• European indices (+0.9%) are benefiting from the improved risk sentiment thus far, to the detriment of the fixed income complex and safe havens
• PBoC announced that it will make the Loan Prime Rate the new Benchmark Reference Rate, which will be linked to the Medium-term Lending Facility rate
• US President Trump reiterated he is not ready to make a deal with China, reports stated that the Trump administration will grant Huawei an additional 90-day extension, a decision is to be made today
• Looking ahead, highlights include Fed’s Rosengren

ASIA-PAC

Asian equity markets were higher across the board as the region took impetus from last Friday’s firm gains on Wall Street and as composure returns to the market following the recent turmoil. ASX 200 (+1.0%) and Nikkei 225 (+0.7%) were positive in which the tech and energy sectors led the advances and with firm gains seen in the likes of Beach Energy and Lend Lease post-earnings despite a decline in the latter’s profits, as it stressed the strong position of its core business and confirmed several parties are conducting due diligence on its engineering unit. Tokyo sentiment also found relief from the latest Japanese trade figures which showed Exports and Imports continued to contract, albeit at a slower pace than what the market feared. Hang Seng (+2.0%) and Shanghai Comp. (+2.1%) conformed to the positive tone after the PBoC continued its liquidity efforts and announced interest rate reforms in which it will make the new Loan Prime Rate the benchmark rate for bank loans which is aimed at lowering borrowing costs. Furthermore, Hong Kong outperformed despite the continuation of mass protests over the weekend which were of a peaceful nature, while participants await the US decision on Huawei as reports suggested the Trump administration will grant an additional 90-day extension to the licence which allows the Chinese tech firm to conduct some business with US customers. Finally, 10yr JGBs were slightly lower amid the heightened risk appetite but with downside also stemmed by the BoJ’s presence in the market for a total JPY 760bln in 1yr-5yr JGBs.

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0365 vs. Exp. 7.0370 (Prev. 7.0312)

PBoC announced a new interest rate reform plan which will make the Loan Prime Rate the new Benchmark Reference Rate to be used by banks for lending which is aimed at supporting funding as well as lower borrowing costs for small businesses, while it is to be set monthly (20th of every month) and will be linked to the Medium-term Lending Facility rate. (Newswires) Note: current 1yr LPR stands at 4.31% vs. Benchmark Rate 4.35%. China is to publish the new LPR from August 20th.

US President Trump reiterated he is not ready to make a deal with China and that China tariffs have cost nothing or very little, while he added the US does not want to do business with Huawei and a decision will be made on Monday. Trump also commented that Chinese President Xi has something in mind to do with trade and suggested we'll see what happens. Conversely, there were separate reports that the Trump administration will grant Huawei an additional 90-day extension on a licence which allows the Chinese tech firm to conduct some business with US customers. (Newswires/WSJ)

White House Adviser Kudlow said US and Chinese negotiators will talk in the next week or 10 days and that if lower level talks pan out, we will still have a face to face meeting in September, while he added that China’s response to Hong Kong protests could impact trade discussions. (Newswires)

Hundreds of thousands of protesters marched along downtown Hong Kong on Sunday in what was the largest rally in weeks which forced police to block roads, although the rally was reported to be peaceful. (Newswires)

Japanese Trade Balance (JPY)(Jul) -249.6B vs. Exp. -200.0B (Prev. 589.5B, Rev. 589.6B). (Newswires) Japanese Exports (Jul) Y/Y -1.6% vs. Exp. -2.2% (Prev. -6.7%, Rev. -6.6%) Japanese Imports (Jul) Y/Y -1.2% vs. Exp. -2.7% (Prev. -5.2%)

GEOPOLITICS

US issued a warrant to seize the Iranian oil tanker Grace 1 which was just released by Gibraltar. Subsequently, Iran has warned the US against seizing its oil tanker in open seas, said the Iranian Foreign Ministry. (Newswires)

China's Foreign Ministry Spokesman Geng said the US will bear all the consequences of the arms sale to Taiwan, and China has noted reports around the sale of F-16's to Taiwan. (Newswires)

UK/EU

UK Brexit Secretary Barclay signed order to repeal the 1972 Brussels Act which will end the EU law in UK effective October 31st, while reports also noted that the government plans to end freedom of movement for EU citizens on the first day of Brexit. (Newswires)

UK Labour Leader Corbyn will meet opposition parties next week to discuss tactics aimed at stopping a no-deal Brexit, "We are building consensus" said the Shadow Chancellor. (Newswires)

Leaked government documents stated likely reasonable scenarios in the event of a no-deal Brexit include the risk of shortages on food, medicine and fuel, as well as a 3-month meltdown at UK ports, rising social care costs and a hard border with Ireland. (Newswires)

BoE Governor Carney says at this stage, negative interest rates are not seen as an option in the UK and he is not in favour of changing the 2% inflation target. (Newswires)

ECB’s Muller says that EZ inflation is too low and a decision regarding stimulus could come in September. (Newswires)

German Finance Minister Scholz said they could spend up to EUR 50bln if needed and that the country has the fiscal strength, as well as the ability to counter future economic crisis with full force. (Newswires/Der Spiegel) This follows reports last week that the German Government is said to be prepared for deficit spending in the case of a recession, according to Der Spiegel.

