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General Trend:

• Asian equity markets trade mostly higher, Shanghai Composite rises over 1.3% in early trade
• Australia ASX 200 underperforms , BHP declines following earnings report
• USD/JPY trades below ¥110 for the first time since late June amid broad USD weakness
• US President Trump criticized the Fed’s policy

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat
• ASX 200 Energy index -1.6%, Resources -1.3%, Financials -1.2%
• BHP [BHP.AU]: Reports FY18 Underlying Net $9.6B (continuing ops) v $9.2Be, Underlying EBITDA $24.1B (includes Onshore US business) v $24.3Be, Rev $45.8B v $45.5Be
• (AU) RBA AUG MINUTES: REITERATES NO STRONG CASE FOR NEAR-TERM POLICY ADJUSTMENT
• (AU) Reserve Bank of Australia (RBA) Gov Lowe: Reiterates likely next move in rates will be up and not down
• (AU) Australia PM Turnbull wins leadership vote for ruling Liberal Party by a vote of 48 to 35; Following the leadership vote, Peter Dutton will step down from his position as Home Affairs Minister.
• (NZ) New Zealand Jul Credit Card Spending M/M: -1.1% v 2.1% prior; Y/Y: 3.2% v 5.7% prior
• (NZ) New Zealand Jul Net Migration: 4.7K v 4.8K prior

China/Hong Kong

• Shanghai Composite opened +0.1%, Hang Seng +0.3%
• Hang Seng Consumer Goods index +3.2%, Materials +3.2%, Industrial Goods +3%, Services +1.9%, Energy +1.3%, Property/Construction +1.2%, Info Tech +0.9%, Financials +0.6%
• (CN) Insurance companies in China said to have increased their purchases of A-shares - Chinese Press
• (CN) China PBoC said to plan to revamp local management system by the end of 2018 - Chinese Press
• (US) President Trump: does not anticipate much coming out of meeting with Chinese delegation regarding trade talks this week - press interview

Japan

• Nikkei 225 opened -0.4%
• TOPIX Iron & Steel index +0.6%, Securities +0.4%; Marine Transportation -0.6%, Electric Appliances -0.6%, Retail Trade -0.3%, Real Estate -0.3%
• (JP) Japan Chief Cabinet Sec Suga said mobile phone bills have room to be cut by ~40% - Japanese Press
• (JP) Japan Finance Ministry (MOF) sells ¥1.0T v ¥1.0T indicated in 0.50% 20-year JGBs, avg yield v 0.6070% 0.4920% prior, bid to cover 4.66x v 4.54x prior

Korea

• Kospi opened flat
• (KR) South Korea Aug 1-20 Exports Y/Y: +14.9%; Imports Y/Y: +6.0% - Customs Agency
• (KR) South Korea Jul PPI Y/Y: 2.9% v 2.6% prior
• (KR) South Korea said to plan to tighten rules related to internal transactions by Chaebol companies - South Korea Press
• (KR) South Korea said to plan to sell 50-year government bonds in Sept - Local Press

North America

• US equity markets ended mixed: Dow +0.4%, S&P500 +0.2%, Nasdaq -0.1%, Russell 2000 +0.3%
• S&P500 Materials +0.7%
• (US) President Trump: not thrilled with what Fed Chief Powell is doing so far, should be more accommodating - press interview

Europe

• (RU) UK Foreign Minister Hunt said to call for additional sanctions on Russia - UK Media

Levels as of 01:30ET

• Nikkei 225 +0.2%, ASX 200 -1.1%, Hang Seng +0.5%; Shanghai Composite +1.3%; Kospi +0.9%
• Equity Futures: S&P500 flat, Nasdaq100 flat, Dax +0.1%; FTSE100 -0.2%
• EUR 1.1542-1.1480 ; JPY 110.12-109.76 ; AUD 0.7361-0.7331 ;NZD 0.6668-0.6636
• Aug Gold +0.6% at $1,201/oz; Sept Crude Oil +0.2% at $65.53/brl; Sept Copper +0.5% at $2.679 /lb

