• Asian equity markets traded slightly mixed after a similar varied performance on Wall St where focus remained on earnings season
• EU’s Barnier stated that the EU cannot delegate customs policy to Britain and any customs arrangement must respect this principle; effectively shooting down the Chequers deal
• Looking ahead, highlights include the Russian rate decision, Uni. of Michigan Sentiment, Baker Hughes and BoE’s Haldane

ASIA

Asian equity markets traded slightly mixed after a similar varied performance on Wall St where focus remained on earnings season and Facebook’s historic market cap wipeout. ASX 200 (+0.9%) and Nikkei 225 (+0.3%) were both higher with the Australian benchmark the outperformer as it attempted to reclaim the 6300 level and approached to within a whisker of its highest in over a decade. BHP was among the biggest gainers after it announced the sale of its US onshore assets to BP for USD 10.8bln and return the net proceeds to shareholders, while Japanese stocks also gained and were driven by earnings although a firmer JPY capped upside. Conversely, China lagged its regional peers with both Hang Seng (-0.1%) and Shanghai Comp. (-0.1%) negative after the PBoC skipped open market operations all week which resulted to a net weekly drain of CNY 370bln, while China also signalled defiance on trade and were said to plan retaliating regardless of the amount of US tariffs. Finally, 10yr JGBs were lower as the 10yr yield rose to above 0.1% for a 2nd consecutive day amid firmer than expected Tokyo CPI data coupled with speculation of a BoJ policy adjustment next week. Pressure in JGBs was also exacerbated after the Rinban announcement in which the BoJ disappointed some calls for a special fixed-rate operation and instead stuck to its regular operation for 1yr-10yr JGBs. However, losses were pared heading into the EU open after the BoJ eventually announced an offer to buy unlimited amount of 5yr-10yr JGBs in fixed rate operation.

PBoC skipped open market operations for a net weekly drain of CNY 370bln vs. last week's CNY 540bln net injection. (Newswires)
PBoC set CNY mid-point at 6.7942 (Prev. 6.7662)

Chinese Industrial Profits (Jun) Y/Y 20.0% (Prev. 21.1%). (Newswires)

Tokyo CPI (Jul) Y/Y 0.9% vs. Exp. 0.7% (Prev. 0.6%). (Newswires)

Tokyo CPI Ex. Fresh Food (Jul) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.7%)
Tokyo CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.5% vs. Exp. 0.4% (Prev. 0.4%)

UK/EU

EU’s Barnier stated the UK customs proposal is not new and the plan is little changed from what was presented a year ago. Barnier stated that talks with UK Brexit Secretary Raab have been constructive and that he wants talks to be concluded in October but added there are still major issues to be discussed. Furthermore, Barnier said we agreed that future financial market access will be governed by autonomous decisions on both sides and that the UK wants the Irish backstop to be UK-wide which the EU do not object in principle to but are doubtful that it can be done, while he also commented the EU cannot delegate customs policy to Britain and any customs arrangement must respect this principle; effectively shooting down the Chequers deal. (Newswires)

UK Brexit Secretary Raab said the UK customs proposal respects integrity of the EU and the constitutional integrity of the UK, while he added the Irish backstop should be time-limited. (Newswires)

The percentage of voters who favour a second Brexit referendum has overtaken those who do not for the first time, a YouGov poll for The Times shows. (Times)

FX

In FX markets, the greenback remained firm and held on to the prior day’s gains amid higher yields and expectations of a solid GDP report. Furthermore, the greenback was also aided by weakness in its main counterparts in which EUR/USD languished following an uneventful ECB meeting, while GBP/USD tested 1.3100 to the downside after EU chief Brexit negotiator Barnier effectively shot down PM May’s Chequers plan in which he labelled the Facilitated Customs Arrangement as a non-starter and stated the proposal was little changed from what was presented a year ago. Elsewhere, antipodeans were lacklustre after recent declines in metals and a weaker fix by the PBoC which saw USD/CNY briefly approach the 6.8200 level, while JPY was firmer across the board on higher yields and expectations of a looming BoJ policy tweak.

COMMODITIES

Commodities were mostly quiet overnight as prices took a breather from yesterday’s price action with WTI crude futures heading into European trade little changed above the USD 69/bbl level where it found support the prior day. Elsewhere, gold was uneventful and only saw a minimal recovery from its recent USD-induced decline as the greenback held on to its gains and with focus turning towards the incoming US GDP data, while copper attempts to nurse losses were restricted by weakness in its largest buyer China.

GEOPOLITICAL

Senior figures in the Australian government stated they believe the US is ready to strike Iran's nuclear capabilities, perhaps as soon as next month, and that Australia is set to assist in identifying potential targets. (ABC)

A Turkish President spokesman said the US must reconsider its approach and adopt a constructive position before it hurts its own interests and alliance with Turkey, while the Turkish Foreign Minister said no one dictates Turkey and that they will never tolerate a threat from anybody in response to threat of US sanctions related to the detainment of Pastor Brunson. (Newswires)

US

Treasuries edged lower on Thursday ahead of today’s GDP release, which analysts expect to come in strong, per hints from the Trump administration, which noted on Thursday there are a “lot of predictions, a lot of predictions,” including some “with a 5 in front of it.” Yields were higher by c.3-4bps across the curve; 2s10s, 2s30s and 5s30s narrowed by c.2bps while 5s10s, 2s5s by c.1bps. US 10YR T-notes futures (U8) settled 10 ticks lower at. 119-11.

US President Trump believes GDP figures this Friday will be terrific and that he will be pleased with a figure that has a 4 in front of it, while he stated that some forecast 5.3% but he's not so certain. Furthermore, US President also commented that drug prices are going to come tumbling down and criticised Canada for having ‘close markets’. (Newswires)

US Commerce Secretary Ross said President Trump instructed his department to continue the probe on auto tariffs in EU, but not to implement anything and noted that Trump wants trade talks with EU to go faster than NAFTA. (Newswires)

Senior White House official said US President Trump retained leverage to place tariffs if EU and US cannot reach an agreement, while the official added that EU needs to open to more US auto exports. (Newswires)

US Trade Representative Lighthizer said the 232 tariffs are negotiable in NAFTA talks and that he was unsure regarding getting a deal with NAFTA but hopes to have Mexico conclusion on NAFTA soon which he aims to have a conclusion sometime in August with Canada to follow. Elsewhere, there were also comments from Mexico's Economy Minister Guajardo who said he is looking to speed up NAFTA negotiations. (Newswires)

Former Trump lawyer Cohen is reportedly prepared to say that President Trump was aware of the meeting with Russians who were expected to offer dirt on Hillary Clinton. (CNN)