• Asian equity market were initially mostly higher as region got a tailwind from US. However, sentiment was soured after reports that the Trump administration is planning to propose an increase to 25% tariffs from 10% on USD 200bln of Chinese goods
• In FX markets, the greenback remained firm with the DXY near the prior day’s highs around 94.50 as its major counterparts languished
• Looking ahead, highlights include EZ, UK & US Mfg PMIs, US ADP, Constructions Spending, ISM Mfg, DoEs, Quarterly Refunding Announcement and rate decisions from the US, India and Brazil

ASIA

Asian equity market were mostly higher as region got a tailwind from US where all majors finished positive on trade optimism from initial reports that US and China are to seek a restart of talks, while earnings also remained in the spotlight with Apple beating on top and bottom lines. However, Asia-Pac bourses were far from solid ground and US equity futures also pared some of their gains after reports that the Trump administration is planning to propose an increase to 25% tariffs from 10% on USD 200bln of Chinese goods and as Caixin Manufacturing PMI added to the recent China PMI misses. As such, ASX 200 (+0.1%) and Nikkei 225 (+0.9%) were mixed throughout most the session with Australia dampened by weakness in financials and energy, while Tokyo trade was driven by a weaker currency and earnings deluge. Elsewhere, Apple suppliers were varied despite the tech giant’s earnings beat as they also digested softer than expected product sales, and Chinese markets (Hang Seng -0.1%; Shanghai Comp. -0.3%) opened positive but then gains later proved to be flimsy on the conflicting trade reports and disappointing data. Finally, 10yr JGBs fell around 80 ticks to break below 150.00 as the BoJ’s more flexible approach on yields continued to reverberate in the bond market, with the 10yr yield back above 0.1% and the 5yr yield at a 6-month high. Of note, it was reported that Japan Securities Clearing Corporation stated that emergency margin calls related to JGB futures were triggered.

Trump administration plans to propose a higher tariff of 25% (Prev. 10%) on USD 200bln of imports from China with an announcement possible as soon as today, according to sources. (Newswires)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires)

PBoC set CNY mid-point at 6.8293 (Prev. 6.8165); weakest fix since 31st May 2017.

Chinese Caixin Manufacturing PMI (Jul) 50.8 vs. Exp. 50.9 (Prev. 51.0). (Newswires)

UK/EU

UK BRC Shop Price Index (Jul) Y/Y -0.3% (Prev. -0.5%). (Newswires)

UK PM May will cut short her summer holiday in an effort to persuade French President Macron to soften his stance on Brexit despite warnings that he is preparing to stand firm. (Times)

The EU is willing to “fudge” important Brexit negotiations and offer Britain a vague blueprint for future ties with the bloc if it helps UK PM May avoid a “no deal” outcome and win parliamentary backing for a withdrawal treaty. (FT)

Irish PM Varadkar stated that a no deal Brexit is very unlikely. (Newswires)

The National Institute of Economic and Social Research states that the UK economy is likely to grow this year at its weakest rate since 2012, but only if the government achieves a “soft Brexit scenario”. (Times)

UK Chancellor Hammond has ordered Whitehall to plan another round of cuts ahead of next year’s spending review. (Times)

The Times’ shadow monetary policy committee is united in believing that it is time for the BoE to lift borrowing rates to 0.75 per cent tomorrow. (Times)

FX

In FX markets, the greenback remained firm with the DXY near the prior day’s highs around 94.50 as its major counterparts languished with EUR/USD below the 1.1700 handle and GBP/USD eyeing 1.3100 to the downside. Elsewhere, USD/JPY and JPY-crosses held on to the majority of the gains in the aftermath of the BoJ’s less hawkish than feared policy tweak, while antipodeans slightly pulled back amid the weakest CNY fix since May last year and declines in crude, as well as a surprise increase in New Zealand’s Unemployment Rate.

New Zealand Unemployment Rate (Q2) 4.5% vs. Exp. 4.4% (Prev. 4.4%). (Newswires)
New Zealand HLFS Participation Rate (Q2) 70.9% vs. Exp. 70.8% (Prev. 70.8%)
 

COMMODITIES

Commodities were softer overnight in which WTI crude futures extended on the prior session’s losses and briefly tested a breakdown of the USD 68.00/bbl level following a surprise build in API crude inventories. Elsewhere, gold was kept subdued as the greenback remained firm and copper also conformed to the lacklustre tone across the complex amid disappointing Chinese PMI data and talk of proposals for increased tariffs on China.

US API weekly crude stocks (27/Jul) 5.59mln (Exp. -2.8mln, Prev. -3.160mln). (Newswires)

GEOPOLITICAL

South Korea and North Korea held military discussions in Panmunjom. (KCNA)

Iran’s Foreign Ministry spokesman said US President Trump is contradicting his actions by offering to negotiate with Iran, while Iran’s head of Revolutionary Guards stated that Iran is not North Korea when it comes to accepting negotiations with US President Trump. (Newswires)

US

After the BOJ took a dovish approach, the US Treasury curve resumed its flattening, albeit modest, with 2s10s coming in by around 2bps ahead of Wednesday’s Fed meeting (no fireworks expected), and 5s30s flattened by the same amount. Ultimately, however, Treasuries have continued in their summer lull, and after the BOJ dust settled, were rangebound. There was some upside to yields on reports that China and the US were seeking to resume trade talks. US 10YR T-notes settled 1+ ticks higher at 119-13+.

US President Trump reiterated threat to shutdown government if a deal is not made on the border wall and immigration. There were also comments from US Senate Leader McConnell that the Senate is trying to pass the spending bills and to avoid an 'event', while he added that he supports what Trump wants to do regarding the wall but wants it to be provided through use of normal appropriations. (Newswires)

US and Mexico said to be nearing auto deal, while it was also reported that Mexico President-elect AMLO believes an agreement on NAFTA renegotiation can be reached within the coming days. In related news, Mexico’s Deputy Economy Minister had earlier commented they will continue preparing all possible responses to potential US car tariffs despite the agreement between US President Trump and EU's Juncker. (Newswires)

Apple Inc (AAPL) Q3 EPS USD 2.34 vs. Exp. USD 2.18, revenue USD 53.27bln vs. Exp. USD 52.34bln. (Newswires)
Q3 iPhone sales 41.3mln vs. Exp. 42.05mln & average selling price USD 724 vs. Exp. USD 694.
Q3 iPad sales 11.6mln vs. Exp. 11.7mln.
Q3 Mac sales 3.6mln (exp. 4.3mln).
Sees Q4 revenue USD 60bln-62bln vs. Exp. USD 58.7bln.

Shares traded higher aftermarket, rising as high as 3% at one point.