• European indices are higher across the board, the FTSE 100 saw a delayed start on technical issues and EU banking names saw a sudden sell-off
• US President Trump doesn’t believe China will retaliate on tariffs, and a call is scheduled with Chinese PM XI
• Iran has not given any assurances on Grace 1 not going to Syria, saying it was not heading there originally
• 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 (-0.6%) 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 (+0.9%) and Shanghai Comp. (+0.3%) 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 said 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)

Chinese customs says it will resumed Most Favoured Nation tariffs on some Australian beef on August 17th, Most Favoured Nation principle to ensure that trade remains as open and free as possible. (Newswires)

US

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'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)

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)

UK Opposition Leader Corbyn had calls today with SNP's Blackford on how to work together to stop a no-deal Brexit and letting the public decide the country's future, talks also covered 'caretaker Corby'., Evening Standard's Murphy citing a Labour Source. (Twitter)

Meeting between German Chancellor Merkel and UK PM Johnson is planned soon., German Government spokesperson. (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) 

Iran has not given any assurances on the tanker not going to Syria; Grace 1 tanker was not heading to Syria originally., Foreign Ministry Spokesperson. (Newswires)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +1.1%] following on from a mixed Asia-Pac session, with Europe continuing to feel tailwind from ECB’s Rehn, who yesterday hinted to a preference for a bazooka of Central Bank stimulus (in the form of rate cuts and APP) whilst stating its better to overshoot with stimulus than undershoot. UK’s FTSE 100 (+0.4%) fails to benefit from the prospect of EU stimulus and also encountered technical problems which delayed the bourse’s open by just over 90 minutes. Sectors are all in positive territory, whilst some early outperformance was seen in the IT sectors in light of NVIDIA’s (+5.3% pre-market) earnings which beat on both top and bottom lines and supported the likes of fellow chip names [AMS (+3.2%), Infineon (+2.2% and STMicroelectronics (+1.2%)]. Meanwhile, the EU banks saw a sudden sharp decline, although the current yield environment is not attractive, some are citing a technical break below 80 in the Euro Stoxx Bank Index (SX7E). In terms of individual movers, Bayer (+2.3%) rose on the back of an upgrade at BAML, whilst Ryanair (-2.6%) shares were impacted by a double downgrade.

FX

GBP - Sterling looks set to end the week on top of the G10 table after a run of firmer or better than expected UK data (average earnings, CPI and retail sales) and latest moves to block a no deal Brexit. Cable has reclaimed 1.2100+ status and inched above yesterday’s high (1.2150) even though the Dollar is also generally bid after Thursday’s strong US data/survey releases, while Eur/Gbp has reversed sharply from ytd highs of 0.9325 through Fib support at 0.9160 and 0.9150 amidst all round Euro weakness on the back of dovish ECB rhetoric and perhaps with some fix flow in the mix as well, as the cross probes 0.9125.

EUR - As noted, the single currency remains under pressure following yesterday’s aggressive policy pronouncements from ECB’s Rehn who is advocating conventional easing and substantial bond buying to be unveiled in September on the premise that too much is better than not enough in terms of stimulus. Hence, Eur/Usd is hovering just above the next sub-1.1100 target area or bidding zone between 1.1080-70 and at this stage expiry option interest at the big figure does not seem likely to factor (especially as there is less than 1 bn rolling off).

DXY - The index is inching closer to nearest chart resistance above 98.000 in wake of the aforementioned bullish US macro updates, at 98.301 vs 98.371, with the Greenback also gleaning momentum at the expense of other majors in contrast to EM currencies that are clawing back losses amidst an improved risk environment overall.

JPY/CHF/NZD - All on the back foot, with the Yen unable to breach 106.00 vs the Buck or threaten decent expiries below (1.1 bn from 105.80-70) and subsequently slipping to circa 106.50 as supply at 106.30 dried up, but holding in ahead of support via a Fib at 106.68 for now. Safe-haven unwinding is also weighing on the Franc that is hovering around 0.9800 and even lagging against the independently weak Euro, albeit still above 1.0900 and pivoting 1.0850. Elsewhere, the Kiwi has not derived any comfort from the upturn in risk sentiment after more deep RNBZ rate cut calls overnight (UBS looking for the OCR to hit 0.5% by February next yesr) and a sub-50 NZ manufacturing PMI, with Nzd/Usd closer to the base of 0.6450-25 parameters.

