• European bourses/US futures are subdued as soft Chinese data weighs on sentiment, though equities are off lows as the US returns
• DXY continues to climb with risk-aversion and accompanying yield upside fuelling the strength, Antipodeans lag given the China data while the RBA was as-expected
• Core fixed benchmarks are in the red with action occurring around the EZ/regional and UK PMIs but for the most part this has been shortlived; US yields bid across the curve
• Energy is softer intra-day as sentiment takes its toll while both precious and base metals are dented by the USDs upside
• Looking ahead, highlights include US IBD/TIPP & Durable Goods, Speech from ECB’s Schnabel & de Guindos

LABOR DAY RECAP

• APAC stocks traded mostly higher led by strength in China’s property sector; shares in developer Country Garden Holdings surged by a double-digit percentage after it made a payment on a ringgit-denominated bond and won approval to extend its onshore private bond maturity by three years, while President Xi had also pledged to widen market access for the service industry and promote cross-border service trade.
• European bourses began the day firmer, given the above handover, but gradually faded from best throughout the session with catalysts light and the schedule limited aside from ECB speak whereby Lagarde focused her remarks on communication; Centeno spoke and said inflation is slowing much faster than it rose, and there is a risk of "doing too much" on rates.
• USD was generally soft but with ranges tight and G10s generally benefitted in the limited newsflow.
• Fixed income benchmarks were under modest pressure with Gilts underperforming ahead of numerous BoE speakers on Wednesday and key data in the sessions thereafter; USTs were incrementally lower but with volumes particularly thin.
• Energy benchmarks were in close proximity to the unchanged mark for much of the session, though a slight negative bias was present at times; the focus for the space was on any scheduling update for the week's expected OPEC update. Industrial metals failed to benefit from the firmer APAC handover and specifically the Chinese optimism.

EUROPEAN TRADE

EQUITIES

• European bourses are in the red, Euro Stoxx 50 -0.2%, but have been gradually making their way higher after a subdued open given the downbeat APAC handover.
• A handover that was negatively affected by soft Chinese Caixin PMI data.
• Since action has been influenced by Final PMIs though the metrics provided little to lift the overall tone with the recovery off lows occurring gradually and without a specific fundamental driver.
• Sectors are mixed after beginning the morning firmly in the red. Personal Care, Drug & Household names alongside Consumer Products/Services continue to lag given broker activity and data while Financial Services, Energy, Insurance and Banking are now modestly firmer on the session; the latter components perhaps benefitting from yield support.
• Stateside, futures have been directionally in-fitting with the above though magnitudes have been more contained thus far. ES -0.2% has lifted off of lows with the NQ -0.3% following suit but to a slightly lesser extend given yield upside. Action which comes ahead of Final PMIs and a handful of other data points.
• Click here for more detail.
• Click here and here for a recap of the main European equity updates.

FX

• A firm start to the session for the Dollar index, fuelled by risk aversion and an overnight uptick in yields, and with US cash yields back online following its long Labor Day weekend.
• The Yen is one of the focal points in today’s session as it approaches YTD lows against the Dollar, while the overnight session saw a particularly weak 10-year JGB auction.
• The Antipodeans sit as G10 underperformers as the fallout from the softer Chinese Services PMI takes its toll, while the RBA’s policy decision saw no fireworks.
• The European majors succumb to the Dollar but to a lesser extent than their Antipodean counterparts. The morning saw the final PMIs in the EZ downgraded, with the broader theme being slower growth and rising input prices.
• PBoC set USD/CNY mid-point at 7.1783 vs exp. 7.2703 (prev. 7.1786)
• World Bank is reportedly in talks to double its Turkey exposure to USD 35bln, according to Bloomberg sources; the World Bank is reportedly working on USD 18bln in new funding over the next three years which will focus mostly on the private sector.
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• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• Core benchmarks are under modest pressure with action occurring around the EZ/regional and UK PMIs but for the most part this has been shortlived as we await the return of US players from the long weekend.
• Bunds are softer to the tune of 15 ticks and reside towards the mid-point of 131.61-131.98 boundaries. A high which printed in proximity to the morning’s Spanish Services PMI while the low was re-tested on the Final EZ figure.
• Gilts have been slightly more contained given their more outsized action on Monday while USTs are broadly in-line with EGBs ahead of data points. As it stands, yields are firmer across the curve with action slightly more pronounced at the long end and the curve incrementally bear-steepening as a result.
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COMMODITIES

