Asian equities saw a lack of firm direction overnight after a mixed close on Wall Street which saw the DJIA post its 4th consecutive loss

Fed Chair Yellen reiterated that a gradual approach to rate hikes is appropriate but also warned of moving too gradually

Looking ahead, highlights include US durables, Pending Home Sales, DoE, RBNZ rate decision and further central bank speak

ASIA

Asia equity markets were mixed amid a lack of catalysts and after similar indecisiveness on Wall St. where the DJIA posted a 4th consecutive loss and the Nasdaq outperformed as tech rebounded from its worst performance in over a month. ASX 200 (-0.2%) was negative amid weakness seen in commodity stocks and gold miners after the precious metal slipped below USD 1300/oz, while Nikkei 225 (-0.4%) failed to benefit from a weaker currency and was pressured on mass ex-dividends with over 120 stocks in Nikkei 225 and over 1000 in the TOPIX trading ex-dividend today. Chinese markets outperformed their peers with Hang Seng (+0.5%) and Shanghai Comp. (Unch.) kept afloat after firmer Chinese Industrial Profit growth, although upside was limited amid the absence of open market operations by the PBoC. Finally, 10yr JGBs were subdued and tracked the losses in USTs, as a risk averse tone in Japan and BoJ Rinban operation for JPY 880bln of JGBs failed to inspire demand.

Chinese Industrial Profits (Aug) Y/Y 24.0% (Prev. 16.5%). (Newswires)

PBoC refrained from open markets operations today. PBoC set CNY mid-point at 6.6192 (Prev. 6.6076)

EUROPE/UK

UK PM May ‘took dictation’ from the European Commission when she announced her intentions to pay a Brexit divorce bill during her speech in Florence last week, according to sources in Brussels. (Telegraph)

Britain is fighting a GBP 10bln demand to fund the rising pensions bill for retired Eurocrats after Brexit, according to EU accounts seen by the Times. (Times)

FX

FX price action was very quiet during Asian hours. Nonetheless, the lack of overnight catalysts helped the USD extend on the prior session’s Yellen-driven gains, after the Fed Chair reiterated that a gradual approach to rate hikes is appropriate but also warned of moving too gradually. This kept the greenback’s major counterparts subdued in which EUR/USD and AUD/USD languished below the 1.1800 and 0.7900 handles respectively, although CAD bucked the trend and remained firm after Canadian Finance Minister Morneau commented yesterday that he sees higher rates ahead.

Canadian Finance Minister Morneau said he sees higher rates ahead given where the economy is at but noted rates are still historically low, while he added the Canadian economy can do well with the currency at current levels. (Newswires)

COMMODITIES

Commodities eked mild gains overnight in which WTI crude futures reclaimed the USD 52/bbl level as a surprise draw in API crude inventories provided mild support for oil. Elsewhere, gold (+0.1%) partially nursed some of yesterday’s US losses where the precious metal slipped below USD 1300/oz after Fed Chair Yellen’s comments, while copper also pared recent declines amid a somewhat positive tone and firm Industrial Profits in its largest consumer China.

US API weekly crude stocks (Sep 22) -761K (Prev. 1443K). (Newswires)

GEOPOLITICAL

US President Trump stated that the US is totally prepared for North Korea military option if it should have to resort to that and that North Korea’s leader is acting very badly. (Newswires)

US

Treasuries also moved lower, with yields hitting highs on Yellen, but they ultimately tracked dollar gyrations and Treasuries ended just off worst levels in relatively tight trade. US Dec’17 10y T-note futures settled at 126.00, down 2 ticks, with CME Fed Fund futures now pricing a circa 80% chance of a 25bps FOMC hike by year end.

Fed Chair Yellen (Chair, Dove) said a gradual approach to rate hikes is particularly appropriate in light of subdued inflation and low neutral rate, but added that the Fed should be wary of moving too gradually. Yellen added that to get to a neutral stance would require a bit more tightening but not an excessive amount. (Newswires)

Fed's Bostic (Non-Voter, N/A) is pretty comfortable with a December rate hike, while Bostic is said to be mindful FOMC has undershot inflation target for a number of years and wants clear evidence that inflation is rising. (Newswires)

US Senate Health Committee Chair Alexander said will consult with Democrat Senator Murray and seek consensus on limited bipartisan healthcare plan to lower premiums for 2018 and 2019. (Newswires)

US President Trump's tax framework is said to cap corporate tax at 20% and have a 35% individual tax rate with an option to go higher. (Newswires)