• Asian equity markets initially followed suit from Friday’s gains on Wall St, although upside was limited by ongoing US-China trade tensions
• UK Trade Secretary Fox has placed the chances of leaving the EU without a deal at "60-40"
• Looking ahead, today sees a lack of tier 1 releases

ASIA

Asian equity markets began the week mostly positive as bourses followed suit from Friday’s gains on Wall St, although upside was limited as the region took its first opportunity to digest Friday’s key events including China’s tariff retaliation list announcement and the mixed US jobs data. ASX 200 (+0.5%) was led higher by commodity-related stocks and Nikkei 225 (+0.1%) was positive but with upside limited by recent JPY strength. Elsewhere, Hang Seng (+0.5%) and Shanghai Comp. (-0.8%) were mixed as the mainland failed to hold on to early gains due to trade uncertainty and further PBoC inaction. Finally, 10yr JGBs were quiet overnight but still edged mild gains as yields slightly eased from last week’s BoJ-triggered surge, while reports also noted that the BoJ bought a record amount of 5yr-10yr JGBs last week in its efforts to cap gains in yields.

China state media commented that China is prepared for a long trade battle with the US, while it also noted that US is escalating trade friction with China and is turning international trade as a zero-sum game. In addition, China state media said President Trump is starring in his own carefully orchestrated Street Fighter-style deceitful drama and wants others to play along which is wishful thinking. (Newswires/Xinhua/Twitter)

PBoC skipped open market operations and were net neutral on the day. (Newswires)
PBoC set CNY mid-point at 6.8513 (Prev. 6.8322)

UK/EU

UK Trade Secretary Fox said the likelihood of a no-deal Brexit is increasing in which he blamed the "intransigence" of the European Commission. Fox also placed the chances of leaving the EU without a deal at "60-40" and stated that EU Chief Negotiator Barnier dismissed the UK's Chequers proposals simply because "we have never done it before". This also comes alongside commentary in the Sunday Times over the weekend that businesses and investors are scrambling to protect themselves against a plunge in the value of the pound if Britain crashes out of the EU in March. (BBC/Sunday Times) However, there were later reports that UK PM May is said to be confident of reaching a Brexit agreement according to sources who insisted there is only a very small probability of failing to reach an agreement with the EU. (Guardian)

EU is reportedly considering softening backstop powers for Northern Ireland to avert a no-deal Brexit, according to a senior EU diplomat. (FT)

UK Chancellor Hammond has warned senior figures in the City that France could attempt to bind Britain’s financial services sector in red tape post-Brexit, leading to a potential loss of access to European markets. (FT)

UK Treasury has reportedly asked large institutions in the financial sector for help prioritise which pieces of financial regulation are the most crucial in their Brexit action plan. (Financial News London)

UK Business confidence declined significantly amid Brexit uncertainty according to two survey. A poll of the FTSE 350 business by ICSA found that 55% of company board members are predicting a decline in their business over the comer year compared to 24% six-months ago (when the group last surveyed them). (The Guardian) 

ECB's Lautenschlaeger (Hawk) stated it would be wrong for the central bank to abruptly change monetary policy direction which would not help the economy nor price stability. Lautenschlaeger also stated she is very much in favour of normalizing monetary policy which means gradually raising interest rates and that the pre-condition is that the path to price stability is sustainably strengthened. (Newswires)

Fitch affirmed Germany at AAA; Outlook Stable and raised Czech Republic from A+ to AA-; Outlook Stable. (Newswires)

FX

FX markets were range-bound overnight in which the DXY remained near the prior week’s highs above 95.00, while its counterparts languished with EUR/USD below 1.1600 and GBP/USD breached 1.3000 to the downside amid continued Brexit woes. There were comments over the weekend from UK Trade Secretary Fox that the likelihood of a no-deal Brexit is increasing and who placed the chances of leaving the EU without a deal at 60%, although Whitehall sources later contradicted this and stated UK PM May is confident of reaching a Brexit agreement and insisted there is only a very small probability of not reaching a deal. Elsewhere, CAD briefly wobbled on reports that Saudi Arabia froze all trade investment with Canada and halted diplomatic ties in a dispute over the arrest of a women’s rights activist, although CAD later pared the losses given its relatively small exposure the middle-east nation and as high-beta currencies were briefly supported from a bout of CNY strength at the reopen.

Saudi Arabia froze all trade investment with Canada and declared that that the Canadian envoy in Riyadh is unwelcome in which it considered the Canadian Ambassador persona non grata, while the Saudi Foreign Affairs Ministry also recalled its Ambassador to Canada. (Newswires)
 

COMMODITIES

Commodities were mostly flat although WTI crude futures saw marginal gains as it continued its bounce from support at USD 68.00/bbl. Elsewhere, gold was relatively unchanged amid a lack of drivers and as the greenback held steady in Asia trade, while price action in copper was also muted amid underperformance in mainland China due to ongoing trade tensions.

Baker Hughes Rig Count (3 Aug) Total rigs fell by 4 to 1044 rigs. (Newswires)

GEOPOLITICAL

North Korea Foreign Minister Ri described US actions as alarming in response after US Secretary of State Mike Pompeo urged other countries to keep up sanctions pressure on Pyongyang. In addition, a UN report stated that North Korea has not halted its nuclear and missile program which is in violation of sanctions. (BBC/Newswires)

US President Trump tweeted on Saturday “Iran, and its economy, is going very bad and fast! I will meet, or not meet, it doesn’t matter – it’s up to them… Iran Is messing with the wrong President”. Furthermore, US Secretary of State Pompeo said the White House will make an announcement detailing reinstatement of some Iran sanctions on Monday. Note: The first round of Iran sanctions imposed by the US to come into effect on Tuesday – the Iranian government will no longer be able to purchase US banknotes and broad sanctions will be imposed on Iranian industries. (Twitter/Newswires)

Venezuela said there was an assassination attempt on President Maduro by far-right opponents after several drones armed with explosives blew up near President Maduro, while reports also noted Maduro was unharmed and that 7 people were being treated for injuries. (Newswires)
 

US

There were further reports of short-covering after traders were positioned for a better NFP headline based on the ADP data released on Wednesday, IGM said. The complex was also buoyed by a ramping up of trade tensions (this time, from the Chinese side). The net result was a slightly flatter curve, with major curve spreads little changed. US 10YR T-notes settled 9 ticks higher at 119-19+.

US President Trump stated that tariffs are working and that the US will be able to begin reducing large amounts of its USD 21tln debt due to tariffs. In separate news, US President Trump was also said to be reserving the right to impose tariffs on Canadian-produced autos. (Newswires/Twitter)

White House spokesperson said on Friday that the US has had a high level of discussions with China on trade over the past few months and noted they are open to having further conversations. However, there were also comments from a senior US administration official that there has been zero engagement between US president Trump & China, apart from one call in the last few days which resolved nothing. (Newswires)