• WTI and Brent front-month futures are softer intraday amid the broader risk aversion emanating from the Chinese Services PMIs overnight.
• Dutch TTF kicked off the session firmer but then fell into losses, with news overnight suggesting Offshore Alliance members at Chevron’s Gorgon Facility, Wheatstone Platform and Wheatstone Downstream gas processing facilities in northwest Western Australia have notified the company that they intend to stop work for 2 weeks commencing September 14.
• Metals are seeing broader pressure from the firmer Dollar whilst industrial metals see deeper losses vs precious metals amid the demand dent emanating from China.
• Australia's Offshore Alliance served Chevron (CVX) with further notice of protected industrial action which will commence after the first 7 days of the protected industrial action kicks off on September 7th, while the Australian union said it plans a full strike at Chevron's Wheatstone and Gorgon LNG facilities in Australia for two weeks from September 14th if its demands are not met, according to Reuters.
• Goldman Sachs said it still sees a potentially more aggressive OPEC+ price target as a key moderately bullish risk to its 12-month ahead Brent crude forecast of USD 93/bbl and it no longer expects Saudi to announce a partial unwind of its 1mln bpd production cut, according to Reuters.
• Ukraine does not expect its grain export situation to change after the talks between Russian President Putin and Turkish President Erdogan, according to Reuters sources.
• Chevron (CVX), on industrial action, says it has continuity plans and plans to be a reliable supplier. Elsewhere, says if the winter is a normal one, then it could be a difficult time for some European nations.
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NOTABLE US HEADLINES

• US First Lady Jill Biden tested positive for COVID-19 and is currently experiencing only mild symptoms, while President Biden tested negative for COVID-19, according to the White House.
• Click here for the US Early Morning Note.

NOTABLE EUROPEAN HEADLINES

• ECB's Lane (conducted on August 31st): I would underline the fact that there has been some easing in goods inflation and services inflation, which is a welcome development. "expect to see this famous core inflation come down throughout the autumn."; "... it would be a mistake to extrapolate the high inflation we’ve seen into a longer-term projection.". Click here for the full release.
• Spanish Catalan Leader Puigdemont says all judicial cases that are targeting Catalan separatism must be dropped as a condition for discussions on the PMs investiture

NOTABLE EUROPEAN DATA

• EU Producer Prices YY (Jul 2023) -7.6% vs. Exp. -7.6% (Prev. -3.4%); MM (Jul 2023) -0.5% vs. Exp. -0.6% (Prev. -0.4%)
• ECB Consumer Inflation Expectations survey (Jul) - 12-months ahead 3.4% (prev. 3.4%); 3-year ahead 2.4% (prev. 2.3%). Economic growth expectations for the next 12 months -0.7% (prev. -0.6%).
• EU S&P Global Comp Final PMI (Aug) 46.7 vs. Exp. 47.0 (Prev. 47.0); Services Final PMI (Aug) 47.9 vs. Exp. 48.3 (Prev. 48.3)
• Spanish Services PMI (Aug) 49.3 vs. Exp. 51.5 (Prev. 52.8); "Our GDP Nowcast, which considers the PMI-Indicators, now points to a GDP shrinking by 0.1% in the third quarter."
• UK S&P Global/CIPS Services PMI Final (Aug) 49.5 vs. Exp. 48.7 (Prev. 48.7); Composite PMI Final (Aug) 48.6 vs. Exp. 47.9 (Prev. 47.9). "... the latest survey data indicated another round of historically strong cost inflation across the service sector. This reflected rising salary payments, as well as higher fuel prices and elevated energy bills, according to survey respondents."
• UK BRC Retail Sales YY (Aug) 4.3% (Prev. 1.8%); Total Sales 4.1% (Prev. 1.5%)
• Barclaycard said UK August consumer spending rose 2.8% Y/Y (prev. +4.0% Y/Y in July) and noted that spending on essentials grew at the slowest pace since April 2020 due to lower fuel spending, according to Reuters.

