• European bourses are mostly firmer after a packed morning ahead of an equally busy US agenda, ES +0.1%
• EUR & EZ yields slump after Flash HICP and balanced commentary from Schnabel on a hike/skip for upcoming meetings
• Pricing for a 25bp hike by the ECB in September down to a 30% chance from over 60% in recent sessions
• DXY bid as a result and pressuring peers, Cable dented further by Pill backing a steady for longer strategy vs overtightening
• Crude continues to climb while XAU is near unchanged and torn between the risk tone & USD upside
• APAC traded negative despite the firmer handover with mixed Chinese PMIs influencing
• Looking ahead, highlights include US PCE Price Index (Jul), IJC & Challenger Layoffs, speeches from Fed’s Collins, ECB’s de Guindos.

EUROPEAN TRADE

EQUITIES

• European bourses are modestly firmer, Euro Stoxx 50 +0.1%, having trimmed initial upside throughout a session of significant Central Bank updates.
• Downside which has occurred despite a dovish-shift to pricing for the ECB post-HICP & Schnabel; within Europe, Real Estate leads the sectors while Banking names lag as both areas of the economy take impetus from yield action.
• Though, the Banking pressure is offset somewhat by marked upside in UBS +4.5% post-earnings; SAP modestly firmer after CRM earnings, CRM +5.5% in pre-market.
• Stateside, futures are mixed around the unchanged mark with some slight underperformance in the NQ -0.1% ahead of key data and despite the broader European-driven yield action.
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• Click here and here for a recap of the main European equity updates.

FX

• DXY rebounds firmly from 103.000 to 103.550, while Euro reels from 1.0939 to 1.0865 vs the Buck after mixed EZ data and less hawkish remarks from ECB's Schnabel.
• Yen relishes softer yields as it continues consolidation against Greenback either side of 146.00 irrespective of mixed Japanese macro releases.
• Sterling buffeted as BoE's Pill warns against complacency on inflation given second round effects, but backs a steady for longer strategy rather than overtightening.
• Cable wanes around 1.2700 pivot, EUR/GBP eases from 0.8598 towards 0.8560.
• PBoC sets USD/CNY mid-point at 7.1811 vs exp. 7.2765 (prev. 7.1816)
• China's major state-owned banks seen selling USD in onshore spot foreign exchange market; Banks spotted swapping CNY for USD in onshore forwards market, via Reuters citing sources.
• Brazil's 2024 Budget Law revenue measures will reportedly reach BRL 168bln, according to Estadao sources. The revenue package will consider ending the deductibility of Interest on Equity for all sectors.
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FIXED INCOME

• Bonds approaching month end on the up, but not before overcoming several wobbles.
• Bunds towards top of 132.87-131.83 range and perhaps latching on to soft EZ core inflation and less hawkish vibes from ECB's Schnabel.
• Gilts also bid between 95.28-94.66 parameters as BoE's Pill states preference for a longer period of steady rates rather than overtightening.
• T-note more restrained within 111-00/110-24+ confines awaiting PCE, IJC, Fed's Collins and Chicago PMI.
• Following the European data and ECB speakers, pricing for a 25bp hike at the September meeting has dropped to a 30% probability from over 60% in recent sessions.
• UK DMO intends to hold 15 Gilt auctions between October-December, and a syndicated sale of a new long-dated conventional in November.
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COMMODITIES

• Crude benchmarks are a touch firmer on the session with specific details light as we await an update from the BSEE on how much, if any, production has been lost due to Hurricane Idalia.
• Gas markets are bid but off highs while spot gold is little changed and torn between the softer risk tone and stronger USD.
• For Ags., Reuters citing Turkish sources reported that President Erdogan is to meet Russia President Putin in Sochi on September 4th to discuss Ukraine and the grain deal. As a reminder, earlier in the week reports indicated that the nation's Foreign Ministers are to speak in today’s session as Turkey looks to bring Russia back to the Black Sea grain deal.
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NOTABLE US HEADLINES

