Asian equities traded with little in the way of firm direction as equity markets sspanugged off mounting geopolitical tensions

NZD extended on post-election losses with disappointing domestic data adding to the woes for the Antipodean currency

Looking ahead, highlights include US new home sales, APIs, ECB’s Praet, Fed’s Mester and Brainard, US 2yr note auction

ASIA

Asia equity markets lacked any solid direction after the weak momentum from US where all 3 major indices closed negative due to geopolitical concerns, while the Nasdaq took the brunt of the worst day for the tech sector in over a month. This pressured ASX 200 (-0.1%) and Nikkei 225 (-0.4%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (Unch.) and Shanghai Comp. (+0.1%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation. Finally, 10yr JGBs were relatively flat with only minimal support seen from the cautious risk tone in Japan, while today’s 40yr auction also failed to spur firm demand despite the b/c at the highest since 2015, as this was relatively stable from the prior.

PBoC injected CNY 40bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6076 (Prev. 6.5945)

BoJ Minutes from July 19th-20th meeting stated that Japan's economy was expanding moderately and that financial conditions were highly accommodative. The minutes also stated that exports are on an increasing trend and that momentum towards achieving the 2% price stability target was being maintained. (Newswires)

EUROPE/UK

ECB's Coeure (dove) said he is not scared by QE exit, but just wants to implement it carefully. (Newswires)

UK Brexit secretary Davis, and the EU’s chief negotiator Barnier, have clashed over the UK’s exit bill and Britain’s request for a transition period after Theresa May’s speech in Florence last week failed to unlock the stalemate in negotiations, (Guardian)

FX

JPY maintained firmness as the safe-haven currency benefitted from the risk averse tone in Japan. Elsewhere, NZD/USD extended on its post-election weakness after disappointing data releases including the latest trade data and business confidence surveys, while other major currencies were uneventful and took the opportunity to nurse yesterday’s losses against the greenback.

New Zealand Trade Balance (Aug) -1235M vs. Exp. -825.0M (Prev. 85.0M, Rev. 98.0M). (Newswires)

New Zealand Exports (Aug) 3.69B vs. Exp. 4.05B (Prev. 4.63B)

New Zealand Imports (Aug) 4.92B vs. Exp. 4.80B (Prev. 4.55B, Rev. 4.53B)

New Zealand ANZ Business Confidence (Sep) 0.0% (Prev. 18.3%)

New Zealand ANZ Activity Outlook (Sep) 29.6% (Prev. 38.2%)

COMMODITIES

Commodities remained firm and saw mild extensions on recent gains, with WTI crude futures above USD 52/bbl and at its highest since April after yesterday’s over 3% rally. Elsewhere, copper mirrored the broad strength across the complex, while safe-haven gold (+0.2%) was mildly underpinned as geopolitical concerns lingered.

GEOPOLITICAL

US Pentagon said if North Korea does not stop its provocative actions, it will make sure the President is presented with options. (Newswires)

North Korea was reportedly moving airplanes and boosting its east coast defence after the recent dispatch of a US bomber which flew over waters near its east coast. (Yonhap)

US

Treasury trade tracked risk sentiment, moving to fresh highs following the comments from North Korea’s foreign minister, and we consolidated around best levels for the remainder of the session. US Dec’17 10y T-note futures settled at 126.02, up 10+ ticks.

Fed's Evans (voter, dove) said he's open-minded about possible rate hike at one of next few meetings and that he is nervous recent inflation weakness might be more structural. (Newswires)

Fed's Kashkari (voter, doves) said the Fed should be under no pressure to increase rates and that there is time for inflation to move back towards target, while he added he does do not see signs that US economy is near to overheating. (Newswires)

The Graham-Cassidy healthcare bill failed to move forward at the Senate as at least 3 Republican Senators opposed the bill following the CBO estimate which stated the healthcare bill would reduce deficit by USD 133bln between 2017-2026 and the number of insured people would be cut by millions. (Newswires)