Bundesbank state that the German economy could have continued to shrink over the summer, and that overall economic performance may decline slightly again, due to weak industry. (Newswires)

Italy's League Economics Chief said the 2020 budget must cut taxes by increasing the deficit slightly. (Newswires)

EU HICP Final YY Jul 1.0% vs. Exp. 1.1% (Prev. 1.1%, Rev. 1.3%)

- EU HICP Final MM Jul -0.5% vs. Exp. -0.4% (Prev. 0.2%)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +0.9%] following on from a stellar Asia-Pac handover in which Hang Seng and Shanghai Comp. closed higher by 2%. Sectors are all in the green with underperformance seen in some defensive sectors amid the overall risk appetite. Meanwhile, material and energy names outperform amid price action in the base metal and oil complexes; while the European Banking Index has experienced a turnaround from last weeks poor performance as reports around the size of potential fiscal stimulus for Germany (USD 55bln according to Finance Minister Scholz) have provided the first figures to the possible package. As such, the likes of Deutsche Bank (+2.5%) and Commerzbank (+2.4%) are notably firmer this morning. Looking at individual movers, Bpost (-1.5%) shares fell towards the bottom of the Stoxx 600 as its CEO is to reportedly step down in 2020. At the other end of the index, CNH Industrial (+3.2%) rose amid a broker upgrade at Morgan Stanley. Finally, BASF (+1.5%) is among the top DAX performers as its CEO reaffirmed the Co’s intent to steadily increase dividend.  

Estee Lauder Companies Inc (EL) Q2 19 (USD): adj. EPS 0.64 (exp. 0.52), Revenue 3.59bln (exp. 3.52bln)

FX

DXY - The Dollar remains firm vs most G10 counterparts and EM currencies, but the index has lost some momentum after reaching 98.341 on Friday and has eased back towards 98.000 within a 98.242-134 range. In truth, trade has been rather muted overall at the start of a week that is relatively light on data/events until Wednesday when FOMC minutes are due and are followed by preliminary PMIs, ECB minutes and the Jackson Hole Symposium.

JPY/GBP/NZD/SEK - The major ‘underperformers’ as the Yen extends is retreat from recent lows to 106.65 and close to Fib resistance ahead of DMAs either side of 107.00 amidst a further rebound in US Treasury yields and Japanese trade data showing shallower than forecast declines in both imports and exports. Meanwhile, UK political/no deal Brexit jitters have scuppered Sterling’s revival on the back of last week’s better than expected run of data, with Cable slipping back towards 1.2100 and Eur/Gbp back up over 0.9150 vs sub-0.9100 at one stage. Note, comments from BoE Governor playing down NIRP and any change in the 2% inflation target have not really impacted, though Gilts and 3 month futures are weaker and the curve is steeper. Elsewhere, the Kiwi is lagging down under after recent downbeat NZ macro releases, like the sub-50 manufacturing PMI, with Nzd/Usd hovering just above 0.6400 and AUD/Nzd firm within a 1.0550-70 range as Aud/Usd holds up better between 0.6800-70 parameters. Back to the cross, MS advocates a long position around current levels for 1.1100 and with a 1.0280 stop based on diverging RBNZ/RBA policy outlooks in wake of the latest Aussie jobs report that revealed a bigger rise in headline payrolls and mostly due to full-time hiring. Similarly, the Sek is struggling to keep pace with its Scandi peer on relative Riksbank vs Norges Bank rate guidance and with the Nok also propped up by firm oil prices. Indeed, Eur/Sek is hovering around 10.7400 whereas Eur/Nok has pulled back from circa 10.0000.

EUR/CAD - The single currency is also benefiting from a retracement in Eurozone debt yields amidst more German Government reports about fiscal spending to offset recession, and as the Bundesbank warns that the economy may have shrunk further through the summer. Hence, Eur/Usd is resilient either side of 1.1100 even though final Eurozone CPI was revised a bit lower and ECB’s Muller expresses concern about inflation being too soft, with a decision about more stimulus likely to come next month. As noted above, crude has firmed up again and the Loonie is also drawing some support as Usd/Cad sits closer to the base of a tight 1.3277-57 band.

EM - Broad losses vs the Greenback, but the Argentine Peso may be in for additional investor angst given a double dose of credit rating punishment from S&P and Fitch late on Friday. Note, Usd/Ars closed at 54.8340.

FIXED

Bonds have retreated further, and with losses accelerated through short-term support before last Friday’s intraday lows gave way to spark another bout of stop-sales/long liquidation. Bunds hit 177.84, Gilts 133.99 and 10 year US Treasuries 130-09+, but all benchmarks have subsequently found a base, for now at least. However, curves remain steeper and retracement from August 15 contract peaks is still dominating price action as risk sentiment stabilises and selling upticks rather than buying dips emerges as the new mantra. Ahead, no US data on the slate but Fed’s Rosengren is due to speak later in the session.

COMMODITIES

The energy complex is currently benefitting from the overall risk appetite in the market which sees WTI futures above the 55/bbl mark whilst Brent futures remain north of 59/bbl. Prices may also be deriving some support from reports of a drone attack at Saudi’s 1mln BPD Shaybah oilfield, albeit the fire was extinguished at a gas processing plant and there has been no reported impact on production. Looking at the complex from a technical perspective, WTI sees a golden cross forming with its 200 and 50 DMAs both around 56.15. Elsewhere, gold prices are subdued amid the overall risk appetite with the yellow metal back at the 1500/oz level, session low of USD 1497/oz thus far. Meanwhile, the risk tone has provided supported tocopper prices as the red metal reclaims 2.60/lb to the upside.

Houthi rebels conducted a drone attack on oil and gas facilities at Saudi Arabia’s 1mln BPD Shaybah field although they failed to disrupt production. (Newswires)