• Asian equity markets traded firmer following the gains in the US. Chinese bourses lifted by support measures announced by Premier Li
• In Brexit, UK PM May claims that an exit deal is virtually agreed, whilst Barnier states the EU is ready to improve its proposal on Northern Ireland
• Looking ahead, highlights include UK CPI, US Building Permits, Housing Starts, DoEs, BCB rate decision, NZ GDP, BoE’s Haldane, ECB’s Draghi and supply from Germany

ASIA

Asian equity markets traded positive following the gains in the US as global markets took the well-telegraphed and lower than feared tit-for-tat tariffs between US and China in their stride. ASX 200 (+0.5%) was positive with outperformance in miners and energy names following gains in copper and crude oil, while Nikkei 225 (+1.2%) outperformed on a weaker JPY and better than expected trade data. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+1.0%) were initially indecisive due to the uncertainty from the escalation of trade tensions and after the PBoC slowed down on its liquidity efforts, but then shrugged off the concerns alongside the widespread gains in the region and with risk sentiment also underpinned by comments from Premier Li who noted several measures to support companies and dismissed resorting to a devaluation of the currency. Finally, 10yr JGBs traded lower amid the outperformance of Japanese stocks but with losses contained as participants were somewhat tentative heading into the BoJ which proved to be a non-event.

PBoC injected CNY 40bln via 7-day reverse repos and CNY 20bln via 14-day reverse repos for a net neutral position. (Newswires)
PBoC set CNY mid-point at 6.8569 (Prev. 6.8554)

Chinese Premier Li said China will accelerate steps to opening up the economy and that unilateralism will not resolve issues. Furthermore, Li said China will not resort to forceful stimulus and will not engage in competitive weakening of the currency, nor will it devalue the currency to boost exports. Li also commented they will fine tune policy pre-emptively and will cut taxes and fees as well as ease funding difficulties for companies, while he noted that China's economy maintains steady growth and fundamentals are healthy but difficulties for maintaining growth are increasing. (Newswires)

BoJ kept all monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%. The BoJ also maintained its forward guidance in which it will keep current extremely low rates for an extended period of time and maintained pledge to buy JGBs in a flexible manner so holdings rise at an annual pace of about JPY 80tln. Furthermore, the decision on YCC was made by 7-2 vote with Kataoka and Harada the dissenters as Kataoka dissented on view inflation will speed up to the 2% target and board member Harada said guidance which could clarify price target was needed. (Newswires)

Japanese Trade Balance (JPY)(Aug) -444.6B vs. Exp. -468.7B (Prev. -231.2B, Rev. -231.9B). (Newswires)
Japanese Exports (Aug) Y/Y 6.6% vs. Exp. 5.6% (Prev. 3.9%)
Japanese Imports (Aug) Y/Y 15.4% vs. Exp. 14.9% (Prev. 14.6%)

UK/EU

UK PM May said exit deal is virtually agreed and ruled out a 2nd referendum according to UK press reports, while UK PM May stated that UK and EU are close to an orderly Brexit withdrawal agreement according to a German news article. (Express/Die Welt)

UK PM May urged EU to evolve its Brexit stance and said they can avoid a disorderly Brexit with goodwill and determination. PM May also stated neither side can demand the unacceptable such as customs border between parts of the UK, while she added that Britain is not seeking EU membership rights without the obligations and believes she is proposing a fair agreement, according to a senior Downing Street source. (Newswires)

UK PM May is reportedly to bypass EU Chief Brexit negotiator Barnier in a drive to win over EU leaders, while it is speculated that she will use the Salzburg meeting to seek a compromise solution for the Irish border. (FT)

EU's Chief Brexit Negotiator Barnier said EU is ready to improve its proposal on Northern Ireland and that we are on the home stretch in Brexit talks but stopped short of accepting the UK’s suggestions for compromise. Barnier also commented that Irish issue still remains and that EU proposal on Northern Ireland is an insurance policy. Furthermore, Barnier stated the October EU leaders meeting will be the "moment of truth" and we will see whether an EU agreement is within reach. (Newswires)

