• Asian equity markets gained as a firmer than expected PBoC reference rate setting and Chinese trade data helped the region shake off initial tentativeness
• DXY flatlined during Asian hours with price action stuck around 97.50 and with uneventful trade observed across its major counterparts
• UK PM Johnson reportedly could call for a general election on November 1st (one day after Brexit), to get a boost from Leave supporters
• Looking ahead, highlights include US Initial Jobless Claims & Wholesale Inventory, Canadian Housing Price Index, US 30yr Auction
• Earnings: Viacom, Activision Blizzard, Adidas, Deutsche Telekom, ThyssenKrupp, Hargreaves Lansdown

ASIA-PAC

Asian equity markets gained as a firmer than expected PBoC reference rate setting and Chinese trade data helped the region shake off the initial tentativeness following the tumultuous day on Wall St, where stocks staged a dramatic intraday recovery and although the DJIA closed in the red, it posted its largest rebound YTD. ASX 200 (+0.4%) was initially subdued amid losses in its top weighted financials sector following earnings from AMP Capital and Insurance Australia Group but then conformed to the improved risk tone led by gold miners after the precious metal rallied above USD 1500/oz for the first time since 2013, while Nikkei 225 (+0.5%) was underpinned by currency flows and KOSPI (+0.9%) outperformed after Japan approved some exports of tech materials to South Korea for the first time since curbs were imposed last month. Hang Seng (+0.6%) and Shanghai Comp. (+0.9%) were positive with sentiment underpinned by relief after the PBoC announced the reference rate which was set beyond the 7.0000 level for the first time since 2008 but not as weak as expected, while participants also digested Chinese trade data which topped estimates across the board and still showed a significant, albeit narrower imbalance in US-China trade. Finally, 10yr JGBs were initially lower with mild pressure seen amid the improved risk tone in the region, although prices then returned flat with support seen amid firmer demand at the 10yr inflation-indexed auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 7.0039 vs. Exp. 7.0205 (Prev. 6.9996)

Chinese Trade Balance (USD)(Jul) 45.1B vs. Exp. 43.20B (Prev. 50.98B). Chinese Exports (USD)(Jul) Y/Y 3.3% vs. Exp. -2.0% (Prev. -1.3%) Chinese Imports (USD)(Jul) Y/Y -5.6% vs. Exp. -9.0% (Prev. -7.3%)

China Trade Surplus with US in July at USD 27.97bln vs. Prev. 29.92bln M/M.

China trade sources said China expects that the 10% tariffs will be implemented on September 1st and expects the tariffs to rise to 25% due to China "standing firm" and not purchasing US agricultural products, according to Fox News' Lawrence. (Twitter/Fox)

China Global Times Editor tweeted that Washington’s repeated bullying has made it meaningless to continue trade talks in the short run and that the sides are caught in a stalemate worse than the last round, while he added that China is mobilizing internally to fight firmly with the US and all official media is participating in the mobilization. (Twitter)

South Korea PM Lee confirmed that Japan has granted export approval of one of the high-tech materials to South Korea for the first time since restrictions were imposed in July, while Japanese Industry Minister Seko warned if improper use of exports to South Korea is discovered, will consider widening the strict examinations beyond the 3 high-tech materials. Furthermore, it was later reported that South Korea is to hold off on plan of removing Japan from its white list. (Newswires)

UK/EU

UK PM Johnson reportedly could call for a general election on November 1st which is one day after the Brexit, to get a boost from Leave supporters as he would be able to tell them he has delivered on the Brexit. (The Sun)

UK Foreign Minister Raab said if the EU believes there can be no changes to the Brexit agreement, "that makes it very hard to see how we can move negotiations forward". In other news, Foreign Minister Raab stated that US President Trump has huge appetite for a free trade agreement with UK, while US Secretary of State Pompeo also said the US is ready to sign a UK-US trade deal after Brexit and that he discussed 5G issues with Raab. (Newswires/Sky News)

Three UK MP’s have, in the context of preventing UK PM Johnson from pushing through a no-deal, have reportedly stated that a method under discussion is for members to amend the necessary motion for Parliament to break in order to accommodate mid-September party conferences; providing MP’s with up to 3 weeks more sitting time. (Guardian)

