• Sentiment has picked up since the European cash open; Banking sector outperforms
• US equity futures have mostly nursed losses, NQ remains the underperformer
• US Treasury Secretary Mnuchin and House Speaker Pelosi reportedly plan to keep stimulus additions out of the funding bill to make the bill easier to pass
• BoE's Saunders considers it likely that additional monetary easing will be appropriate to achieve a sustained return to the 2% inflation target
• US curve is bear steepening; DXY remains soft within a tight range with large EUR/USD & USD/JPY option expiries of note
• Looking ahead, highlights include US and Canadian Labour Market Reports, ECB's Lane, US VP Pence

CORONAVIRUS UPDATE

US COVID cases +39,711 (prev. +43,249) and deaths +1,009 (prev. +1,033), while a major newswire tally stated US cases rose by at least 43,248 to a total of 6.17mln and deaths rose by at least 1,013 to a total of 186.8k. (Newswires) Texas COVID cases +3,680 (prev. +4,334) and deaths +221 (prev. +189), while a major newswire tally stated California cases increased by at least 4,521 on Thursday and deaths rose by at least 159. (Newswires)

Mesoblast (MSB AT) said DSMB recommended continuing REMETEMCEL-L Phase 3 trial in COVID-19 patients suffering with acute respiratory distress syndrome. (Newswires)

Australian PM Morrison said they will develop new plan to reopen local economy by December and there were separate comments from New Zealand PM Ardern that the coronavirus outbreak remains contained in Auckland, while she added they are to retain current alert levels with the settings to be reviewed on September 14th. (Newswires)

WHO spokesperson does not expect to see widespread COVID-19 vaccinations until the middle of next year. (Newswires)

European Commission will propose today a “coordinated” approach to travel restrictions (total ban, test or quarantine requirements) via a Council recommendation, according to Bloomberg's Chrysoloras. (Twitter)

ASIA

APAC stocks declined across the board as the region reacted to the bloodbath on Wall St where markets slipped aggressively from record levels and the DJIA fell over 800 points and Nasdaq shed over 5% amid a tech rout, as well as the paring of risk heading into the NFP jobs data and US holiday weekend. ASX 200 (-3.0%) and Nikkei 225 (-1.1%) were heavily pressured in the face of the tech-related headwinds which resulted to hefty losses for the sector in Australia and dragged the index beneath the 6,000 level, while sentiment in Tokyo also deteriorated as exporters suffered the ill-effects of a firmer currency. Elsewhere, Hang Seng (-1.3%) and Shanghai Comp. (-0.9%) conformed to the broad losses in the region which followed a substantial net liquidity drain of CNY 470bln by the PBoC this week, and as tensions lingered with Chinese President Xi suggesting China will never accept foreign interference and with Global Times stating China will further cut holdings of US bonds due to concerns about a US crackdown and risks of ballooning US deficit although the reports cited economist and not government officials. Finally, 10yr JGBs traded flat as prices failed to benefit from the stock rout and the BoJ’s presence in the market, which was for a relatively reserved JPY 520bln of JGBs heavily focused on 5yr-10yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos at a rate of 2.20%, for a net weekly drain of CNY 470bln vs. Prev. net injection of CNY 200bln last week. (Newswires) PBoC set USD/CNY mid-point at 6.8359 vs. Exp. 6.8339 (Prev. 6.8319)

White House Chief of Staff Meadows said they are eyeing a number of other Chinese apps regarding threats. There were also separate reports that China MOFCOM is to impose temporary anti-subsidy measures on NPA/N-Propanol imports from US beginning September 9th. (Newswires)

White House has asked all US Gov't agencies to detail all China related funding, according to a document; looks for detail on any spending that would overall contribute to Chinese GDP or technical abilities; including China's Gov't/military entities. (Newswires)

BoJ are reportedly likely to consider upgrading its economic assessment but see little need to take further action at this moment in time, sources state. (Newswires)

US

US Treasury Secretary Mnuchin and House Speaker Pelosi reportedly plan to keep stimulus additions out of the funding bill to make the bill easier to pass, according to sources, while House Speaker Pelosi said that House Democrats back a clean spending bill and a White House spokeswoman noted the Trump Administration expects to get funding to avoid a government shutdown. (Newswires)

US Treasury Secretary Mnuchin and House Speaker Pelosi were reported to reach an agreement on a stopgap bill to keep the government funded and avoid a shutdown at the end of the month, according to ABC News. However, Fox News' Pergram later tweeted citing a colleague, that the admin said there is no pact to avert a shutdown but added that hope is for a deal to avert a shutdown until after the election. (ABC News/Twitter)

UK/EU

BoE's Saunders consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the 2% target; "As discussed, my hunch is that risks lie on the side of weaker growth and a longer period of excess supply than forecast in the August MPR, and hence of a more persistent inflation undershoot". Is not theologically opposed to negative rates & certainly scope to expand QE, notes the UK banking system has a high share of deposits so negative rates might produce more of a margin squeeze for banks (Newswires)

UK Chancellor Sunak was warned that rebels in the UK Conservative Party will vote against the Autumn budget if the government proceeds with tax increases in this. (Telegraph)

A no-deal Brexit reportedly looms as UK PM Johnson seeks to double the percentage of fish quotas reserved for UK fisherman in British waters to ~50%, which EU officials rejected as it would result to a loss of a third of EU fishing boats. (The Times)

Members of the logistics industry are warning of "significant gaps" in UK border plans for the end of the Brexit transition period on 31 December. Eight groups warned ministers that if issues were not addressed, the supply chain "will be severely disrupted". (BBC)