In his column in the Telegraph, Jacob Rees-Mogg stated “we have one chance to get Brexit right and ridding ourselves of Chequers will let us take it”. (Telegraph)

BoE's Vlieghe said UK pay growth is increasing quite slowly and several indicators suggest low unemployment is making it difficult for employers to find or retain staff. (Newcastle Chronicle)

Italian Deputy PM Di Maio has stated that Italy are to lift their deficit/GDP ratio level to 2.5%. (Newswires)

FX

In FX markets, the greenback was subdued amid range-bound trade in its major counterparts in which EUR/USD was lacklustre after having recently failed to hold above 1.1700, while GBP/USD pared the brief support from optimistic comments by PM May who stated than an exit deal is virtually agreed and that they are nearing an orderly withdrawal agreement. Elsewhere, AUD and CAD both extended on the prior day’s commodity-fuelled gains with support also seen as CNH strengthened following Premier Li comments which dismissed competitive currency weakening, while USD/JPY remained firm above 112.00 after the safe-haven outflows from the JPY and with the BoJ policy announcement a non-event.

COMMODITIES

Commodities were mostly firmer overnight although WTI crude futures seemed content on resting on the prior day’s laurels in which prices briefly broke above USD 70/bbl after reports Saudi Arabia was comfortable with prices above USD 80/bbl. WTI crude has since pulled back from US session highs and proceed sideways during Asia hours, while the latest API inventory report also momentarily weighed as headline crude stockpiles printed a surprise build. Elsewhere, gold just about reclaimed the USD 1200/oz amid a subdued greenback and copper extended on gains amid the broad heightened-risk appetite.

US API Weekly Crude Stocks (14 Sep) +1.249M vs. Exp. -2.700M (Prev. -8.636M). (Newswires)

Venezuela's Maduro said China and Venezuela will invest more than USD 5bln in the oil industry to boost production. (Newswires)
 

GEOPOLITICAL

South Korean President Moon and North Korean Leader Kim signed join agreement following the conclusion of official summit discussions. North Korean Leader Kim stated they will make the Korean peninsula into a place without nuclear weapons and agreed to visit Seoul. There were also comments from South Korean President Moon that both sides have agreed to eliminate threat of war in the peninsula and agreed measures for denuclearization, while he added North Korea could dismantle Yongbyun nuclear facility and can permit international inspections of dismantlement. (Newswires)

US President Trump tweeted that North Korean Leader Kim agreed to allow nuclear inspections, subject to final negotiations, and permanently dismantle a test site in the presence of international experts, while he added North and South Korea will file joint bid to host 2032 Olympics. (Newswires)

US

The US Treasury curved bear-steepened on Tuesday, with 2s10s widening by 4bps, 5s30s around 2bps wider, and 2s30s wider by around 5bps (reports of hedge funds initiating steepeners ahead of next week's FOMC). Yields on 2s and 3s saw fresh decade+ highs. Traders were happy to be sellers on Tuesday after the tariffs that the US announced on Chinese imports, and the Chinese retaliation, was at rates more benign than had been feared. Additionally, policymakers added in their statements the desire to continue constructive talks. Into the North America sessions, sellers were out in force, with rate locks on corporate new issuance and hedge fund positioning ahead of next week's FOMC no longer offset by the pension community now that the deadline for tax relief has passed, Informa reported. There was also some attention on a four-week bill sale out of the US, which sold at 2.02%. US T-note futures (Z8) settled 10+ ticks lower at 118-25+.

US President Trump said US is having a tremendous impact on China, while he added cannot let China take advantage of us. Trump also noted they may make a deal at some point and that he is always open to talk with China but warned of more tariffs if China retaliates on agricultural industry, while he also commented that a trade deal with South Korea is ready to be signed. (Newswires)

US Senate passed stop-gap funding bill to keep the government open through early December and avert a shutdown. (Newswires)

Source: RANsquawk