• Asian equity markets struggled for firm direction following the mixed lead from Wall St where most major indices eventually saw some composure
• US President Trump said he doesn't think China will retaliate to an increase in tariffs and understands the September meeting between negotiators is still on
• Fed Chair Powell reportedly banned Fed staff from any public appearances and is determined not to fuel the struggle between an independent Fed and President Trump
• Looking ahead, highlights include US Building Permits & Housing Starts, University of Michigan Sentiment, OPEC Monthly Oil Market Report, Norges Bank’s Matsen

ASIA-PAC

Asian equity markets struggled for firm direction following the mixed lead from Wall St where most major indices eventually composed themselves after the recent sell-off but with price action tumultuous on continued US-China trade uncertainty. ASX 200 (Unch.) was subdued as upside in healthcare and financials counterbalanced weakness in commodities and telecoms, with a heavy slate of earnings adding to the mix. Nikkei 225 (Unch.) was restricted by an uneventful currency, while KOSPI (-0.8%) underperformed as it caught up to the recent rout on return from holiday and amid a deterioration in inter-Korean relations after North Korea fired 2 more projectiles and stated it has no intention to talk with South Korea again. Hang Seng (+0.7%) and Shanghai Comp. (+0.7%) were initially choppy amid conflicting rhetoric from both sides of the trade spat. In addition, policymakers later contributed to the outperformance in the mainland after the PBoC’s continued liquidity efforts resulted to a net weekly injection of CNY 300bln and with the NDRC announcing to roll out a plan to boost disposable incomes. Finally, 10yr JGBs initially edged higher to test the 155.00 level to the upside as 10yr yields fell to -0.25% which was the lowest since 2016, although prices then reversed in the aftermath of the BoJ’s Rinban operation in which it reduced purchases of 5yr-10yr bonds for the first time since December as speculated, to stem the decline in yields.

PBoC injected CNY 80bln via 7-day reverse repos for a net weekly injection of CNY 300bln vs. Prev. net neutral last week. PBoC set CNY mid-point at 7.0312 vs. Exp. 7.0306 (Prev. 7.0268)

US President Trump reportedly pressured Treasury Secretary Mnuchin to label China ‘currency manipulator which Mnuchin had previously resisted. In other news, President Trump suggested that China could have its first recession or worse if they don’t get this trade deal with the US done and noted there is there is disinvestment in China right now. (Washington Post/Newswires)

US President Trump later he doesn't think China will retaliate to an increase in tariffs and understands the September meeting between negotiators is still on, while he added that he has a call scheduled with Chinese President Xi and will be speaking to him soon. Trump also stated that US consumers may have to pay something at some point to cover the cost of tariffs on Chinese goods, that China very much wants to make a deal and he thinks the trade war will be fairly short. (Newswires)

China NDRC said it is to roll out a plan for 2019-2020 to boost the disposable income of the population, while it added that China will stick to deleveraging and avoid risks. (Newswires)

UK/EU

Times Deputy Political Editor Swinford tweeted that PM Johnson is poised to trigger repeal of European Communities Act as he cements his do or die pledge to leave EU on Oct 31st.Furthermore, Brexit Secretary Barclay is to sign the commencement order within days enabling the EU withdrawal act to come into force, which Barclay stated ‘it’s the do or die pledge in black and white. It is not merely symbolic’ and ‘Once it’s signed that’s it, the UK is leaving.’ However, Dominic Grieve stated ‘MPs would be able to reverse the order to stop a no-deal Brexit’ and ‘At the end of the day it is a matter for the majority of the House and it can be reversed'. (Twitter)

UK Lib Dem leader Jo Swinson is said to have agreed to discuss strategy for blocking a no-deal Brexit with Labour leader Corbyn despite initially rejecting the plan. (PoliticsHome) Hardline Conservative remainer MPs suggested they could favour a Jeremy Corbyn premiership over a no-deal Brexit, lifting the Labour leader’s plan to lead a caretaker government. (Times)

