I. Yesterday’s News
International News

1. U.S. President Donald Trump escalated his trade war with China on Monday, imposing 10 percent tariffs on about $200 billion worth of Chinese imports, but sparing smart watches from Apple and Fitbit and other consumer products such as bicycle helmets and baby car seats. Trump, in a statement announcing the new round of tariffs, warned that if China takes retaliatory action against U.S. farmers or industries, "we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports." Collection of tariffs on the long-anticipated list will start September 24 but the rate will increase to 25 percent by the end of 2018, allowing U.S. companies some time to adjust their supply chains to alternate countries, a senior administration official said.

2. A top economic adviser to President Donald Trump said on Monday he expects U.S. budget deficits of about 4 percent to 5 percent of the country's economic output for the next one to two years, adding that there would likely be an effort in 2019 to cut spending on entitlement programs. Kudlow did not specify where future cuts would be made. He stated that the biggest factor for revenue was economic growth rate. A quicker pace of growth will bring in more revenue, Kudlow said, and that President Donald Trump's economic policies were aimed at boosting the U.S. growth rate. Kudlow also said he did not expect the Congress would be able to make the Trump administration's recent individual tax cuts permanent before the Nov. 6 midterm congressional elections.

3. The European Central Bank should clarify the pace at which it intends to raise interest rates when the time for further policy tightening comes, ECB board member Benoit Coeure said on Monday. "Should economic conditions warrant, there might be a case for the Governing Council to go beyond the timing to lift-off (rates) in further clarifying the pace at which it expects to remove policy accommodation," Coeure told a conference. "A further clarification of our reaction function might help market participants and the broader public to better anticipate the likely future path of short-term interest rates," he added.

4. Euro zone labour costs rose at their steepest rate in almost six years in the second quarter of 2018, data released on Friday showed, supporting the European Central Bank as it curbs economic stimulus. Labour costs in the 19 countries sharing the euro zone rose by 2.2 percent year-on-year, EU statistics agency Eurostat said. Euro zone wage costs rose by 1.9 percent. The surplus of the foreign trade balance of the eurozone in July amounted to 17.6 billion euros.

5. Britain's economy will shrink if it leaves the European Union without a Brexit deal and it will suffer some damage whatever terms it agrees, the International Monetary Fund said on Monday. The Fund predicted Britain's economy would grow by about 1.5 percent a year in 2018 and 2019 if a broad Brexit agreement was struck. International Monetary Fund Managing Director Christine Lagarde said Britain's economy would contract if London and Brussels fail to strike a Brexit deal.

Domestic News

6. President Donald Trump will reportedly announce new tariffs on $200 billion in Chinese goods. “While Washington extends a carrot to Beijing, it is also swinging a stick. It is nothing new for the US to try to escalate tensions so as to exploit more gains at the negotiating table. The unilateral and hegemonic moves by the US will meet firm countermeasures from China,” the Global Times said in an editorial. "We are looking forward to a more beautiful counter-attack and will keep increasing the pain felt by the U.S.," the Chinese-language column said.

7. China's home prices accelerated in August at the fastest pace in nearly two years, with prices rising across board in tier 1, tier 2 and tier 3 cities, after two years of continuous tightening. Regulation may pick up in some regions as destocking in real estate inventories has come to an end, analysts said.

8. China is committed to opening up its financial services markets to foreign players, but China still had a long way to go to achieve a “deep and global financial market” and that there were still “gaps” to fill in its plans for opening up, the head of its central bank said. China will continue to ease its restriction on foreign financial institutions, deep its reform on yuan’s exchange rate forming mechanism, and keep yuan stable, governor Yi Gang said.

9. It is important to build up a monetary policy framework applicable to modern financial system as Chinese financial system shall adapt to the real economy, wile monetary policy shall also adapt to financial system, said a report released by Beijing-based think tank China Finance 40 Forum over the weekend. China’s monetary policy framework featured by banks as major player and government as invisible guarantee determines that the transformation cannot be completed overnight.