GEOPOLITICS

• The Russian Defence Ministry said it shot down a drone over Russia's Kaluga region,** according to Reuters.
• North Korean leader Kim plans to travel to Russia this month and meet Russian President Putin to discuss the possibility of supplying weapons for the war in Ukraine, according to NYT citing US and allied sources. In response, the Russian Kremlin says it has "nothing to say".

CRYPTO

• Bitcoin is under modest pressure, -0.2%, as the USD continues to climb higher and the overall tone remains a subdued one after the APAC handover. Currently, BTC resides at the mid-point of USD 25.55-25.83k parameters.

APAC TRADE

• APAC stocks were mostly subdued after the holiday lull stateside and as the region digested disappointing data releases including the weaker-than-expected Chinese Caixin Services PMI.
• ASX 200 was lower amid underperformance in the commodity-related sectors and as participants braced for the conclusion of RBA Governor Lowe’s final policy meeting in which the central bank kept rates unchanged as expected.
• Nikkei 225 stalled on its approach to the 33,000 level and with headwinds from disappointing household spending data which suffered its worst drop since February 2021.
• Hang Seng and Shanghai Comp were pressured after Chinese Caixin Services PMI data missed forecasts and with the property sector dampened by default fears with about a third of 50 major private builders said to face around USD 1.5bln dollars of payments this month, while Country Garden narrowly averted a default and paid USD-denominated coupons hours before the end of the grace period.

NOTABLE ASIA-PAC HEADLINES

• China's MIIT released a plan to develop the electronics industry and will guide capital to the industry, while it will support qualified enterprises to make good use of financing tools such as domestic and overseas listings and bond issuances, according to Bloomberg and Reuters.
• China's Foreign Minister Wang said following the recent meeting with his Italian counterpart that China and Italy should adhere to the right way of getting along in terms of mutual respect, trust, openness and cooperation, while he added that both countries should strive for bilateral relations to be at the forefront of China-EU relations. Furthermore, Wang said they should jointly safeguard a free and open multilateral trading system, maintain a stable global supply chain and provide a fair business environment for each other's enterprises.
• A debt crisis reportedly threatens to engulf Chinese developers with about two-thirds of 50 major private builders defaulters and with the 16 survivors facing USD 1.5bln of bond payments this month, according to Bloomberg.
• Country Garden Holdings (2007 HK) paid USD-denominated coupons that were due last month before the end of the grace period which was set to expire by September 6th, according to Bloomberg and Reuters.
• RBA kept the Cash Rate Target unchanged at 4.10%, as expected, while it reiterated that some further tightening of monetary policy may be required and the Board remains resolute in its determination to return inflation to the target.. RBA higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so but noted inflation is still too high and will remain so for some time yet. Furthermore, the RBA said the pause will provide further time to assess the impact of the increase in interest rates to date and the economic outlook but noted increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market and that the outlook for household consumption also remains uncertain
• China is reportedly to launch a new state-backed fund that aims to raise USD 40bln in order to boost the chip industry, via Reuters citing sources. The new fund will focus on areas incl. equipment for chip manufacturing. Fund has received approval from Chinese authorities in recent months. Finance Ministry intends to contribute CNY 60bln to it.

DATA RECAP

• Chinese Caixin Services PMI (Aug) 51.8 vs. Exp. 53.6 (Prev. 54.1); Composite PMI (Aug) 51.7 (Prev. 51.9)
• Japanese All Household Spending MM (Jul) -2.7% vs. Exp. 0.7% (Prev. 0.9%); YY (Jul) -5.0% vs. Exp. -2.5% (Prev. -4.2%)
• Australian Current Account Balance (AUD)(Q2) 7.7B vs. Exp. 8.0B (Prev. 12.3B); Net Exports Contribution (Q2) 0.8% vs. Exp. 0.3% (Prev. -0.2%)