Asian equities traded higher (Japan away from market) following a strong close in the US on Friday

In FX, USD/JPY and JPY-crosses extended on last week’s upside as the positive risk sentiment spurred further outflows from the safe-haven JPY

Looking ahead, highlights include Eurozone CPI, ECB’s Lautenschlaeger, BoE’s Carney and BoC’s Lane

ASIA

Asia equity markets began the week on the front foot after last Friday’s gains in US, where all majors eked fresh record levels and the S&P 500 just about surmounted the 2500 level. This supported the Asia-Pac region and lifted ASX 200 (+0.4%) and KOSPI (+1.1%) from the get-go, with strength in financials front-running the sectors in Australia. Shanghai Comp. (+0.3%) and Hang Seng (+1.0%) were also positive after better than expected lending data and a substantial liquidity injection of CNY 300bln by the PBoC, although gains across the region were somewhat contained with Japan away for holiday and ahead of key risk events including the FOMC this week.

Japanese PM Abe is reported to be considering dissolving the lower house for a snap election next month and informed the ruling coalition of his plans, with October 22nd seen as a likely date for the snap elections. (FT/Nikkei)

Chinese House Prices YY (Aug) 8.3% (Prev. 9.7%). (Newswires)

Chinese House Prices increased M/M in 46 out of 70 cities (Prev. 56) and increased Y/Y in 68 out of 70 cities (Prev. 70).

PBoC injected CNY 280bln via 7-day reverse repos and CNY 20bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.5419 (Prev. 6.5423)

EUROPE

ECB is said to be estimating monthly QE reinvestments at an average of EUR 15bln per month in 2018. (Newswires)

ECB’s Praet said the eurozone still requires substantial stimulus for inflation to return near 2% target and that they will also act just as ruthlessly if inflation were too high. (Newswires)

S&P raised Portugal rating to BBB- (investment grade) from BB+, affirmed Austria at AA+; outlook stable, affirmed Finland at AA+; outlook stable and affirmed Luxembourg at AAA; outlook stable. (Newswires)

UK

UK Rightmove House Prices (Sep) M/M -1.2% (Prev. -0.9%). (Newswires)

UK Rightmove House Prices (Sep) Y/Y 1.1% (Prev. 3.1%)

UK Brexit Secretary Davis said that the Brexit bill is now 'GBP 60bln and falling'. (Sky News) Foreign Minister Johnson will use a showdown meeting with Theresa May this week to demand reassurances that the Prime Minister will not agree to make substantial payments to the EU after Brexit. (Times)

FX

USD/JPY and JPY-crosses extended on last week’s upside as the positive risk sentiment spurred further outflows from the safe-haven JPY. In addition, JPY was also weakened amid reports PM Abe could be set to dissolve parliament and call a snap election for next month to capitalize on improving approval ratings and weak opposition, which would likely keep Abenomics firmly in place passed the Tokyo Olympics. Antipodean currencies outperformed after AUD/USD and NZD/USD broke above the 0.8000 and 0.7300 levels respectively, with NZD leading the upside heading into Saturday’s polling day on some optimism the ruling National Party could retain power in a closely fought election. Elsewhere, the rest of the major currencies were quiet with DXY subdued, while EUR/USD and GBP/USD are flat amid tentativeness ahead of the looming FOMC.

COMMODITIES

Commodities were relatively uneventful in which WTI crude futures were unchanged but remained in close proximity for another attempt on the USD 50/bbl level to the upside. Elsewhere, demand for safe-haven gold (-0.2%) was dampened, due to the increased global risk appetite which in turn provided support for copper.

US Baker Hughes Rig Count (Total) 936 (Prev. 944). (Newswires)

GEOPOLITICAL

South Korea Defence Ministry said there is possibility of further North Korea provocation including additional ballistic missile launches and a 7th nuclear test. (Newswires)

US Ambassador to the UN Haley said that the UN Security Council has run out of options on containing North Korea's nuclear program and added that the US may have to pass the matter over to the Pentagon. (Newswires)

US is to send an aircraft carrier to Korean peninsula in October to conduct joint training with the South Korean Navy, while reports added that US, South Korea and Japan are to conduct a combined missile alert drill late September tspanough to early October. (Newswires)

US Pentagon said that Russia munitions bombed location in Syria known to Russians to contain US-backed forces. (Newswires)

US

It was generally an uneventful day for US Treasuries, with yields fractionally higher across the curve. The FOMC is expected to keep rates on hold at the conclusion of its meeting next week, however, over the course of the trading week, we have seen the probability of a Fed hike in 2017 rise to around 51% from around 31% last Friday – largely buoyed after the CPI data mid-week. 10 Year Tsy Futs (Dec) settled 3 ticks lower at 126-06+.