Markets

A typical low volume Summer trading session turned vibrant after US President Trump considered the time right to lash out against China, Europe and the Fed. He labelled China and Europe FX manipulators while criticizing the Fed for hiking rates. Trump argues that he can use some accommodation during his crusade on trade. His comments dealt a significant blow to the US dollar while lifting US Treasuries. The trade-weighted greenback declined back to 95.50 neckline of a previous triple bottom. EUR/USD cruised north of 1.15, currently retaking the key 1.1510 mark which was lost on August 10. A sustained rebreak would turn the technical picture neutral again. USD/JPY trades currently near 110 for the first time since the end of June. US yields declined by 2.1 bps (2-yr) to 4.4 bps (5-yr) with the belly of the curve outperforming the wings. On other subjects, Trump expects another meeting with North Korean Leader Kim Jung-Un while downplaying current low levels talks between the US and China. Voting FOMC member Atlanta Fed Bostic hit the wires yesterday and also slightly helped the dollar and US yields lower. He argued in favour of a total of three rate hikes in 2018. He labelled the trade war as the biggest downside risk to the US economy while sending a warning about the flattening US yield curve.

All was quiet on the European front yesterday. German yield changes varied between +0.7 bps (2-yr) and -0.5 bps. 10-yr yield spread changes vs Germany were broadly unchanged with Italy (-10 bps), Spain and Portugal (-6 bps) outperforming. Moody's extended its review for downgrade of the Italian Baa2 rating to October. A harbinger for actual action? A downgrade would bring the Italian rating only one notch above junk territory and at lowest mark of the big three rating agencies (S&P and Fitch hold BBB). EUR/GBP ended the day broadly unchanged near 0.8975.

The moves initiated by US President Trump meet with follow-up action on the FX market during Asian trading this morning. The dollar cedes somewhat more ground. The US Note future loses some of yesterday's gains though. Asian stock markets are mixed with China outperforming (+1.5%). Today's empty eco calendar suggests that investors will further digest Trump's comments. They'll probably contrast with the outcome of tomorrow's FOMC Minutes and Friday's speech by Fed Chair Powell who will both probably pave the way for a September rate hike. From a technical point of view, we look out whether the trade-weighted dollar loses 95.50 again and whether EUR/USD confirms the rebreak of 1.1510. The German and US 10-yr yields are close to 0.3% and 2.8% support levels, which we expect to hold. Sterling will probably remain in the defensive, awaiting the outcome of talks between Brexit minister Raab and EU chief negotiator Barnier. EUR/GBP 0.9031 is key resistance.

News Headlines

US President Trump said in an interview yesterday he still believes China and the EU are manipulating their currency to make up for having to pay tariffs on imports imposed by the US. In addition, he is not "thrilled" with the Fed for raising interest rates, saying the US central bank should do more to help him to boost the economy.

After French oil major Total announced it would halt imports of Iranian oil to safeguard its operations in the US, China said it opposes unilateral sanctions and defended its commercial ties with Iran. China, who has cut imports of US crude due to the trade war, will continue its purchases in Iran and thus bypassing US sanctions.

Jens Weidman, Bundesbank president and frontrunner to succeed Mario Draghi as ECB president next year, said despite central banks having price stability as single objective, they must be willing to act if needed to prevent financial imbalances. "In the long term, price stability and financial stability can complement each other".

Short-term Elliott Wave view on YM_F (Dow Futures) suggests that the pullback to 24956 low ended Minor wave 4. Up from there, Index is rallying within Minor wave 5 to end a 5 waves up from 4/2/2018 low. Minute wave ((i)) of 5 is currently in progress with internal subdivision as an impulse structure, This suggests lesser degree cycles in the direction of trend should unfold in 5 waves structure, i.eMinutte wave (i), (iii) & (v). On the other hand, the sub-division of lesser degree cycles against the trend should unfold in 3 waves corrective sequence, i.e. Minutte wave (ii) & (iv).

