• Asian equity markets traded mostly higher as the region got a mild tailwind from the strong performance on Wall St and continued PBoC restraint on the CNY
• US delayed the decision regarding Huawei licenses following China’s suspension of agricultural purchases
• Italian Deputy PM and League leader Salvini said there is no longer a majority to support the government and it is necessary to hold fresh elections
• AUD/USD tumultuous at the whim of central bank rhetoric including RBA Governor Lowe’s Semi-Annual Testimony and the Statement on Monetary Policy
• Looking ahead, highlights include US PPI, German Trade, UK GDP, Services, Industrial & Manufacturing Output, Canadian Building Permits & Jobs Data

ASIA-PAC

Asian equity markets traded mostly higher as the region got a mild tailwind from the strong performance on Wall St where stocks extended their rebound, helped by the recent better than expected Chinese trade data and continued PBoC restraint on the CNY. As such, ASX 200 (+0.3%) and Nikkei 225 (+0.5%) were higher with notable strength seen in tech stocks after similar gains in the sector stateside and with investors in Tokyo cheering better than expected GDP data, although weakness in real estate and profit taking in gold miners has limited the upside for Australia. Elsewhere, Hang Seng (-0.3%) and Shanghai Comp. (-0.4%) were choppy with initial support seen after the PBoC once again set a firmer than expected reference rate but with gains later pared after participants digested mixed inflation data in which CPI topped estimates but PPI contracted, while reports the US held off on the decision regarding Huawei licences after China stopped agricultural purchases, added to the cautiousness. Finally, 10yr JGBs were higher as they track upside in T-notes and as prices broke through prior at 154.50/55, with the BoJ also present in the market under its bond buying program in which it upped purchases in 1-3yr JGBs but lowered purchases of 3-5yr and 10-25yr maturities.

PBoC skipped open market operations and are net neutral for the week vs. last week's CNY 50bln net drain. (Newswires) PBoC set CNY mid-point at 7.0136 vs. Exp. 7.0222 (Prev. 7.0039)

US delayed the decision regarding Huawei licenses following China’s suspension of agricultural purchases. (Newswires)

Chinese CPI (Jul) Y/Y 2.8% vs. Exp. 2.7% (Prev. 2.7%). Chinese PPI (Jul) Y/Y -0.3% vs. Exp. -0.1% (Prev. 0.0%)

Japanese GDP (Q2 P) 0.4% vs. Exp. 0.1% (Prev. 0.6%). Japanese GDP (Q2 P) Y/Y 1.8% vs. Exp. 0.4% (Prev. 2.2%)

UK/EU

UK PM Johnson said Parliament should honour the Brexit vote and leave on October 31st, while he is hopeful and confident that the EU will show flexibility and a willingness to compromise. PM Johnson responded that he is committed to delivering on the Brexit vote when asked about early elections and reiterated there is a good deal to be done once there is change to the backstop issue. (Newswires) UK Opposition Labour leader Corbyn has written to Cabinet Secretary Sedwill expressing his concern regarding the potential for PM Johnson to use the fact that parliament is dissolved 25 days prior to a general election as a means to push a no-deal Brexit through during such a period. (BBC)

UK Foreign Minister Raab reiterated the UK will leave EU in October and that the government would prefer to leave with a deal but if the EU is not flexible, UK will leave on WTO terms. (Newswires)

Italian Deputy PM and League leader Salvini said there is no longer a majority to support the government and it is necessary to hold fresh elections in which he will seek the PM role in an upcoming vote. There were also reports the League are ready for a confidence vote as soon as next week, while Deputy PM Di Maio stated that he is prepared for elections and that Salvini will pay for taking Italy for a ride. (Newswires)

FX

USD slightly softened and re-approached 97.50 to the downside after US President Trump continued his criticism on the Fed and suggested that a strong currency is making it harder for US manufacturers, although price action was very mild and contained within the tight-range seen for most of the week. The greenback’s major counterparts were also uneventful with EUR/USD subdued just below 1.1200 where there is a large option expiry of nearly EUR 1bln for today’s New York cut and with the single currency hampered by Italian government uncertainty, while GBP/USD amid ongoing Brexit uncertainty. Antipodeans took much of the focus with AUD/USD tumultuous at the whim of central bank rhetoric including RBA Governor Lowe’s Semi-Annual Testimony and the Statement on Monetary Policy. The currency eventually benefited despite the central bank reiterating it is prepared to ease policy if needed, that it is reasonable to expect an extended period of low rates and noted that near-term risks are more to downside, as the comments didn’t suggest much urgency for an immediate cut and Governor Lowe also stated the economy may have reached a gentle turning point. Furthermore, there was brief bout of pressure after Lowe touched upon unconventional policies which he said they were prepared to use if warranted and that there was a possibility we head to zero lower bound on rates, but the pressure to the currency was short-lived as he also suggested that this was unlikely.

