• European bourses are little changed this morning after a mixed Asia-Pac handover and little in the way of catalysts since then
• DXY has inched closer to August highs with Sterling subdued and safe havens deriving some safe haven impetus
• Italian PM Conte to address the senate at 14:00BST/09:00ET on the ongoing political crisis
• Looking ahead, highlights include Italian PM Conte addressing the Senate, Fed’s Quarles & Daly

ASIA-PAC

Asian equity markets traded mixed as the region benefitted somewhat from the mild tailwind after the strong performance in US where stimulus hopes as well as trade optimism underpinned the S&P 500 and DJIA to a 3rd consecutive win streak. ASX 200 (+1.2%) and Nikkei 225 (+0.6%) gained with outperformance in Australia fuelled by the energy sector after recent gains in oil prices and with earnings heavily in focus including BHP, while advances in Tokyo were limited by an uneventful currency and despite reports Japan permitted additional exports of high-tech material to South Korea. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-0.1%) traded indecisively as participants digested the mixed signals from the PBoC which conducted reverse repos but resulted to a net daily drain, and set its Loan Prime Rate at 4.25% which was lower than the previous 1yr LPR of 4.31%, as well as the Lending Rate of 4.35%, although not as low as some had anticipated. Finally, 10yr JGBs were subdued amid the mostly positive overnight risk tone and following mixed results at the 20yr auction which showed weaker demand amid higher accepted prices.

PBoC set the 1-yr Loan Prime Rate at 4.25% vs. Exp. 4.24% (Prev. 4.31%) and set 5yr LPR at 4.85%. (Newswires) PBoC injected CNY 50bln via 7-day reverse repos for a net daily drain of CNY 10bln. PBoC set CNY mid-point at 7.0454 vs. Exp. 7.0445 (Prev. 7.0365)

PBoC Deputy Governor Liu said China will not scrap benchmark lending rate for the time being and still needs to observe effects of LPR reform, while Liu added that future interest rate policy is to focus on LPR and that benchmark rates may not be changed in the near term. Liu also stated that there is room for RRR and Lending Rate cuts and that urgency for interest rate reform is due to US-China trade war, industrial transformation and easing among global central banks. (Newswires)

PBoC stated interest rate reform cannot replace monetary policy and other policies, while it added that it will work with other government departments to take steps to lower corporate funding costs especially for small and private firms. There were also comments from PBoC Monetary Policy Department Director Sun that there is room to cut RRR in the future but not as big as people thought and that China will keep the benchmark deposit rate for a relatively long time. (Newswires)

China People's Daily stated that China will not make trade concessions if US presses Hong Kong issue as part of trade discussions which would be a miscalculation. (Newswires)

Hong Kong Chief Executive Lam said she hopes the peaceful march on Sunday is the beginning of restoring peace in the city, while she noted the says Hong Kong police monitoring body will hire overseas experts and that the government will set up a platform for dialogue with people from all backgrounds. Furthermore, Lam said she is willing to talk with peaceful protesters to narrow differences and that the extradition bill is dead with no plan to revive the bill. (Newswires)

US

There were initial reports that the White House is mulling a payroll tax cut to support the economy with discussions said to be still in early stages and no decision has been made whether to push for Congress to approve the reduction. However, it was later reported that White House officials stated cutting payroll taxes is not under consideration at this time. (Washington Post/Twitter)

Huawei Founder said he expects no relief from US export curbs amid political tensions with the US, but is confident the company will thrive because it is developing its own technology, reported via Associated Press. (AP)

GEOPOLITICS

US and South Korea will wrap up week-long military exercises as scheduled, while North Korea condemned South Korea for joint military drills and warned of consequences. (Yonhap)

US President Trump spoke to India PM Modi and Pakistan PM Khan regarding trade, strategic partnerships and for the countries to work towards reducing tensions in Kashmir, while he suggested the situation is tough, but they had good conversations. (Twitter) US conveyed its strong position to Greek government regarding Iranian oil tanker it alleged is carrying illicit oil to Syria, while US warned any effort to assist the tanker could be viewed as material support to a US-designated terrorist organization. (Newswires)

Russian Deputy Foreign Minister says the US’ test of a ground launched cruise missile is regrettable and the US are increasing tensions., Tass. (Newswires)

UK/EU

Reports that UK PM Johnson instructed trade ministers not to discuss NHS in any deal with the US and is prepared to look constructively and flexibly at what commitments may help to replace the Northern Ireland Backstop. (Sky/Newswires/The Sun)

EU diplomat says UK PM Johnson's letter to EU’s Tusk fails to put forward any realistic alternatives to the backstop, cited by Telegraph's Brussels Correspondent James Crisp. (Twitter)

Italian League Leader Salvini says a EUR 50bln budget is necessary next year to bring about a "shock" fiscal stimulus. Separately, Italian Deputy PM Di Maio is signalling the end of the coalition ahead of today’s address by PM Conte at 14:00BST. (Newswires)

EQUITIES

This morning sees mixed trade in major European stocks [Eurostoxx 50 Unch] as sentiment is tentative ahead of this week’s events in the form of FOMC/ECB minutes and Fed Chair Powell’s speech at the annual Jackson Hole Symposium. Sectors are also mixed with no clear standouts, although the mining sector is resilient despite earnings from mining giant BHP (-0.7%) which missed on underlying net and warned of the impact from rising protectionism on the mining sector. In terms of individual movers, Pandora (+5.2%) rose to the top of the Stoxx 600 amid earnings in which the Co. initiated a wholesale inventory buyback program for Q3. Meanwhile, Casino (+4.0%) shares follow closely after the Board approved new French asset arbitrations for a target amount of EUR 2bln by the end of the first quarter in 2021. On the flip side, Royal Mail (-5.3%) fell to the foot of the pan-European index after the Communication Workers Union stated that a deal which included pay rises and new pension proposals is under threat from the Co’s management. Finally, Bayer (BAYN GY) shares saw modest upside amid reports that the Co. is to sell its animal health business unit to Elanco for USD 7.6bln, divestment is expected to be closed in mid-2020.