Up from 24956, Minutte wave (i) ended at 25326, Minutte wave (ii) ended at 25243, Minutte wave (iii) ended at 25657, Minutte wave (iv) ended at 25506, and Minutte wave (v) remains in progress towards 25828 – 26016. The move higher should also complete Minute wave ((ii)). Index should then pullback in Minute wave ((ii)) to correct cycle from 8/15/2018 low before the rally resumes. We don’t like selling the proposed pullback and expect dips to find support in 3, 7, or 11 swing as far as pivot at 24956 low stays intact.

Dow Futures 1 Hour Elliott Wave Chart

Market movers today

There are no key market movers today on the global or Scandie front.

Market focus continues to be on Turkey and developments in emerging markets.

The next key thing to watch on the macro front will be the FOMC minutes tomorrow and Euro PMI on Thursday.

Hungary's central bank (MNB) meets today. While we expect the MNB to keep rates unchanged, pressure to tighten monetary policy is rising. At the last meeting it kept rates unchanged. However, headline inflation has hit the 3.0% target faster than expected. While we previously expected the first key rate increase in mid-2019, changing inflation dynamics, strong economic growth and global monetary tightening could push the MNB to deliver a 25bp hike in H2 18. We do not exclude implicit tightening through liquidity tools.

Selected market news

Asian stocks are mixed this morning as investors await more clarity on the trade negotiations between the US and China.

Yesterday, reports came out that US President Trump had reportedly accused Fed Chair Jerome Powell of not proving the 'cheap money' head he expected when nominating him. While it is not the first time Trump has expressed dissatisfaction with rate hikes, it breaks the long-standing tradition of no political interference with monetary policy. USD and US yields came under pressure on the back of alleged criticism, where the 2Y-10Y curve flattened to new lows (see more discussion in the FX and FI sections on page 2).

Yesterday, Moody's postponed a possible downgrade of Italy as it extended the period that it has Italy on negative watch. Italy was placed on negative watch back in May on the back of the new Italian government budget proposals. The main reason for waiting is to get more clarity on the budget for 2019 before making rating changes. This highlights the critical nature of the budget, which is due to be presented in Italy next month.

President Trump said yesterday that he won't make any concessions to Turkey to secure the freedom of a detained Christian evangelical pastor at the centre of the diplomatic dispute that has spelled trouble for the Turkish economy. This effectively end hopes over the weekend that the Turkish authorities would release the pastor if the US gave something in return. Hence, an immediate solution to the stand-off seems more distant on the back of Trump's comments.

Daily Pivots: (S1) 126.14; (P) 126.33; (R1) 126.59; More....

EUR/JPY's rebound from 124.89 extended higher and breached 126.98 resistance. But there is no follow through rally yet. Intraday bias remains neutral at this point. As long as 126.98 minor resistance holds, deeper fall could still be seen. But considering mild bullish convergence condition in 4 hour MACD, downside should be contained by 124.08/61 key support zone to bring rebound. On the upside, break of 126.98 will indicate short term bottoming and turn bias back to upside for stronger rebound to 55 day EMA (now at 128.88).

In the bigger picture, focus is back on 124.08 key resistance turned support. Decisive break there will argue that whole rise from 109.03 (2016 low) has completed at 137.49. Deeper decline would be seen to 61.8% retracement of 109.03 to 137.49 at 119.90 next. Sustained break there will pave the way to 109.03 and below. Meanwhile, rebound from 124.08 will keep medium term bullishness intact for another high above 137.49.

Daily Pivots: (S1) 140.61; (P) 140.96; (R1) 141.19; More...

