• APAC stocks were mostly negative following the losses across global counterparts which saw losses of around 1% on Wall St.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.6% after the cash market closed down by 0.2% yesterday.
• DXY hovers around 108.50, AUD leads G10 FX, EUR/USD remains above parity, cable eyes 1.17 to the upside. 
• Crude nursed some of its losses after having suffered the largest decline in weeks due to supply-related updates from Iraq.
• Looking ahead, highlights include German Import Prices & Unemployment, EZ CPI (Flash), Canadian GDP, US ADP & Chicago PMI, Speeches from Fed's Mester & Bostic.

US TRADE

• US stocks declined as part of a broader risk aversion amid hawkish central bank rhetoric and geopolitical concerns following reports that Taiwan had fired warning shots at a Chinese drone.
• SPX -1.10% at 3,986, NDX -1.13% at 12,343, DJIA -0.96% at 31,791, RUT -1.45% at 1,856.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Barkin (2024 voter) said the Fed will have to move real rates above zero across the yield curve to have an impact on demand, while he added the job market is still very tight and demand is healthy.
• White House Press Secretary said the White House expects jobs numbers to cool a bit.
• US President Biden approved the Mississippi emergency declaration amid the water crisis and ordered federal assistance to supplement state response efforts, according to the White House.
• California ISO said excessive heat beginning on Wednesday will stress the energy grid and consumer conservation is likely needed in the weekend to avert power outages, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

• IAEA visit to the Zaporizhzhia NPP is designed to take one day, according to the Head of the Russian-installed local administration via Interfax. It was later reported that the IAEA convoy set off from Kyiv towards the Zaporizhzhia nuclear power plant, according to a witness cited by Reuters.

CHINA -TAIWAN

• Taiwan's Defence Ministry said China's military continues high-intensity patrols near Taiwan, while it added that Taiwan will exercise the right to self-defence and counter-attack if PLA forces enter air and sea territory within 12 nautical miles of Taiwan or if any Chinese drones pose a threat to security and do not leave after warnings, according to Reuters.

OTHER

• Iranian press suggested that Iran and the US have reached an agreement on the revival of the JCPOA which will be announced in the next two or three weeks, according to a former IAEA official cited by Iran International English. However, a US State Department spokesperson later denied reports that an Iranian nuclear deal had been reached, according to CNN.
• Turkish President Erdogan said the Greek air defence system's harassment of Turkish jets is a "hostile act", according to Anadolu Agency.

APAC TRADE

EQUITIES

• APAC stocks were mostly negative following the losses across global counterparts owing to recent hawkish central bank rhetoric and with geopolitical concerns stoked after Taiwan fired warning shots at a Chinese drone.
• ASX 200 was subdued by weakness in commodity-related stocks with the energy sector the worst hit after the recent slump in oil prices, while a surprise contraction in Construction Work added to the headwinds and feeds into next week’s GDP release.
• Nikkei 225 declined but held above 28k after encouraging Industrial Production and Retail Sales.
• Hang Seng and Shanghai Comp were pressured amid a heavy slate of earnings releases and with US regulators said to have selected a number of US-listed Chinese companies for audit inspections including Alibaba, while participants also reacted to the Chinese PMI data in which the headline Manufacturing PMI topped estimates but remained in contraction territory.
• US equity futures nursed some of the prior day's losses with the Emini S&P (+0.7%) back above 4k.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.6% after the cash market closed down by 0.2% yesterday.

FX

• DXY was choppy with early upside restricted as models point to month-end dollar selling although the downside was stemmed amid the risk aversion and recent hawkish Fed rhetoric.
• EUR/USD remained above parity after finding reprieve from recent declines in energy prices and a slew of central bank commentary including ECB’s Knot who is leaning towards a 75bps hike next week.
• GBP/USD composed itself after yesterday's underperformance amid the ongoing gloomy outlook from the cost-of-living crisis.
• USD/JPY marginally pulled back after hitting resistance at 139.00 and following the better-than-expected Industrial Production and Retail Sales data from Japan.
• Antipodeans bounced off yesterday's lows with mild support in the aftermath of the Chinese PMI data.