At least nine senior figures at the CBRT, including the chief economist, Hakan Kara, were told on Thursday that they were being moved to other roles, according to two people familiar with the matter. (FT)

RBA Governor Lowe said Australian economy is to expand 2.5% this year in which the downward revision reflects weak consumption growth but added he expects quarterly GDP growth to increase gradually and suggested the economy may have reached a "gentle turning point", while he suggested fiscal option should be on the table if demand weakens and that monetary policy has a role to play but would like other options explored. Furthermore, Governor Lowe said they are prepared to use unconventional policy if warranted and that it is possible we head to zero lower bound, although he hopes it can be avoided and added that unconventional policy in Australia is unlikely. (Newswires)

RBA Statement on Monetary Policy reiterated that the board is prepared to ease policy if needed and are observing the labour market, while it added that it is reasonable to expect extended period of low rates, that near-term risks are more to the downside and that economic forecasts include technical assumption rates will move in line with market pricing of a cut to 0.75% by year-end and to 0.5% in H1 next year. RBA lowered GDP growth forecast for Dec. 2019 to 2.50% from 2.75%, maintained Dec. 2020 forecast at 2.75% and raised June 2021 forecast to 3.00% from 2.75%, while it sees underlying inflation for Dec. 2019 at 1.50% (Prev. 1.75%), Dec, 2020 at 1.75% (Prev. 2.00%) and for June 2021 at 2.00% (Prev. 2.00%). (Newswires)

COMMODITIES

Commodities were relatively flat overnight with WTI crude future little-changed as it continues on from the lack of direction seen yesterday where prices oscillated predominantly within the confines of the USD 52 handle amid opposing factors such as the resumption of limited output at Libya’s largest oilfield and with OPEC members reiterating their commitment to the output agreement and keeping the oil market balanced. Gold prices were uneventful with only minimal gains seen amid a weaker greenback and as the USD 1500/oz level provided a base for the precious metal, while copper also conformed to sideways trade as the early momentum in its largest buyer China eventually waned.

UAE Energy Minister said they remain committed to the OPEC and non-OPEC agreement, which has brought greater market balance and improved market stability, while they will continue to support actions which balance the oil market and he is confident OPEC/NON-OPEC members will take a similar stance. (Newswires)

Libya's El Sharara Oil Field (300k BPD) restarted production at a limited level of output, according a source. (Newswires)

Iraq is close to reaching a deal with BP and Eni to build twin seabed pipelines for oil exports in the Gulf which had originally been part of Iraq's USD 53bln project will Exxon, according to Iraqi sources. (Newswires)

CME raised Comex 5000 silver futures margins for August by 13.9% to USD 4100 per contract. (Newswires) ICE is raising margin requirements for ICE Futures US Oil Contract, effective from the close of business on August 12th and which will be reflected in margin calls made the next day. (ICE)

GEOPOLITICS

US President Trump tweeted that Iran is in serious financial trouble and they want to talk to the US, but they are given mixed signals from all of those purporting to represent us including French President Macron. (Twitter) 

US

Trade wars, low inflation, and commentary suggesting neutral rates may be lower than previously seen has been driving the rally in bonds this week, but the rally paused on Thursday after the PBOC overnight weakened the yuan fix by less than models had suggested. The curve was bear steepening in early trade, and yields saw further upside in sympathy with EGBs, on reports that Germany was mulling raising issuance; the report was denied by the Germans, and the Bund gradually pared back the knee-jerk downside. The US sold 30-year bonds sold at 2.335%, tailing 1.2bps. Cover picked up from the prior, and came in in line with recent averages; dealer participation fell from the prior, though was a touch short t=of the recent average; direct participation fell versus the prior, but was still short of the six auction averages. Indirect participation recovered to above 60%, rising from the prior and above recent averages. After the auction, T-Note futures continued rose, though still end the day with yields higher across the curve (2s +4bps, 5s +3.4bps, 10s +2.6bps, 30s +4.4bps). US T-note futures (U9) settled 7+ ticks lower 129-29+.