GBP/JPY's recovery from 139.88 is so far very weak. Intraday bias remains neutral and consolidation from 139.88 might extend further. Still, as long as 142.46 minor resistance intact, deeper fall is in favor. Sustained break of 139.29/47 key support zone will carry larger bearish implication and target 135.58 support next. Though, break of 142.46 will indicate short term bottoming, on bullish convergence condition in 4 hour MACD. Intraday bias will be turned back to the upside for stronger rebound.

In the bigger picture, at this point decline from 156.59 is still seen as a corrective move. But the current downside accelerate makes this view shaky. Focus will be on 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47). Strong rebound from there will re-affirm the bullish case that rise from 122.36 is still to extend through 156.59 high. However, sustained break of 139.29/47 should confirm medium term reversal. GBP/JPY would then target a retest on 122.26 (2016 low).

The GBP/USD did not manage to break below the support trend line (blue) and is moving up higher after breaking above the resistance trend line (dotted orange).

The GBP/USD is showing bullish momentum but the impulsive price action could be part of a larger wave 4 correction (purple) if price stops and reverses at the 38.2-50% Fibonacci decision zone. A bullish breakout could indicate a change of wave patterns and a new uptrend whereas a break below support (blue) could confirm the wave 4-5 (purple) pattern.

The GBP/USDis showing impulsive price action after breaking through the key resistance zone (orange), which is most likely a wave 3 (green). A mild, choppy, and sideways correction could confirm the wave 4 (green) pattern and a bullish breakout could see wave 5 (green arrows).

Daily Pivots: (S1) 0.8950; (P) 0.8964; (R1) 0.8988; More...

EUR/GBP rebounds strongly today but after all it's staying in consolidation from 0.9030 short term top. Intraday bias remains neutral at this point. Another fall cannot be ruled out as consolidation extends. But downside should be contained by 0.8854 support to bring rally resumption. On the upside, firm break of 61.8% retracement of 0.9305 to 0.8620 at 0.9043 will pave the way to retest 0.9305 key resistance. However, sustained break of 0.8854 will indicate near term reversal and turn outlook bearish.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). The corrective structure of the fall from 0.9305 to 0.8620 is raising the chance that rise from 0.8312 to 0.9305 is an impulsive move. But we're not too confident on it yet. In any case, we'd stay cautious on strong resistance from 0.9304/5 to limit upside in case of further rally. Meanwhile, if there is another medium term decline, strong support will likely be seen from 0.8303 to contain downside.

The USD/JPY is making a lower low as expected after breaking below the support trend lines (dotted blue). The bearish breakout could be aiming for the -27.2% Fibonacci target at 109.25, or the 50% Fib at 108.94. A break above the resistance trend line could indicate the end of wave Y (pink) of wave E (purple).

The USD/JPY broke the support trend line (dotted blue) of the triangle chart pattern yesterday with a strong impulse. The price is probably in a wave 5 (blue), although the current momentum suggests that the UJ is building a smaller wave 3 within wave 5.

Daily Pivots: (S1) 1.5611; (P) 1.5638; (R1) 1.5673; More....

EUR/AUD is still bounded in range of 1.5578/5725 and intraday bias stays neutral for the moment. On the downside, below 1.5578 will resume the fall from 1.5888 to 61.8% retracement of 1.5271 to 1.5888 at 1.5507. Firm break there will pave the way to retest 1.5271 low. On the upside, above 1.5725 will extend the rebound form 1.5578 to retest 1.5888 high.

In the bigger picture, the rebound from 1.5271 was somewhat weaker than expected. EUR/AUD also failed to sustain above 55 day EMA and hints on some underlying bearishness. Though, for now, as long as 1.5271 support holds, medium term rise from 1.3624 (2017 low) is still mildly in favor to extend through 1.6189 high, to 1.6587 key resistance (2015 high). Nevertheless, firm break of 1.5271 will complete a head and shoulder top pattern (ls: 1.5770, h: 1.6189, rs: 1.5888). That would indicate medium term reversal and turn outlook bearish.