• Salesforce Inc (CRM) Q2 2023 (USD): Adj. EPS 2.12 (exp. 1.90), Revenue 8.60bln (exp. 8.52bln). Shares +5.6%, in pre-market.
• US officials are reportedly mulling a pathway to let more firms tap the Federal Home Loan Banks, according to Bloomberg.
• Fed's Bostic (2024 voter) says US monetary policy is appropriately restrictive, enough to bring inflation to 2% over a reasonable time frame; Fed should be cautious, patient and resolute. Says inflation is still too high, is not for easing policy any time soon.
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NOTABLE EUROPEAN HEADLINES

• ECB's Schnabel says outlook for the Euro Area remains highly uncertain, activity has moderated visibly, and forward-looking indicators signal weakness ahead. Cannot predict where the peak rate is going to be, or for how long rates will have to be held at restrictive levels, cannot commit to future actions. Within the remarks, Schnabel is very balanced and holds open the door for a hike or a skip at the September gathering. For reference, the remarks were published pre-HICP
• ECB's Holzmann says August inflation data is a conundrum for the ECB; we are not yet at the highest level for rates, another hike or two is possible. ECB should consider needing PEPP reinvestments before the end of next year. Based on current data, would not exclude a rate hike in September but hasn't made mind up yet. Much closer to terminal rate but likely not there yet. Remarks published after the HICP data
• BoE's Pill says the UK faces second-round inflation effects and inflation is too high, cases for caution on inflation despite the declines in the headline. There is a lot of policy in the pipeline to come through. There is the possibility of doing too much when it comes to the fight against inflation. Policy needs to be sufficiently restrictive for long enough.. Adds, one option for policy is to hold rates steady for longer; tends to favour that approach.
• UK PM Sunak is expected to announce a new Defence Secretary to replace Ben Wallace on Thursday, according to government officials cited by the FT. Grant Shapps is a surprise frontrunner for the role, according to insiders.

NOTABLE EUROPEAN DATA

• EU HICP Flash YY (Aug 2023) 5.3% vs. Exp. 5.1% (Prev. 5.3%)
• EU HICP-X Food & Energy Flash YY (Aug 2023) 6.2% vs. Exp. 6.3% (Prev. 6.6%); X Food, Energy, Alcohol & Tobacco Flash YY (Aug) 5.30% vs. Exp. 5.30% (Prev. 5.50%)
• French CPI Prelim YY NSA (Aug) 4.8% vs. Exp. 4.60% (Prev. 4.30%); MM NSA (Aug) 1.0% vs. Exp. 0.80% (Prev. 0.10%)
• Italian Consumer Price Prelim YY (Jul 2023) 5.5% vs. Exp. 6.1% (Prev. 6.4%); MM (Aug 2023) 0.4%
• German Retail Sales YY Real (Jul 2023) -2.2% vs. Exp. -1.0% (Prev. -1.6%); MM Real (Jul 2023) -0.8% vs. Exp. 0.3% (Prev. -0.8%)
• German Unemployment Change SA (Aug 2023) 18.0k vs. Exp. 10.0k (Prev. -4.0k); Rate SA (Aug 2023) 5.7% vs. Exp. 5.7% (Prev. 5.6%)

GEOPOLITICS

• US approves first arms to Taiwan under foreign aid program, according to AFP citing an official.
• US reportedly restricts the export of some AMD (AMD) chips to Middle Eastern countries, according to Reuters sources.
• North Korea conducted full-force command training in response to the SK-US joint exercise, according to Yonhap.
• Japanese PM Kishida has requested top LDP lawmaker Nikai to visit China to resolve the Fukushima water issue, according to local press.
• Australia and EU to resume free-trade deal talks on Thursday via teleconference, a month after the sides failed to reach a deal, according to Reuters.

CRYPTO

• Bitcoin is under modest pressure holding around the USD 27k mark within fairly narrow ranges above the figure. Pressure which eminates from the firmer USD in European trade.

APAC TRADE

• APAC stocks eventually traded mostly negatively following a marginally positive handover from Wall Street, which saw an equity bid underpinned by dovish US economic data.
• ASX 200 was flat on either side of 7,300 as the gains in the Telecoms and Financial sectors were offset by losses in Energy and Consumer Staples.
• Nikkei 225 saw mild gains although the machinery sectors were in the red following the dire Japanese industrial output data, with a Japanese government official highlighting a decline in demand both domestically and abroad, with output falling in several areas including production machinery.
• Hang Seng and Shanghai Comp varied at the open but later succumbed to losses, whilst Baidu soared 4.6% after winning Chinese approval for its AI model. The Mainland was more cautious from the start following mixed PMI data which saw Manufacturing topping expectations but remaining in contraction.