FIXED INCOME

• 10yr UST futures remained subdued following yesterday’s slump which was spurred by firmer than expected US Consumer Confidence and Jolts Jobs data, as well as the hawkish central bank rhetoric.
• Bund futures traded sideways after recent declines and an abundance of hawkish ECB rhetoric, while attention shifts to the upcoming CPI data from the bloc.
• 10yr JGBs futures were stuck around the 149.50 level with prices kept afloat amid the BoJ’s presence in the market for nearly 1.1tln of JGBs on top of its daily fixed-rate purchase intentions.

COMMODITIES

• Crude nursed some of its losses after having suffered the largest decline in weeks due to supply-related updates from Iraq and with a source noting it is too early to talk about an OPEC+ output reduction, while renewed Iran deal optimism and the broader risk aversion also contributed to the headwinds.
• US Private Inventory Data (bbls): Crude +0.6mln (exp. -1.5mln), Cushing -0.6mln, Gasoline -3.4mln (exp. -1.2mln), Distillates -1.7mln (exp. -1.0mln).
• Venezuela's Oil Minister is in talks with Chevron (CVX) about operations and is ready for the Co. to restart operations in the country.
• Nord Stream 1 gas pipeline flows declined to zero, according to data from entry points in Germany.
• Gazprom said it fully halted gas supplies to Engie (ENGI FP) due to insufficient payments for gas supplies in July.
• Spot gold was uneventful with price action reflecting an indecisive dollar.
• Copper nursed some of yesterday's losses with mild support following the better-than-expected Chinese PMI data.

CRYPTO

• Bitcoin traded higher overnight and reclaimed the 20,000 level.

NOTABLE APAC HEADLINES

• Japanese PM Kishida said he has fully recovered from COVID-19 and returned to normal duty. Kishida added that they will begin administering Omicron variant targeted vaccines earlier than planned, while he announced to increase the daily upper limit of entrants to Japan to 50k on September 7th and will look into further loosening of border controls.

DATA RECAP

• Chinese NBS Manufacturing PMI* (Aug) 49.4 vs. Exp. 49.2 (Prev. 49.0)
• Chinese Non-Manufacturing PMI (Aug) 52.6 vs Exp. 52.2 (Prev. 53.8)
• Chinese Composite PMI (Aug) 51.7 (Prev. 52.5)
• Japanese Industrial Production Prelim (Jul P) 1.0% vs. Exp. -0.5% (Prev. 9.2%)
• Japanese Retail Sales YY (Jul) 2.4% vs. Exp. 1.9% (Prev. 1.5%)
• Australian Construction Work Done (Q2) -3.8% vs. Exp. 0.9% (Prev. -0.9%)

EU/UK

NOTABLE HEADLINES

• UK government could reportedly fast-track nuclear power projects to help ease the energy crisis, according to The Telegraph.
• UK government is considering caps on rent to protect social housing tenants as part of a wider effort to ease the soaring costs of living, according to FT.
• Former UK Chancellor Sunak warned that Foreign Secretary Truss's campaign promises could increase inflation and borrowing costs, according to FT.
• ECB's Muller said price stability is the main concern which has to come first and that they need to keep raising interest rates.
• ECB's Nagel said the ECB must act divisively to preserve credibility and that inflation won't return to the target on its own, while he added they should not delay rate hikes out of fear of a recession and that front-loading rate hikes reduce the risk of a painful downturn. Furthermore, he said that larger rate hikes reduce the risk of expectations getting de-anchored, but added they are anchored for now and that the terminal rate is still unclear.
• ECB's Stournaras said we will see a peak of inflation this year before gradually declining in 2023 and said that risks to growth are already tilted to the downside. ECB's Stournaras also said further and gradual normalisation will be appropriate and that neutral is estimated between 0.5-1.5%, while he added they don't need to take very large steps and need to be prudent.
• ECB's Wunsch said the ECB has been underestimating prices for a year and the inflation problem is more structural than just shocks, while he added they have to move quickly on rate hikes to a level that may be restrictive and they may be heading towards a technical recession or worse.