India is in discussions with the EU over a Free Trade Agreement, which will include autos, according to the Indian Commerce Ministry. (Newswires)

GEOPOLITICAL

Indian Army Chief says the border situation with China is slightly tense and precautionary troop deployment has been taken; confident dispute can be resolved via dialogue. Subsequently, Chinese and Indian Defence Ministers are likely to meeting in Moscow, arrangement has made progress and a meeting is now a 'big probability', Chinese Global Times Editor. (Newswires/Twitter)

A special security adviser to President Moon suggested reviving the six-party talks on North Korea's nuclear program; the six parties includes the two Koreas, US, China, Russia and Japan. (Yonhap)

EQUITIES

European equity markets have staged somewhat of a recovery since the cash open (Euro Stoxx 50 +0.5%) after erasing losses of some 0.9% following a downbeat APAC session - with gains lead by the periphery, namely the IBEX (+1.6%) propped up by source reports that Bankia (+30%) and Caixabank (+15%) are working on a merger, with a deal to be closed in the next few days. Thus, the European financial sector is outperforming with the FTSE MIB (+0.6%) also benefitting given its large exposure to banks. Overall sectors present a cyclical/value tilt, whilst IT clambered its way from the bottom after initial pressure from Wall Street’s tech rout. The breakdown also sees a firm performance amongst Travel & Leisure names, underpinned by the recovery in sentiment alongside relief as Greece and Portugal were not added to UK’s travel quarantine list despite speculation. In term of individual movers, Telecom Italia (+0.2%) remains subdued after the Italian Industry Ministry stated that the Co. may not have a majority stake in Italy’s future single broadband network operator, thus providing impetus to Mediaset (+8.1%). Finally, Imperial Brands (+2.9%) remains underpinned by a positive broker move.

FX

USD - The Dollar looks laboured ahead of NFP and Monday’s US market holiday, or simply fatigued after its recovery exertions that culminated in the DXY reaching 93.074 before petering out. Pre-NFP caution and consolidation has curtailed price action with major pairings restrained within narrow ranges, exemplified by the index sticking to tight confines just below the round number (92.887-658). US Treasuries are back in bear-steepening mode to offer the Greenback support, while stocks are attempting to draw a line under yesterday’s rout awaiting further direction from the aforementioned jobs data.

CAD/AUD/GBP/NZD - All marginally firmer vs the Buck, but mainly in corrective trade following heavy recent losses as the Loonie rebounds from 1.3140 to 1.3100+ ahead of Canada’s labour report with some traction from a stabilisation in crude prices, the Aussie bounces from around 0.7250 despite a slender miss vs consensus in July retail sales and the Pound also finds some support near a half round number to revisit the 1.3300 handle irrespective of a slowdown in the UK construction PMI or dovish sounding comments from BoE’s Saunders. Meanwhile, the Kiwi is pivoting 0.6700 and assessing the NZ COVID-19 situation following the first death and PM Adern’s review of current restrictions on September 14.

EUR/JPY/CHF - Even more tightly bound against the US Dollar, with the Euro capped by the 200 HMA (1.1866) and heavily flanked by option expiries stretching from 1.1780-90 right up to 1.2000 (for full details see the headline feed at 6.57BST). Similarly, the Yen sits between decent expiry interest from 106.00 to 106.70-80 if it ventures beyond the 106.07-24 band that seems unlikely given little inclination amidst reports suggesting the BoJ is about to raise its assessment of the Japanese economy, and the Franc is straddling 0.9100.

SCANDI/EM - The Nok has regained a degree of composure alongside oil, but the Try remains deflated in wake of Thursday’s soft Turkish CPI data and licking wounds off fresh all time lows.

Australian Retail Sales MM (Jul) 3.2% vs. Exp. 3.3% (Prev. 2.7%). (Newswires)

FIXED INCOME

Although debt and equities have not reverted to traditional inverse correlations, the fact that stocks have managed to stop the tech induced rot has sapped some safe-haven demand for bonds, while the technical backdrop is also less constructive given earlier attempts to close chart gaps falling a bit short of Thursday’s closing levels. Moreover, the usual pre-NFP precautionary positioning coupled with warnings from China about a further reduction in US Treasury holdings has flipped curves back into bear-steepening mode, with Bunds, Gilts and 10 year T-notes all hovering off new intraday lows (176.69, 135.66 and 139-17 respectively vs 177.04, 135.90 and 139-24 at the other ends of the spectrum). Also coming up, Canadian jobs, IVEY PMIs and another speech from ECB’s Lane that will be monitored for any further currency snippets ahead of the purdah before next Thursday’s policy convene.

COMMODITIES

WTI and Brent front month futures trade have recovered off worst levels to eke mild gains in early European hours, in what seems to be a sentiment-driven move in tandem with stock markets heading into this month’s US labour market report. Oil-specific news-flow has remained light with participants continuing to flag the resumptions of Gulf of Mexico supply alongside an uncertain demand outlook. WTI Oct makes headway just above USD 41.50/bbl (vs. low (40.84/bb) whilst Brent Nov extends gains above USD 44/bbl (vs. low USD 43.53/bbl). Looking ahead to next week, monthly oil import numbers from China, released on Monday, will be eyed as a gauge of demand in the nation, ahead of the EIA STEO, although the OPEC and IEA MOMRs will be released on the following week. Elsewhere, spot gold and silver remain contained within tight ranges around 1935/oz and 28.80/oz respectively as the precious metals mirror Dollar action. In terms of base metals, Shanghai copper saw a session of losses as it tracked the performance in Chinese markets, whilst Dalian iron futures also tracked lower with rising portside inventories also weighing on the metal.