II. Market Overview
FX
1. Global Market

Sterling and the euro advanced against the U.S. dollar on Monday, amid optimism over prospects for a Brexit deal with the European Union. The euro was 0.52 percent higher against the dollar at $1.1689. Sterling was 0.74 percent higher against the greenback.

2. Home Market
China's yuan fell against the dollar in the morning session in thinned trading, tracking the lower midpoint rates. The midpoint rates were higher than expected after Friday’s sharp gains in the dollar index, suggesting that regulator did not want to see sharp depreciation in yuan’s prices. Yuan’s losses were pared after the dollar index pulled back. Exchange rates are expected to remain wide rangebound in the near term.

Precious Metals
A softer dollar and short-covering lifted gold on Monday after two sessions of declines, but investors braced for more U.S.-China trade tensions, with some buying bullion as a safe haven. Spot gold was up at $1,200.53 an ounce. U.S. gold futures for December delivery settled up $4.70, or 0.4 percent, at $1,205.80 per ounce.

Commodities
1.Crude Oil

Oil prices were little changed on Monday as the market weighed deepening trade tension between the U.S. and China that is expected to dent global crude demand and potential supply tightening due to Iran sanctions. Brent crude futures dipped 4 cents to settle at $78.05 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 8 cents to settle at $68.91 a barrel.

2.Base Metals

Prices of most industrial metals slipped on Monday after reports that the United States may be about to impose tariffs on another $200 billion worth of Chinese goods. Benchmark copper on the London Metal Exchange closed down 0.5 percent at $5,945. LME nickel lost 3.1 percent to $12,260, lead closed up 1.6 percent at $2,072.

U.S. Treasuries
1. U.S. Bonds

U.S. long-term Treasury yields inched up on Monday but came off four-month highs as investors returned to buy government debt after key technical levels were hit as global trade uncertainty persisted. Earlier in the session, yields on 10-year notes touched 3.022 percent, the highest since late May. U.S. 30-year yields also hit a four-month peak of 3.159 percent, while 2-year yields soared to 2.799 percent, the strongest level in 10 years. Yields subsequently slipped from their highs and at one point traded lower on the day. In afternoon trading, U.S. 10-year yields were last at 2.995 percent.

2. Chinese bonds

China Development Bank will reissue one-year, two-year and five-year fixed interest rates bonds on Tuesday. Liquidity eased after unexpected MLF operations by the central bank, buoying market morale. The pricing of one-year bonds remained at lows. Yields of the three bonds were expected at 3.05 percent, 3.72 percent and 4.00 percent.

Stock Market
1. U.S. Equities

U.S. stocks fell on Monday, led by declines in technology and consumer discretionary stocks as investors looked to President Donald Trump's announcement regarding tariffs on $200 billion of Chinese imports. All three major U.S. indexes were lower, with the tech-heavy Nasdaq posting its biggest percentage loss since late July. The Dow Jones Industrial Average fell 92.55 points, or 0.35 percent, to 26,062.12, the S&P 500 lost 16.18 points, or 0.56 percent, to 2,888.8 and the Nasdaq Composite dropped 114.25 points, or 1.43 percent, to 7,895.79.

2. Hong Kong Equities

Hong Kong shares closed lower, while China's main Shanghai Composite index fell 1.1 percent to its lowest close in nearly four years on Monday as reports said U.S. President Donald Trump would unveil new tariffs on $200 billion of imported Chinese goods this week. The benchmark Hang Seng Index tumbled 1.3 percent, or 353.56 points, at 26,932.85 while the China Enterprises Index slid 1.07 percent, or 113.08 points, at 10,462.09.

3. China Equities

China's main Shanghai Composite index fell 1.1 percent to its lowest close in nearly four years on Monday, dampened by culture and house leasing sectors. Mounting downward pressure as shown by macro data and rising trade disputes between China and U.S. dampened market confidence, suggesting sustaining downward momentum in the near term. But a rebound can be expected in the near term due to recent sharp losses. The Shanghai Composite index dropped 29.85 points or 1.1 percent to 2,651.79 points, its worst close since Nov. 27, 2014. The trading volume fell to 86.9 from previous session’s 104.9 billion yuan, not far from the lowest since January 7 2016 at 79.6 billion yuan.