Leader of the Opposition Corbyn will go to Buckingham Palace in a taxi to tell the Queen “we’re taking over” if PM Johnson loses a vote of no confidence, Shadow Chancellor McDonnell has said. (Times)

UK RICS Housing Survey (Jul) -9 vs. Exp. -1.0 (Prev. -1.0). (Newswires)

FX

DXY flatlined during Asia hours with price action stuck around 97.50 and with uneventful trade observed across its major counterparts including EUR/USDwhich found a base at 1.1200 and with mild gains seen in GBP/USD as it oscillated within the prior day’s tight range, despite a latest poll suggesting it could slip to between 1.1700-1.2000 in the run up to the Brexit and that odds of a disorderly Brexit increased to 35% from 30%. USD/JPY was choppy but well off this week’s lows with support holding at 106.00 and antipodeans nursed recent losses in which AUD/USD recouped all of the prior day’s RBNZ-induced slump as it found solace from the improved risk tone and in tandem with a firmer than expected CNY fix. Conversely, NZD/USD still has far to go for a full recovery as bank officials kept the door open for additional rate cuts in which RBNZ Assistant Governor Hawkesby noted the outlook for rates is more balanced after the 50bps cut but added there is still some probability OCR will need to be reduced further.

RBNZ Assistant Governor Hawkesby said outlook for rates is more balanced after 50bps cut but added there is still some probability OCR will need to be reduced further, while Hawkesby also stated the central bank are watching inflation expectations closely and that unconventional tools are a contingency in the event inflation tanks although they would need to exhaust conventional policy tools first. (Newswires)

COMMODITIES

Commodities were mostly higher amid the improved risk sentiment which helped WTI crude futures recoup a majority of the yesterday’s near-5% drop to briefly below the USD 51.00/bbl that was largely attributed to the initial bearish sentiment in the US as well as a surprise build in EIA crude inventories. Nonetheless, WTI has recovered to firmly above USD 52.00/bbl with the energy complex underpinned overnight amid a turnaround in risk appetite and with Saudi said to be mulling options to support oil prices. Elsewhere, gold was flat with prices choppy around the 1500/oz at it remained at its highest levels in 6 years, while copper was underpinned by the improvement in sentiment and after better than expected Chinese trade data.

Saudi official said they are considering all options to stop the oil price fall and are in talks with producers to stem the slide in oil prices. (Newswires)

Indonesia played down rumours of a nickel import ban and said it is to revoke permits if smelter targets are not met. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said he is hopeful that talks with North Korea will resume and that negotiations are being planned for in a few weeks. (Newswires) 

US

Yields were lower across the curve, but major curve spreads were mixed, though hadn’t deviated by more than 2bps on the session. There was far more attention on the 3m/10-year spread, which inverted to over 40bps as global yields sank, taking the spread to the most inverted since 2007. Inspiring today’s price action was risk-off flows, as China fixed the yuan weaker, and RBNZ and RBI cut rates by more than expected, with the former citing the impact of global trade on its economy, and suggesting that NIRP could be an option ahead. Fed pricing on Wednesday was relatively unchanged looking through to the end of next year, where around 109bps of easing is priced. Fed’s Evans (dove, voter) hinted at more accommodation ahead, like his dovish colleague Bullard did early in the week, but was pushing a data-dependent line with regards to the September meeting – the implication is that all FOMC participants that have spoken this week have not explicitly alluded to a rate cut on 18th September, although they have not leaned back against market pricing, which is pricing 35bps of easing, suggesting that the market is still pricing a small chance of a double-barrel rate cut. Back to the Treasury complex, yields have pared back more than half of their fall, and it seems the driving factor was the aforementioned 3m/10-year spread coming off lows. US T-note futures (U9) settled 12+ ticks higher at 130-05.

Fed's Evans (Voter, Dove) said the July cut was justified on the basis of low US inflation alone and that more accommodation is warranted, especially given economic headwinds. Evans added that brinkmanship trade negotiations means volatility and that close attention has to be paid, while he sees "mid-cycle adjustment" where the Fed is now targeting a rate 50bps below neutral, instead of 50bps above and sees long-run neutral rate as 2.75%, but may be lower now due to headwinds. (Newswires)