• Asia-Pac bourses showed a positive bias after further disappointing PMIs from China only partially offset the tailwinds from the US
• Yesterday, the S&P 500 and Nasdaq Comp registered fresh all-time highs
• Both Caixin Services and Composite PMIs fell into contractionary territory
• Japanese PM Suga will not run in the LDP leadership race and is set to step down as PM
• In FX, the DXY remains subdued, Antipodeans modestly outperform, JPY lags vs. the USD
• Looking ahead, highlights include Eurozone, UK & US Services & Composite PMIs (final), Eurozone Retail Sales, US NFP, ISM Services PMI

CORONAVIRUS UPDATE

White House COVID Adviser Zients said USD 3bln investment in vaccine supply chain is coming out in 'coming weeks' and it will be in US companies, while there were separate comments from NIH's Fauci states they are taking the Mu variant seriously but does not consider it an immediate threat. (Newswires)

Australian PM Morrison announced they will receive 4mln Pfizer (PFE) COVID-19 vaccine doses in a swap agreement with Britain which will arrive this month. In relevant news, Australia's New South Wales reported 1,431 locally transmitted COVID-19 cases and the state Premier expects the next two weeks to be the worst for COVID infections. (Newswires)

ASIA

A positive leaning bias was seen for Asia-Pac bourses after further disappointing PMI data from China only partially offset the tailwinds from US where the S&P 500 and Nasdaq Comp registered fresh all-time highs after encouraging US data, but with price action limited for most indices as the NFP jobs report looms on the horizon. ASX 200 (+0.4%) was kept afloat by strength in commodity-related stocks as energy names took inspiration from the outperformance of the sector stateside and with news of a vaccine swap deal with the UK for 4mln Pfizer vaccine doses helping ease some of the concerns from a record jump of infections in New South Wales. Nikkei 225 (+1.8%) was underpinned amid reports that Japan is drafting a roadmap for relaxing COVID-19 restrictions and with exporters helped by recent weakness in the domestic currency although not all have benefitted with index heavyweight Fast Retailing among the worst performers following a near-40% Y/Y drop in last month’s sales. The Japanese benchmark then extended on gains and the TOPIX printed its highest since 1991 after reports that PM Suga will not run in the LDP leadership race which paves the way for a new PM and could effectively lead to additional stimulus considering recent comments from leadership contender Kishida who had called for swift economic measures worth tens of trillions of yen to cope with the virus pain. Hang Seng (-0.6%) and Shanghai Comp. (-0.2%) lagged with the mainland indecisive as participants digested the recent announcement by Chinese President Xi to set up a Beijing stock exchange for SMEs and following another bout of disappointing PMI data in which both Caixin Services and Composite PMIs fell into contraction territory, while Hong Kong tech names continued to suffer from Beijing’s regulatory crackdown with China reportedly to strengthen its review of game content and had also ordered ride hailing companies to correct their unfair market practices. Finally, 10yr JGBs were initially flat as downward pressure from the gains in Japanese stocks was counterbalanced by the presence of the BoJ in the market for over JPY 1tln of JGBs, although 10yr JGBs eventually breached the 152.00 level to the downside in reaction to the announcement that PM Suga will not be seeking another term which spurred expectations of future stimulus measures.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 40bln net drain. (Newswires)PBoC set USD/CNY mid-point 6.4577 vs exp. 6.4560 (Prev. 6.4594)

China's Cabinet said China will accelerate measures to attract overseas investors in domestic futures trading and will establish an international Yuan-denominated commodity futures market, while it will launch pilot schemes for IP rights securitisation and more futures contracts including shipping futures. (Newswires)

Japanese PM Suga will not run in the LDP leadership race and is reportedly to step down as PM, according to press reports. PM Suga later confirmed he will not run for LDP leadership and said he wants to focus on COVID-19 measures, while he added that running in the LDP leadership race and handling COVID measures will require a large amount of energy. Furthermore, he will hold an additional press conference next week. (Newswires/NHK/Kyodo)

• Chinese Caixin Services PMI (Aug) 46.7 vs. Exp. 52.6 (Prev. 54.9)
• Chinese Caixin Composite PMI (Aug) 47.2 (Prev. 49.2)

UK/EU

UK PM Johnson is expected to announce a manifesto-breaking tax increase as early as next week to fund social care overhaul with a rise in National Insurance that will see 25mln people pay more tax. (Telegraph) Separate reports suggest that Chancellor Sunak could scrap the pension triple lock as soon as next week. (Newswires)

British Retail Consortium data showed that visits to UK shops in August rose by 10ppts M/M amid staycations and workers returning to the office. (FT)

FX

In FX markets, the DXY remained subdued following yesterday’s losses amid the mostly positive risk tone and despite the firm data releases. EUR/USD retained a firm footing on the 1.1800 handle and near a one-month high owing to the USD softness. GBP/USD was kept afloat after it recently broke above its 200-DMA, while it was reported that UK PM Johnson is expected to announce a rise in National Insurance payments next week to fund a social care overhaul. JPY-crosses remained near two-month highs amid the positive risk tone and although USD/JPY saw a brief wobble on news that PM Suga will not stand in the LDP leadership race and could resign, the pair quickly recovered as markets mulled over his possible replacement and given that contender Kishida had called for economic measures worth tens of trillions of yen. Antipodeans were uneventful amid a lack of key data releases although were kept afloat by the mostly constructive risk tone and after a relatively stable but firmer CNY reference rate setting.