Home Depot Inc (HD) Q2 19 (USD): EPS 3.17 (exp. 3.09), Revenue 30.98bln (exp. 31.04bln). Comp sales up 3%. Sees FY19 comp sales to be up approx. 4%, and affirms EPS growth guidance.

FX

AUD/GBP - The Aussie and Pound at opposite ends of the G10 ranks, as Aud/Usd is bolstered between 0.6755-95 in wake of latest RBA minutes and a more balanced assessment of the economic situation after recent rate cuts and fiscal support via tax rebates that alongside stabilisation in the housing market should support consumption after firmer GDP growth in Q2. Conversely, Cable has lost grip of the 1.2100 handle that coincided with 200 HMA support and extended losses when stops were tripped through the 10 DMA (1.2099) to a low of 1.2084 amidst ongoing no deal Brexit worries following UK PM Johnson’s letter to EU’s Tusk stipulating that withdrawal negotiations are contingent on removing the Irish border proposal.

USD - It remains incremental and partly due to weakness elsewhere, but the DXY has inched closer to early August highs ahead of 98.500, at 98.425 vs 98.448, with perhaps some independent impetus coming via comments from Fed’s Rosengren underscoring his decision to vote against July’s FOMC rate cut. On that note, Daly and Quarles are on today’s docket as the clock ticks down to Wednesday’s FOMC minutes and then Jackson Hole that could be a platform for providing fresh policy guidance from the Fed and other global Central Banks.

JPY/CHF - The Yen and Franc have both regained an element of safe-haven allure as the recent/nascent recovery in risk sentiment stalls or falters. Usd/Jpy is drifting back below 106.50 and Usd/Chf is pivoting 0.9800, while Eur/Chf has retreated towards 1.0850 in the run up to Italian PM Conte’s Senate speech at 14.00BST that will seal the fate of Rome’s coalition Government.

NZD/EUR/CAD - All narrowly mixed against the Greenback, with the Kiwi still lagging and slipping nearer 0.6400, while Aud/Nzd is inching higher above 1.0550 on diverging RBA/RBNZ near term policy outlooks. Elsewhere, the single currency is slipping further below 1.1100 amidst reports or corporate offers and eyeing short term chart support at 1.1065 before 1.1050 and the 1.1027 ytd base, while the Loonie is holding within a tight range in the low 1.3300 area and just ahead of underlying bids said to be sitting from 1.3340-50, with Canadian manufacturing sales due later.

EM - Turkish Lira losses are stacking up after latest CBRT efforts to promote bank lending via reserve ratio enticements linked to loan quotas, and with the technical landscape turning increasingly bearish as Usd/Try clears more key levels. So far, the 50 DMA has been surpassed on the way to circa 5.7500 exposing a Fib just shy of 5.7550 and then 5.7681 that constitutes a lower high from late July.

RBA Minutes from August 6th meeting stated the board would consider further policy easing if needed and that it is reasonable to expect extended period of low rates, while it added risks to economy tilted to the downside, there are few signs of inflationary pressures emerging and noted downside risks to CPI components. However, the minutes also stated the RBA saw firmer GDP growth in Q2 and outlook for consumption is more balanced than for some time, while it noted consumption was helped by tax rebates and there was stabilization in housing markets. (Newswires)

FX Option Expiries of Note:

- USD/JPY 105.00 (1.4BLN), 105.25 (351M), 105.95-00 (770M), 106.30 (550M), 106.70 (410M), 106.90-00 (1.25BLN)

FIXED

Bunds and Gilts are both eyeing big figure or round number resistance after rebounding further from intraday lows and Monday’s even deeper troughs in the process. The former just touched 178.96 and the latter 134.95 for stellar recoveries of over and almost a full point from worst levels traded since recording contract peaks late last week. Similarly, US Treasuries have regained composure and the curve has flipped back into flattening mode, albeit with futures and yields still some distance from their record/multi-year highs and lows, and key spreads not close to turning negative again. Ahead, blank US data slate, but a couple of late Fed speakers on tap.

COMMODITIES

WTI and Brent futures are posting modest gains in early EU trade with little in the way of a catalyst thus far to influence price action ahead of this week’s inventory data, FOMC/ECB minutes and Fed Chair Powell’s speech. The former reclaimed the 56/bbl handle during Asia-Pac hours and has since been edging towards 56.50/bbl. Meanwhile, the latter straddles around the 60/bbl mark after having found a base at 59.55/bbl overnight. Looking ahead (aside from macro-newsflow), focus will be on the API crude stocks release which is expected to show a headline crude drawdown of 1.9mln barrels. Elsewhere, gold prices are marginally firmer and back around the USD 1500/oz mark amid potential dip-buying ahead of this week’s key risk events; meanwhile, IMF data showed that central banks continued to buy gold in July despite the yellow metal hitting 6yr highs. Copper prices are in the red today and back below the 2.6/lb level, albeit price action is relatively contained. Finally, Dalian iron ore futures declined for a fourth consecutive session as supply concerns continued to ease amid rising iron ore exports from Australia and Brazil.