Asian equities traded higher as geopolitical tensions cooled with outperformance in tech stocks also bolstering sentiment

Price action in FX markets centred around the JPY as the currency weakened on safe-haven outflows, which pushed USD/JPY above the 110.00 level

Looking ahead, highlights include German GDP, UK inflation, US retail sales, NZ Dairy Auction, APIs

ASIA

Asian equity markets traded higher following the gains in US where the NASDAQ led the advances on continued tech outperformance, while global sentiment was also lifted as geopolitical concerns abated after comments from North Korean leader Kim that they will not strike Guam yet. ASX 200 (+0.5%) and Nikkei 225 (+1.3%) were boosted as tensions de-escalated, with markets in Japan the biggest gainer on JPY weakness. KOSPI is shut for holiday while Hang Seng (+0.3%) and Shanghai Comp (+0.6%) conformed to the upbeat tone after the PBoC released around CNY 400bln in MLF loans. Finally, demand for 10yr JGBs was sapped amid the positive risk tone and reduced geopolitical fears, as well as the BoJ continuing to refrain from a Rinban announcement.

PBoC refrained from reverse repo operation today, but released CNY 399.5bln in 1yr MLF loans at 3.2%. (Newswires)

PBoC set CNY mid-point 6.6689 at (Prev. 6.6601)

EUROPE

German Finance Minister Schaeuble said that he is not pleased about the ECB's low interest rate policy which he hopes will end soon. Schaeuble also commented that interest rates will remain low, but we will see an end to ultraloose monetary policy in the foreseeable future and that most people expect the ECB to take a further step at its September meeting towards exiting very expansive monetary policy. (Newswires)

UK

UK will propose setting up an interim customs agreement with the European Union after Brexit to allow the freest possible trade of goods. UK will also propose a time-limited implementation period for new customs arrangements to give certainty for businesses and also wants to secure new trade deals during the interim period. (Times/BBC)

FX

Price action in FX markets centred around the JPY as the currency weakened on safe-haven outflows, which pushed USD/JPY above the 110.00 level and saw similar firm gains among JPY-crosses. Elsewhere, the remainder of FX markets were uneventful with the USD-Index flat near yesterday’s highs, while AUD found mild support from the RBA minutes which were mostly in line with prior statements, but noted optimism regarding domestic and foreign economies.

RBA minutes from August 1st meeting stated that the RBA judged steady policy is consistent with growth and inflation targets. RBA also stated that GDP growth likely picked up in Q2 and noted improvement in overseas economies such as China and Euro area. Furthermore, the central bank added that AUD strengthened amid broad-based USD weakness and that further increase in AUD would dampen growth and inflation. (Newswires)

COMMODITIES

Commodities traded mixed with gold (-0.5%) pressured amid safe-haven outflows as geopolitical concerns subsided. Conversely, Copper benefited from the upbeat risk tone, while WTI failed to make any significant recovery from yesterday’s losses in which prices languished below USD 48/bbl after having met resistance at yesterday’s R1 pivot point of USD 49.19/bbl.

EIA rig productivity report showed total shale regions’ oil production to increase 106K bpd in September to 5.691mln bpd. (Newswires)

GEOPOLITICAL

North Korean leader Kim Jong Un discussed the Guam strike plan with officers and said they will not attack Guam yet, but could have a change of mind based on US actions. (KCNA)

US Defence Secretary Mattis said that if North Korea hits US it's game on and that if North Korea fires at US, it could escalate to war fast. (Newswires)

US

Fixed income moved lower in the wake of Dudley, with 10y T-note futures eeking out fresh session lows and Fed Fund Futures now pricing in a circa 41% chance of the Fed delivering a 25bps hike in December (from around 36% post-CPI on Friday). Sep’17 10y T-note futures settled at 126.17+, down 8+ ticks.

Fed's Dudley (Voter, Dove) said that if the economy evolves in line with his expectations, he would expect he would be in favor of doing another rate hike later this year. Dudley also stated that market expectation is not unreasonable on September balance sheet reduction. (Newswires)

US President Trump campaign adviser Papadopoulos is said to have sought meetings with Russians, which Russian contacts are said to have welcomed the opportunity, according to reports citing internal campaign emails. (Washington Post)