• Asia stocks pull back as weakness in China outweighs NAFTA trade
• U.S. - Canada trade talks are making progress
• Dollar drops, whilst the pound is trading at a four-week high
• Extend overnight rally by oil prices
• German and Spanish inflation stabilization in August with economists estimating a rate of 2.1% for Germany and 2.3% for Spain
• Brexit talks remain deadlocked 

Asian overnight:  A largely bearish session overnight has seen losses across China, Australia, and Hong Kong, as the optimism sparked by the breakthrough in talks between the US and Mexico fades ahead of Friday’s deadline for Canada to ratify a new NAFTA pact. The Nikkei was the one outlier, with the index gaining marginally after a better than expected Japanese retail sales figure overnight (1.5% from 1.7%). Conversely, the Australian data releases shifted into the opposite direction, with the fall in ANZ business confidence, private capital expenditure, and building approvals helping drag the AUD lower over the session.

UK, US and Europe: Looking ahead, the growth story continues, with the Canadian GDP figure following on from yesterday’s strong GDP reading out of the US. Given the context of ongoing talks between the US and Canada over trade, markets will be interested to see the shape of the Canadian economy. Markets are looking for a sharp drop in the Canadian GDP figure, from 0.5% to 0.1%. Also keep an eye out for the US core PCE inflation number, alongside the personal spending and personal income figures.

South Africa: After realising record highs last night, US Index Futures are trading lower this morning as are most Asian markets, suggestive of a slightly softer start for the Jse All Share Index today. US President Donald Trump has suggested that China has been disrupting the progress relating to disarming North Korea of its Nuclear weapons, furthering geo political and trade tensions. The dollar has remained firm and in turn put some pressure on metal prices and emerging market currencies such as the rand. BHP Billiton is trading 0.2% lower in Australia, suggestive of a marginally softer start for local resource counters. Tencent Holdings is trading 1.2% lower in Asia, suggestive of a similar start for major holding company Naspers. 

Economic calendar - key events and forecast (times in BST)

Source: Daily FX Economic Calendar

8.55am – German unemployment (August): rate forecast to remain at 5.2%, while unemployment is expected to rise by 5000, from a 6000 drop in July. Market to watch: EUR crosses

10am – eurozone business confidence (August): expected to fall to 1.25 from 1.29. Market to watch: EUR crosses

1pm – German CPI (August, preliminary): forecast to be 1.8% YoY from 2%. Market to watch: EUR crosses

1.30pm – Canada GDP (Q2): expected to be 0.6% QoQ from 0.3%, while the annualised rate rises to 2.3% from 1.3%. Market to watch: CAD crosses

1.30pm – US personal income & spending (July), initial jobless claims (w/e 25 August): income to rise 0.3% MoM from 0.4%, and spending to rise 0.4%, in line with last month. Initial claims to rise to 212K from 210K. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

• WH Smith continues to see strong performance across their travel focused business, with the company continuing to open new stores in the UK and abroad. They now have 286 stores open internationally following the opening of eight stores in Madrid airport and one of six opening in Rio de Janeiro. Meanwhile, the high street continues to perform in line with expectations, with a continued focus on cost savings and margin improvements.
• Hays announced record international profits and total dividends for the year ended in June 2018, with net fees surpassing the £1 billion for the first time. The year saw operating profit (15%) and pre-tax profit (17%) both grow healthily, helping drive a, 18% rise in EPS.

Deutsche Telecom Upgraded to buy at BofAML

Vodafone downgraded to neutral at BofAML
KPN downgraded to neutral at BofAML
Worldline downgraded to hold at Berenberg

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