NOTABLE ASIA-PAC HEADLINES

• Baidu (BIDU/9888 HK) is reportedly among the first firms to win China approval for AI models, according to Bloomberg. Baidu rolled out its Chat GPT-rival AI app to the public, according to a statement cited by AFP
• PBoC said it will continue to step up loans to private firms and will use stocks and bonds to deal with risks of private property developers in a prudent way, according to Reuters. PBoC added it will encourage and guide institutional investors to buy bonds of private firms and will support IPO and refinancing of private firms.
• PBoC injected CNY 209bln via 7-day reverse repos with the rate at 1.80% for a CNY
• The Japanese government cut its assessment of industrial production and noted industrial output is seesawing, according to Reuters.
• Japanese government official on industrial output said demand fell both domestically and abroad in July, and noted that output fell in many areas including production machinery. The official said the decrease in chip manufacturing machinery is due to weak demand abroad, the outlook appears to be severe; chip shortage is easing in autos, which is on a steady recovery, according to Reuters.
• Japanese government official said the electronics device market in China is in a severe state; Domestic material industries are partially affected by China's real estate concerns, according to Reuters.
• BoJ Board Member Nakamura said the BoJ must patiently maintain easy policy for the time being, and need more time to shift to monetary tightening; Japan's economy is no longer in deflation; tweaks to policy must be cautious. Was not against making YCC flexible, opposition was re. timing. July decision was not part of any exit from ultra-loose policy. BoJ will closely watch impact on Yen moves on economy and prices. FX is not driven by interest rate differentials alone.
• Japanese PM Kishida said to be considering lifting the minimum wage to JPY 1500/hr by mid 2030s, via NHK.
• Japan's major five banks are to increase housing loan interest rates by 0.1% to 0.2%, according to Jiji News.
• Fitch affirms China at A+, outlook stable; revises lower 2023 China GDP Growth forecast to 4.8% (prev. 5.6%).

DATA RECAP

• Chinese NBS Manufacturing PMI (Aug 2023) 49.7 vs. Exp. 49.4 (Prev. 49.3); Services PMI (Aug 2023) 51.0 (Prev. 51.5)
• Chinese Composite PMI (Aug) 51.3 (Prev. 51.1)
• Japanese Retail Sales YY (Jul 2023) 6.8% vs. Exp. 5.4% (Prev. 5.9%)
• Japanese Industrial O/P Prelim MM SA (Jul 2023) -2.0% vs. Exp. -1.4% (Prev. 2.4%)
• Japanese IP Forecast 1 Month Ahead (Aug 2023) 2.6% (Prev. -0.2%); 2 Month Ahead (Sep 2023) 2.4% (Prev. 1.1%)
• Japanese Foreign Invest JP Stock (W 26 Aug) w/e -603.8B (Prev. -740.7B); Foreign Bond Investment (W 26 Aug) w/e 425.1B (Prev. -263.2B)
• South Korean Industrial Output YY (Jul 2023) -8.0% vs. Exp. -5.2% (Prev. -5.6%); Growth (Jul 2023) -2.0% vs. Exp. -0.4% (Prev. -1.0%)
• South Korean Service Sector Output Growth (Jul 2023) 0.4% (Prev. 0.5%)
• New Zealand ANZ Business Outlook (Aug 2023) -3.7% (Prev. -13.1%); Own Activity (Aug 2023) 11.2% (Prev. 0.8%)
• Australian Capital Expenditure (Q2 2023) 2.8% vs. Exp. 1.2% (Prev. 2.4%)
• Australian Plant/Machinery Capex (Q2 2023) 1.9% (Prev. 3.7%); Building Capex (Q2 2023) 3.5% (Prev. 1.3%)
• Australian Private Sector Credit (Jul 2023) 0.3% (Prev. 0.2%); Housing Credit (Jul 2023) 0.3% (Prev. 0.2%)