• European equities (bar Italy) benefitting from the improved risk tone amid positive developments from Turkey and China
• Atlantia shares seeing heavy losses as Italian traders return to their desks after the Genoa bridge disaster
• Looking ahead, highlights include US housing starts, building permits and initial jobless claims

ASIA

Asian equity markets traded lower across the board on spill over selling from Wall St where all majors declined amid a tech and energy rout, although the announcement of US-China trade talks provided some glimmer of hope. ASX 200 (-0.1%) and Nikkei 225 (-0.1%) were negative from the open as Australia was weighed by a slump across commodities including the 3% drop in oil and with hefty opening losses in Japan as exporters bore the brunt of a firmer JPY. Elsewhere, Hang Seng (-0.8%) conformed to the negative tone after index heavyweight Tencent sparked off the global tech rout, and ended Asia-Pac -3%, due to its first profit decline in 13 years and the Shanghai Comp. (-0.6%) slipped to a 2½-year low alongside the broad weakness which had earlier dragged the MSCI EM Index into bear market territory. However, sentiment then improved and some of the regional majors nearly pared all their losses after reconciliation hopes were spurred by news that China’s Vice Commerce Minister is to visit US for trade discussions later this month. Finally, 10yr JGBs head into the European morning flat although price action was choppy overnight alongside the tumultuous tone in riskier assets, while today’s 5yr auction failed to spur demand as the b/c and accepted prices declined from prior.   

China Vice Commerce Minister Wang is to visit US for trade discussions later this month. Furthermore, reports noted that China will send a trade delegation after the US invited them and that they will be meeting with Treasury Deputy Secretary Malpass. while Mofcom also stated that China welcomes dialogue but will not accept unilateral trade measures. (Newswires)

PBoC injected CNY 40bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8946 (Prev. 6.8856)

EU/UK/US

EU’s Brexit negotiators are concerned they are being bugged by the British Secret Service after the UK obtained sensitive material within hours of them being presented at an EU Officials meeting last month. (Telegraph)

US President Trump stated tariffs will rescue the US steel industry, while he also stated he is considering interview with Special Counsel Mueller. In addition, there were separate reports that US President Trump's team is preparing to oppose a potential subpoena from Special Counsel Mueller. (Newswires)

Mexico Economy Minister Guajardo said there is no guarantee for a NAFTA agreement but added that progress is being made. (Newswires)

Norwegian Key Policy Rate 0.50% vs. Exp. 0.5% (Prev. 0.5%). Norges Bank said the outlook and balance of risks don't appear to have changed substantially since the June report and the outlook and balance of risks suggested that the key policy rate would most likely be raised in Sept. 2018. The upturn in the Norwegian economy is continuing broadly in line with expectations set out in June and Underlying inflation is below target, but driving forces indicate it will rise further out. (Newswires)

UK Retail Sales MM Jul 0.7% vs. Exp. 0.2% (Prev. -0.5%). ONS said that clothing sales possibly boosted by extended discounting, world cup and sunshine supported food sales. (Newswires)

EQUITIES

European stocks have started the day higher (ex-Italy) amid an improved risk tone, as China and the US are to have renewed trade talks, and Qatar are said to invest USD15bln into Turkey.

The DAX has bounced from 6 week lows seen on Wednesday and is back in positive territory with the DAX’s gains led by SAP (+2.5%). The FTSE is the outperforming bourse and is up ~0.4%. Both these bourses are being driven by tailwinds from positive Cisco earnings yesterday, and improved US-Sino relations, lifting the IT sector into outperformance.

The FTSE MIB is the marked underperformer after Atlantia (-15%) shares failed to open for just under an hour, and eventually started the day down 23%. This comes after both playing catch-up after yesterday’s index closure, and news that the Italian Government is seeking reparations after the Genoa Bridge disaster on Tuesday.

FIXED INCOME

Some divergence in 10 year debt futures as Bunds and Gilts regroup in wake of the UK data wobble to trade close to best levels of 163.53 and 123.73 respectively (still 18 and 10 ticks down on the day, but 17 and 14 ticks off Eurex and Liffe lows) on no further follow-through selling or ongoing improvement in overall risk sentiment. However, US Treasuries are still closer to the bottom of overnight session ranges and in bear-steepening mode after Wednesday’s solid retail sales report and ahead of a busy line up today including housing starts, permits, claims and Philly Fed.

FX

EM - Another risk revival emanating from the region after reports that Turkey will get a much needed financial boost from Qatar ($15 bn) ahead of the Finance Minister’s investor call that could tempt others to follow suit. Meanwhile, plans are afoot for China and the US to engage in trade talks before the next scheduled exchange of import tariffs come into effect, and collectively this has given the Lira more recovery momentum (Usd/Try back down and more convincingly below 6.0000), alongside the Yuan (Usd/Cnh sub-6.9000 vs almost 6.9500 at one stage, and even though the PBoC pushed up the Usd/Cny mid-point again, to 6.8946 from 6.8856 on Wednesday) and other contagious EM currencies.

DXY - The index has duly retraced further amidst the broad improvement in sentiment having stopped a fraction short of 97.000 yesterday and is currently pivoting around 96.500.

AUD/NZD/EUR - The biggest beneficiaries from latest Chinese and Turkish-related news having borne the brunt in the G10 sphere when aversion was more prominent. Aud/Usd has bounced firmly from near 0.7200 lows above 0.7250, but looks capped ahead of a hefty 1 bn option expiry at 0.7300 and somewhat undermined by mixed Aussie jobs data overnight. The Kiwi has also pared recent losses to just south of 0.6550, though like its antipodean counterpart seems top heavy approaching the next big figure, as does the single currency at 1.1400 vs its circa 1.1300 base. However, the failure to break barriers at that level and trip stops below reportedly caught several shorts cold and forced a squeeze when Eur/Usd rebounded to and through 1.1350.

GBP/CAD/CHF/JPY - All narrowly mixed vs the Greenback, with Cable anchored around 1.2700 where a very big expiry falls (1.7 bn), but deriving some support from significantly better than expected UK retail sales data. The Loonie is sitting roughly halfway between 1.3110-55 parameters ahead of Canadian manufacturing sales, while the Franc is also rangebound from 0.9915-45 and close to 1.1300 vs the Eur after Wednesday’s SNB reminder that NIRP and intervention are still active tools. Usd/Jpy is trapped within 110.45-90 bounds, with some technical support seen around 110.37 and big expiry interest at 110.50-60 (1.7 bn).

NOK - No real reaction to the Norges Bank, as the accompanying statement merely confirmed previous guidance that flags a 1/4 point hike at the next policy meet on September 20. Eur/Nok relatively rangy between 9.5750-6130.

COMMODITIES

In the crude complex WTI and Brent are essentially flat, with WTI and Brent languishing around the USD 71.00/BBL & USD 65.00/BBL levels respectively.

Gold is modestly benefitting from a USD that is set for its first fall in over a week, with the yellow metal up ~0.5% on the day, and testing the USD 1180/OZ level to the upside after breaking through its 50 DMA in the early morning.

Base metals have recovered after yesterday’s sell-off, with all of lead (+4%), zinc (+3.4%) and copper (+1.9%) rising off the back of an improved risk tone owed to mending US-Sino trade relations.