CAD/NOK - A decent rebound in crude prices has helped the Loonie pare some losses relative to its US counterpart within a 1.3325-1.3290 band, while 1.2 bn expiries at 1.3340 are also providing support ahead of 1.3350, and Eur/Nok has reversed from 10.0320 towards 9.9600 with the aid of oil’s recovery and ECB/Norges Bank policy divergence after the latter kept a 25 bp hike on the agenda for this year, albeit not necessarily next month as previously inferred.

EM - Regional currencies have extended their recoveries vs the Dollar as noted earlier, and irrespective of factors that would appear bearish or negative, like an unexpected 25 bp ease from Banxico and much weaker than forecast Turkish IP. However, Usd/Mxn and Usd/Try are both mid-range circa 19.5750 and 5.5500 respectively with the Peso and Lira getting traction from the wider pick-up in risk appetite. 

Notable Option Expiries:

- EUR/USD: 1.1000 (750M), 1.1080-85 (650M), 1.1100 (950M), 1.1200-05 (705M)

- USD/JPY: 105.00 (1.8B), 105.70-80 (1.1B)

- USD/CAD: 1.3000 (1.2B), 1.3100 (1.6B), 1.3180-85 (1B), 1.3215-20 (610M), 1.3340 (1.2B)

FIXED

Bond prices and corresponding yields still have leagues to go before anyone can honestly roll out the bubble bursting bandwagon, but there has been a subtle change in price movement and perhaps trading tactics as a series of lower highs are prefacing deeper troughs in futures. Indeed, Gilts are a prime if not completely representative example as they attempt to base off a new 134.64 Liffe low (-61 ticks vs -2 ticks at best), while US Treasuries have tested Fib support at 130-21 and Bunds continue top fade well ahead of their early Eurex peak and the contract high posted late on Thursday. Back to Liffe, the Short Sterling strip is now as much as 7.5 ticks adrift, although contacts have noted some upside option activity via Dec19 call butterflies on the 99.500 mid-strike. Ahead, more US data and preliminary sentiment for the current month.

COMMODITIES

A positive session thus far for WTI and Brent futures as the benchmarks recover from yesterday’s losses with upside supported by constructive trade comments from US President Trump, who stated that a call is scheduled with his Chinese counterpart and the September meeting between the negotiators is still on. WTI reclaimed the 55/bbl handle during Asia-Pac hours whilst Brent prices moved north of 59/bbl in early EU trade; and both remain north of these marks. Looking ahead on the docket, OPEC are due to release its delayed Monthly Oil Market report with focus on any revisions to its global oil demand outlook following 2019 downgrades by both the EIA and IEA (to 1.1mln BPD and 1.0mln BPD respectively). Currently OPEC estimates that oil demand will grow by 1.4mln BPD in both 2019 and 2020. On a weekly basis, both benchmarks are poised to post mild gains, albeit this is very much subject to macro-newsflow heading into the final settlement of the week. Elsewhere, gold prices are retreating closer to the 1500/oz level as the Dollar index continues to gain ground above 98.000, whilst profit taking and an unwind in haven positions are contributing to the downside. Meanwhile, copper prices are little changed intraday and remain below the 2.60/lb level as a rise in Chinese refined copper output counterbalances some of the optimism from Trump’s latest China comments. Finally, Dalian iron ore futures are relatively flat as demand woes were neutralised by supply concerns after Brazil’s Vale halted operations at its Viga concentration plant, thus impacting some 330k tonnes of iron ore per month.

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)

Russian Oil output has reached 11.32mln BPD in August (vs. 11.15mln BPD in July), according to sources cited by IFAX. (IFAX)