Equity markets begin the week on the front foot with Asian bourses taking the firm lead from Wall Street.

AUD traded in choppy fashion with initial outperformance offset by weak Chinese data.

Looking ahead, highlights include Eurozone industrial production.

ASIA

Asian equity markets traded mostly higher following the rebound of US stocks last Friday on Wall Street where the NASDAQ outperformed amid tech strength, while a miss on CPI dampened prospects of a December Fed hike. The improvement in risk sentiment was also supported as some geopolitical concerns abated which saw ASX 200 (+0.7%) and KOSPI (+0.6%) positive tspanoughout the session, however Nikkei 225 (-0.8%) bucked the trend despite strong GDP numbers, as Friday’s Asian session losses caught up with the index on its return from a long weekend. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp (+0.4%) were positive following a firm liquidity operation by the PBoC, although gains in the mainland bourse were capped as Industrial Production and Retail Sales data added to the recent trend of disappointing Chinese data releases. Finally, 10yr JGBs traded flat as participants mulled over strong GDP numbers and losses in Japanese stocks, with demand also dampened from a lack of a Rinban announcement by the BoJ.

Japanese GDP (Q2 P) Q/Q 1.0% vs. Exp. 0.6% (Prev. 0.3%). (Newswires)

Japanese GDP Annualized (Q2 P) 4.0% vs. Exp. 2.5% (Prev. 1.0%)

Chinese Industrial Production (Jul) Y/Y 6.4% vs. Exp. 7.1% (Prev. 7.6%). (Newswires)

Chinese Industrial Production YTD (Jul) Y/Y 6.8% vs. Exp. 6.9% (Prev. 6.9%)

Chinese Retail Sales (Jul) Y/Y 10.4% vs. Exp. 10.8% (Prev. 11.0%). (Newswires)

Chinese Retail Sales YTD (Jul) Y/Y 10.4% vs. Exp. 10.5% (Prev. 10.4%)

PBoC injected CNY 110bln in 7-day reverse repos and CNY 100bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6601 (Prev. 6.6642)

EUROPE/UK

UK Chancellor Hammond and Trade Minister Fox stated that the Brexit transition period will be limited and will be intended to avert a cliff edge. The ministers also added that the transition period cannot be an alternate path for staying in the EU. (Telegraph)

DBRS confirmed Netherlands at AAA, stable trend. (Newswires)

FX

In FX markets, JPY weakened across the board on safe-haven outflows due to an improvement in global risk sentiment. Elsewhere, AUD/USD initially outperformed and reclaimed the 0.7900 handle to upside amid strength in AUD/NZD which broke above 1.0800. This in turn hampered NZD, in which support from better than expected New Zealand Retail Sales was offset by cross-related flows into its counterpart across the Tasman. However, AUD then gradually pared the majority of its gains tspanoughout the session in the wake of disappointing Chinese data.

New Zealand Retail Sales (Q2) Q/Q 2.0% vs. Exp. 0.7% (Prev. 1.5%). (Newswires)

New Zealand Retail Sales (Q2) Y/Y 5.4% (Prev. 4.6%)

COMMODITIES

Commodities were mixed overnight with safe-haven gold (-0.2%) mildly pulling back from 9-week highs amid an improvement in global risk sentiment. Conversely, demand for copper was subdued alongside weaker iron ore prices after Chinese Industrial Production data for July missed expectations, while WTI quiet overnight with prices unchanged during Asia trade.

GEOPOLITICAL

US President Trump commented on Friday that he meant what he said regarding North Korea and that he hopes that it understands the gravity of the situation. Trump added that if Kim Jong Un does anything to Guam, or any US ally or territory North Korea will truly regret it fast. (Newswires)

North Korean authorities dispatched emergency standby orders to the leaders of the ruling Workers’ Party committees and civil defence units on Friday, while there were also comments from a North Korean government spokesperson that access to nukes is 'legitimate step for self-defence'. (Newswires)

US President Trump stated on Friday that he would not rule out a military option in Venezuela amid escalation of the civil unrest in the South American nation. (Newswires)

US

Fixed income followed a similar pattern to the USD, with the North Korean tensions pushing bonds back to near-session highs on the close. The poor CPI release has left Fed Fund futures pricing a 35.9% chance of the FOMC delivering a December rate hike. Sep’17 10y T-note futures settled at 126.26, up 8 ticks.

Fed's Kashkari (Voter, Dove) stated inflation hasn't increased with a tightening job market and that Friday's CPI print was low which was another reason to hold off on hikes. Kashkari also commented that others in the Fed are worried about inflation accelerating, although he doesn't see evidence of inflation taking off, while he added that he sees a lot of agreement across the Fed regarding balance sheet normalization. (Newswires)