FX

DXY extended on gains above the 98.00 level after the prior day’s mostly encouraging releases. The gains in the greenback was also a function of weakness in its major counterparts including EUR/USD which briefly slipped below the 1.1100 handle after comments from ECB’s Rehn, while GBP/USD was lacklustre for a bulk of the session after failing to hold above the 1.2100 level once again. Elsewhere, USD/JPY mirrored the indecisive risk tone although has found a base around 106.00, and antipodeans were mixed with NZD/USD slightly pressured after a deterioration in New Zealand Business NZ PMI data and with mild upside seen in AUD/USD after a breakout of Thursday’s range and amid the gradual improvement seen in China. Mexican Central Bank cut its Interest Rate by 25bps to 8.00% vs. expectations for a hold, while it noted that the board was not unanimous in its decision as one member voted to hold rates at 8.25%. The central bank added that balance of risks for growth are still tilted to the downside and that upwards risks to inflation comes from pressure to the MXN from internal and external factors, as well as US tariffs. (Newswires)

COMMODITIES

Commodities were varied overnight with outperformance seen in WTI crude which reclaimed the USD 55.00/bbl to the upside, although prices remained within the prior session’s ranges where volatility was brought about by conflicting US-China trade rhetoric, while the recent release of the Iranian Grace 1 tanker by Gibraltar failed to impact prices but spurred criticism from the US which failed in its attempts to detain the vessel. Elsewhere, gold prices were subdued as the greenback held firm, while copper was steady with mild minimal gains seen as Chinese sentiment began to improve.

China stats bureau said July iron ore production rose 9.9% Y/Y to 74.0mln tons, refined copper production rose 4.8% Y/Y to 801k tons and alumina production rose 2.9% Y/Y to 6.22mln tons. (Newswires)

GEOPOLITICS

North Korea state media said the country will never talk to South Korean officials again in response to South Korea President Moon’s speech on unification by 2045, while it was also reported that North Korea fired 2 projectiles to the East Sea. (Newswires) 

US

Bull-steepening was the order of the day, with the 2s30s spread widening by around 4bps, and 2s10s rising by around 3bps, moving out of inversion. 10-year yields found fresh three-year lows, while the 30-year yield printed fresh record lows. Today's price action has been attributed to continued concerns on global trade, and economic growth cooling. However, the Treasury complex also moved higher with Bunds (where yields continue to find fresh lows), on reports Oli Rehn was calling for big easing at the next policy meeting. Back to the Fed, in wake of the solid 0830am data, there was some lightening of rate cut pricing, however, as the narrative returned to risk-off, money markets resumed pricing a 45% chance of a double rate cut in September. Looking ahead, around 114bps of easing is priced through the end of 2020, which is up slightly vs the end of last week. US T-note futures (U9) settled 14 ticks higher at 130-30+.

US President Trump said Fed Chair Powell should be cutting rates because other countries are lowering rates and we want to remain even. (Newswires)

Fed Chair Powell reportedly banned Fed staff from any public appearances and is determined not to fuel the struggle between an independent Fed and President Trump. Furthermore, the reports added that appearances at conference have been cancelled, all scheduled interviews have been abandoned and any comments on or off the record are outlawed for staff amid growing economic indicators that suggest the US is heading into a recession and with relations with the White House have reached a new low. (Spectator)

Fed's Bullard (Voter, Dove) said the world is in the middle of a global slowdown, while he added that yield curve inversion needs to be sustained for a recession and will see how it develops. Bullard added he will not prejudge the September meeting but is watching the TIPs breakeven showing low inflation expectations which is currently not high enough for him, while he wants to hit the inflation target and does not mind going above it. (Fox Business News)

Fed's Kashkari (Non-Voter, Dove) said the Fed will debate what to do on rates and that he is leaning towards further rate reduction, while he added that Fed officials are committed to ignoring politics and focusing on jobs. Kashkari also noted that he sees some cautious signs as well as some signs of optimism and that it is definitely a nervous time. (Newswires)