• Asian equity markets began the week lacklustre after the tech-led declines last Friday on Wall Street and ahead of this week's slew of risk events
• The UK government has reportedly agreed to give ECJ final say in arbitration regarding Brexit, divorce bill and potential Irish backstop in an effort to break the negotiation stalemate
• Looking ahead, highlights include regional and national German CPIs

ASIA

Asian equity markets began the week lacklustre after the tech-led declines last Friday on Wall Street and amid cautiousness ahead of this week's slew of risk events, while further CNH weakness also dampened sentiment. ASX 200 (-0.4%) and Nikkei 225 (-0.7%) were in the red with the worst performing stocks pressured by corporate updates including Syrah Resources and Dainippon Sumitomo Pharma. Elsewhere, Hang Seng (-0.6%) and Shanghai Comp. (-0.2%) were initially choppy after the PBoC refrained from reverse repo operations for a 7th consecutive occasion but noted that month-end fiscal spending will increase bank liquidity, while further CNH weakness eventually weighed on sentiment and proved to be the deciding factor. Finally, 10yr JGBs were marginally lower in a continuation of the losses triggered by ongoing BoJ speculation ahead of tomorrow’s policy announcement, while T-notes were uneventful amid tentativeness ahead of the looming risk events. Heading into EU trade, the BoJ once again announced a fixed-rate JGB operation which was met with a muted reaction by the market.

PBoC skipped repo operations for a CNY 130bln net drain and said month-end fiscal spending will raise bank liquidity. (Newswires)
PBoC set CNY mid-point at 6.8131 (Prev. 6.7942)
 

UK/EU

UK government has reportedly agreed to give ECJ final say in arbitration regarding Brexit, divorce bill and potential Irish backstop in an effort to break the negotiation stalemate. (The Times)

UK PM May is being accused of a kamikaze-style approach to a no-deal Brexit by Brexiteers who state the government have only highlighted the negative impact to the UK from a no-deal in its reports, while they had hoped for the government’s preparations to include the negative impact a no-deal would have on the EU which may have provided the UK more leverage in negotiations. (Telegraph)

Italy reportedly provided some hope for UK PM May after Italian Deputy PM Salvini stated the government would support the UK in trade discussions and accused the EU of attempting to swindle UK Brexit voters. In other news, there were also comments from Italian Deputy PM Di Maio that a referendum on whether Italy should leave the Euro is not in governing contract and will not be pursued. (Newswires)

A group of international experts is working on a plan for a potential free trade agreement between Britain and United States that could pave the way for a new, seamless trading bloc to rival the EU. (Times)

UK Foreign Secretary Hunt is to visit China to revitalise Anglo-Chinese relations. (The Guardian)

According to an investigation, a right-wing UK thinktank has offered ministerial access to potential US donors as it attempts to raise cash for research to support free-trade deals demanded by hardline Brexiteers. (The Guardian)

FX

Price action across the major FX pairs was quiet due to a lack of data releases and amid a tentative tone ahead of an abundance of central bank activity including policy decisions from the BoJ, Fed, BoE and RBI, while the latest NFP data on Friday will top off this week’s storm of risk events. As such, the greenback was flat which kept price action in EUR/USD and GBP/USD restricted with the latter just about holding onto the 1.3100 handle. Elsewhere, JPY was indecisive amid the varied speculation regarding potential policy tweaks by the BoJ, while antipodeans were lacklustre with brief pressure seen as CNH dropped another 500 pips against the greenback after the PBoC resumed its weakening of the reference rate.
 

COMMODITIES

Commodities were subdued overnight amid the cautious tone with WTI crude futures contained below USD 69.00/bbl following Friday’s losses amid reports Mexico plans to raise oil output and after US Defence Secretary Mattis dismissed rumours the US was prepared to strike Iranian nuclear capabilities. Elsewhere, gold was kept rangebound by an uneventful greenback and hesitation ahead of the upcoming risk events, while copper was lacklustre alongside a broad risk averse tone.

Mexican President Lopez Obrador said on Friday that his administration will boost crude production to 2.5mln BPD from current 1.9mln BPD. (Newswires)

US Baker Hughes Total Rig Count (27 Jul) 1048 (Prev. 1046). (Newswires)

GEOPOLITICAL

US President reportedly wants to set up an alliance with 6 Arab Gulf states to align against Iran. (Newswires)

US

The complex was higher, with the curve garnering some support as the tech slide continued, though volume was thin, and yields only came in modestly; at one point, however, three-year yields found fresh highs not seen in over a decade. There was choppy trade around the GDP release (bias to the upside), but ultimately, there was not a lot to sing home about. Attention on next week’s quarterly refunding and FOMC, and, given its impact on Treasuries recently, the BOJ meeting at the early part of the week. US 10YR T-notes futures (U8) settled 3 ticks higher at 119-14.

US President Trump threatened he would be willing to allow a government shutdown if the Democrats do not provide the votes for border security which includes building the wall. (Twitter).

U.S. Treasury Secretary Mnuchin said he believes the quickening pace of growth in the US economy in Q2 will persist for the next 4-5 years. (Newswires)

OMB Director Mulvaney said President Trump respects the Fed's independence, while he added that 4% growth is manageable and that he has confidence growth is sustainable. (Newswires)

US NEC Director Kudlow stated that trade discussions with EU regarding energy and agriculture will begin immediately. (Newswires)

Canada, EU, Japan, Mexico and South Korea are reportedly to meet in Geneva on Tuesday to discuss response to US tariff threats on auto imports. (Newswires)