to outline the cost-of-living support with Tory MPs voicing increasing concerns regarding the impact of higher energy prices on households and small businesses, according to FT.
• A senior economist warned that UK Foreign Secretary and Tory leadership front runner Truss's plan to cut tens of billions of pounds in VAT would crash public finances, according to The Times citing the Institute of Fiscal Studies Director.
• UK corner shops are calling for government support to offset energy costs and have warned that thousands risk going out of business if the government doesn’t provide support, according to FT.
• Goldman Sachs sees the UK economy entering a recession in Q4 and said the recession will be mild, while it lowered its 2022 GDP forecast to 3.5% from 3.7% and the 2023 GDP forecast to 0.6% from 1.1%.
• ECB’s Schnabel said both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high and said that central banks need to act forcefully in this environment, according to Reuters.
• ECB’s Villeroy said a significant rate increase is needed in September and that they should get rates to neutral by year-end with neutral somewhere between 1.00%-2.00%, according to Reuters.
• ECB’s Kazakhs said the ECB should discuss 50bps and 75bps hikes in September and that a 50bps rate increase is the least the bank should do, while he added that Euro zone recession risk is substantial and a technical recession is likely, according to Reuters.
• ECB’s Rehn said its action time for the ECB with a weak Euro a key point and that a ‘significant’ hike in interest rates is needed in September, while he added it is too early to publicly discuss quantitative tightening, according to Bloomberg.
• S&P affirmed Austria at AA+; Outlook revised to Stable from Positive.