Geopolitical tensions remain at the forefront of market sentiment amid further fighting talk between the US and NK

This led to selling pressure in Asia-Pac stocks (Japan away) with safe-haven assets continue to benefit

Looking ahead, highlights include US CPI, Fed’s Kaplan and Kashkari

ASIA

Asia stock markets were heavily pressured amid continued geopolitical tensions after further fighting talk between US and North Korea, which also saw US indices close negative for a 3rd consecutive day. The fresh goading came from both sides as US President Trump suggested his fire and fury comments maybe was not tough enough and warned North Korea to get its act together or it will be in trouble like few nations have ever been. This evoked a response from North Korea which vowed to mercilessly wipe out the provocateurs and stated the US will suffer a shameful defeat. As such, ASX 200 (-1.3%), KOSPI (-1.6%) Hang Seng (-1.7%) and Shanghai Comp (-1.6%) all traded with firm losses, while Nikkei 225 was shut due to public holiday.

PBoC injected CNY 70bln in 7-day reverse repos and CNY 60bln in 14-day reverse repos, for a net weekly drain of CNY 30bln vs. CNY 40bln drain last week. (Newswires)

PBoC set CNY mid-point 6.6642 at (Prev. 6.6770)

EUROPE/UK

Newsflow from the region remains light overnight.

FX

Price action in USD/JPY and JPY-crosses remained dampened by safe-haven flows and amid the absence of participants in Japan, which saw USD/JPY break below 109.00. Other major pairs also saw quiet trade with AUD/USD weighed on by lower commodity prices and after comments from RBA Governor Lowe which reiterated a preference for a weaker currency. USD/CNH was higher by around 2 points despite a firmer reference rate by the PBoC, as the fix was still weaker in comparison to yesterday’s last close.

RBA Governor Lowe stated the board is prepared to be patient regarding monetary policy and that a weaker AUD would help reach full employment quicker and support inflation. Lowe also commented that the RBA are prepared to intervene in AUD, although it would have to be in an extreme situation. (Newswires)

COMMODITIES

Commodities were subdued overnight with gold (-0.1%) taking a breather from its recent gains in which prices rallied to 9-week highs, spurred by increased geopolitical tensions. Copper prices suffered to a greater degree amid a dampened risk tone in the region and alongside a 5.2% fall in Chinese iron ore prices. WTI crude futures remained weak and are lower by over USD 2/bbl from yesterday’s peak of above USD 50/bbl, after the latest monthly OPEC report showed an increase in production for July.

Saudi Arabia Energy Minister Al-Falih stated the possibility for continuation of output cuts is on the table and if the size of cuts need to be adjusted, this will be examined and subject to approval by 24 countries. (Newswires)

Shanghai Futures Exchange is said to mull increasing margin requirements for steel rebar. (Newswires)

GEOPOLITICAL

US President Trump commented on his `fire and fury' warning to North Korea in which he stated that maybe the statement wasn't tough enough. Trump also warned North Korea to `get their act together' or it will be in trouble `like few nations have ever been and tspaneatened retaliation if North Korea attacks Guam. (Newswires)

North Korea vowed to mercilessly wipe out the provocateurs and stated the US will suffer a shameful defeat, according to North Korean state media. (KCNA)

US Defense Secretary Mattis said diplomatic efforts regarding North Korea are gaining traction and that it his responsibility to have military options if needed, although the US prefers a diplomatic approach. (Newswires)

China state run newspaper editorial stated that China will remain neutral if North Korea launches an attack on US, but if US strikes first and tries to overtspanow the North Korean government, China will stop them. (People’s Daily)

US

Treasuries drew a bid from the soft PPI print out of the US, and saw fresh demand following a solid 30y bond auction out of the US, and pushed back to session highs in the wake of Trump’s rhetoric. Sep’17 10y T-note futures settled at 126.18, up 7 ticks.