Brazil’s Lower House of Congress approved amendment to tax bill reducing proposed profits and dividend tax to 15% from 20% previously. (Newswires)

Czech Central Bank Governor Rusnok noted that they have said they would continue with further rate hikes and that there is still large space to raise rates towards normal levels, while Rusnok would vote for a rate hike at two coming meetings and later stated that a stronger than 25bps hike could occur if forecasts or other information suggests it is required.(Newswires)

COMMODITIES

Commodities were rangebound in which WTI crude futures mildly pulled back from yesterday's best levels to below USD 70/bbl although holds on to most the recent spoils amid the lacklustre greenback and mostly positive risk appetite, while the shut-in of Gulf of Mexico production was reported to have widened with a resumption of output facing difficulties due to a lack of access to fuel for the transportation of crews to platforms. US President Biden directed the DoE to use all tools including the SPR to keep gas flowing and the government later announced a 1.5mln bbls SPR oil exchange with Exxon. Gold traded sideways with support from a softer greenback counterbalanced by the lack of haven appeal and with participants awaiting today's key US jobs data, while copper edged marginal gains amid the mostly constructive overnight mood.

BSEE Gulf of Mexico production shut-in at 93.55% or 1.702mln BPD (prev. 79.96% or 1.455mln BPD on Wednesday). Gulf of Mexico offshore production is reportedly facing recovery issues due to the lack of access to fuel onshore for helicopter companies to bring crews out, while the US Coast Guard separately announced that Port Fourchon and Port of Houma reopened with some restrictions following Hurricane Ida. (Newswires)

US President Biden said he directed the Department of Energy to use all tools, including the SPR, to keep gas flowing. He also stated the EPA is to issue waivers to allow gasoline to continue to be sold, while the US government later announced an SPR exchange with Exxon (XOM) involving 1.5mln barrels of oil. (Newswires)

BP (BP LN) said at this time, no obvious major damage has been observed at its offshore Gulf of Mexico platforms although production will remain shut-in until further confirmation is obtained, while onshore assets at Houma and Port Fourchon need repairs after the damage. BP also stated that midstream and downstream assets are in various stages of starting up and await facility inspections, as well as power restoration although it cannot predict how long the restart will take. (Newswires)

Kinder Morgan (KMI) said inspections and activities are underway for restarting its products pipeline Baton Rouge station and that power has been restored, while Phillips 66 (PSX) said power at terminals around its Linden, New Jersey, refinery has been restored and in the process of restoring operations at Linden terminal. (Newswires)

Chile's Codelco copper mine production rose 2.7% Y/Y to 136,900 tonnes in July (prev. +14.9% Y/Y to 151,600 tonnes in June), according to Cochilco. Furthermore, BHP's Escondida copper mine production fell 17% Y/Y to 86,300 tonnes in July (prev. -21.6% Y/Y to 82,900 tonnes in June) and Chile's Collahuasi copper mine production fell 7.1% Y/Y to 54,000 tonnes in July (prev. -6.7% Y/Y to 53,900 tonnes in June). (Newswires)

GEOPOLITICAL

Iran's first fuel oil cargo, secured through Lebanon's Hezbollah, is to be delivered via Syria by truck to avoid complications related to sanctions, according to sources. (Newswires)

US

Treasuries were marginally firmer in very light trade as the long-end richened by a bp or so after Jobless Claims data supported risk ahead of NFP. By settlement, 2s +0.2bps at 0.214%, 3s +0.3bps at 0.410%, 5s -0.6bps at 0.774%, 7s -0.7bps at 1.074%, 10s -1.0bps at 1.292%, 20s -1.7bps at 1.826%, 30s -1.5bps at 1.904%; TYZ1 volumes very low. 5yr TIPS -4.6bps at -1.776%, 10yr TIPS +4.3bps at -1.041%, 30yr TIPS +4.1bps at -0.311%. Eurodollars richened by 1bp from Dec 22 outwards in very light volumes. SOFR unch. at 5bps, EFFR rises back to 8bps from 6bps. The arrival of Europe saw a Bund-led bid for govvies, however, with some seeming short-covering after the recent jump in EGB yields ahead of Friday's US jobs report that has seen a cloud growth around post-ADP and ISM Mfg. The strength in T-Notes saw resistance after a new pandemic low in Challenger Layoffs provided some balance, although new session peaks for T-Notes were made at 133-20+ shortly after. A fall in weekly Initial Jobless Claims and better-than-expected US trade data saw Treasuries offered more heavily into the NY cash equity open, with T-Notes finding support at 133-15 before trailing sideways a few ticks higher into the settlement. Traders now look to Friday's NFP report, while positioning into next week's auctions will also be a factor. T-note (Z1) futures settled 2+ ticks firmer at 133-17.

Fed's Bostic (2021, 2024 voter) said the Fed should allow the economy run until it sees inflation. (Newswires)

US Democrat Senator Manchin said the Senate should 'hit pause' on the USD 3.5tln spending plan. (Newswires)