• Asian equities shrugged off opening losses with Chinese bourses outperforming their regional peers
• NZD/USD slipped to its lowest since early 2016 after the RBNZ kept rates unchanged as expected whilst providing a dovish rate outlook
• Looking ahead, highlights include US weekly jobs, PPI, Fed’s Evans and a US 30yr Bond Auction

ASIA

Asian equity markets were eventually mostly higher after bourses recovered from the initial trade-related losses triggered by China’s retaliation announcement of 25% tariffs on USD 16bln of US goods. This initially weighed across the region with underperformance in the Nikkei 225 (-0.2%) after disappointing Machine Orders which declined at the fastest pace YTD and as automakers reeled from fresh reports of improper testing. ASX 200 (+0.6%) was also subdued at the open with Australia’s energy sector dragged by a slump in crude, although the index then recovered amid strength in the largest weighted financials sector with Suncorp underpinned by a deal to sell its Australia life insurance unit and after it declared a special dividend. Elsewhere, both Hang Seng (+1.0%) and Shanghai Comp. (+1.8%) opened negative on the trade tensions, but then rebounded with a vengeance alongside a broad recovery in the region and after Chinese inflation data topped estimates to suggest stronger than anticipated activity. Finally, 10yr JGBs were flat amid a lack of drivers and choppy sentiment in the region, while the 30yr auction also failed to spur demand with all metrics weaker than prior.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8317 (Prev. 6.8313)

Chinese CPI (Jul) Y/Y 2.1% vs. Exp. 1.9% (Prev. 1.9%). (Newswires)
Chinese PPI (Jul) Y/Y 4.6% vs. Exp. 4.4% (Prev. 4.7%)

Japanese Machinery Orders (Jun) M/M -8.8% vs. Exp. -1.3% (Prev. -3.7%); fastest decline since December 2017. (Newswires)
Japanese Machinery Orders (Jun) Y/Y 0.3% vs. Exp. 9.5% (Prev. 16.5%)

UK/EU

BoE's McCafferty (Hawk) said he finds it hard to believe the UK will end up in a better trade situation than it could have been because of Brexit, at least for a significant period. (Newswires)

UK PM May reportedly sent letters to Conservative party grassroots to seek support from individual members for the Chequers plan. (Guardian)

UK RICS Housing Survey Jul 4 vs. Exp. 4.0 (Prev. 2.0, Rev. 3)

FX

In FX markets, the greenback was steady and its counterparts across the pond traded indecisive with EUR/USD holding near the prior day’s highs while GBP/USD languished below 1.2900 and near a 1-year low. As such, EUR/GBP extended above 0.9000 with UBS eyeing further upside to 0.9200 by year-end and to 0.9500 by end-2019. Elsewhere, antipodeans were mixed as NZD/USD slipped to its lowest since early 2016 after a dovish RBNZ which kept rates unchanged as expected at 1.75% where it expects it to remain into 2020, while AUD found support along with CNH on the firmer than expected Chinese CPI and PPI data.

RBNZ kept the Official Cash Rate unchanged at 1.75% as unanimously expected and stated that it expects to maintain OCR at this level into 2020. RBNZ repeated rates are to stay expansionary for a considerable time and the next move could be up or down, while it also stated that recent growth moderation could persist for longer. Furthermore, it lowered its forecast for OCR to 1.8% from 1.9% for both September 2019 and December 2019 and lowered TWI NZD forecast to 72.8% from 74.0%, while RBNZ Governor Orr later stated the OCR could be lowered if growth slows further. (Newswires)
 

COMMODITIES

Commodities were higher overnight in which WTI crude futures reclaimed the USD 67.00/bbl level, although prices still have far to go to recoup yesterday’s near-4% tumble from above USD 69.00/bbl that was triggered by China’s tariff retaliation as well as bearish crude and gasoline inventory numbers. Elsewhere, gold was marginally higher and remained near the prior day’s best levels, while copper surged amid a turnaround in risk sentiment and China outperformance.

GEOPOLITICAL

The US determined Russia were behind the use of the Novichok nerve agent in Salisbury and stated that sanctions on Russia will take place after a 15-day period, although other sources reported sanctions would take place on August 22nd. Furthermore, reports noted the first tranche of sanctions would ban licenses for export of sensitive national security goods to Russia and second tranche could downgrade diplomatic relations, suspend Aeroflot's ability to fly to the US and to cut nearly all exports and imports. (Newswires)

US White House is reportedly drafting an executive order that would permit placing sanctions on foreign nationals that interfere with US elections. (Washington Post)
 

US

Treasuries ended the session pretty much flat and yields mostly unchanged; yields were lower across the curve by less than 1bps. The 30yr yield hit session lows at 3.110 following solid auction demand. The US sold $26bln in 10yr notes stopping on the screws at a high yield of 2.96%. Overall a relatively average auction, the cover was slightly stronger than the 6wk average but was slightly beneath the previous. Dealers took lower than the 6wk average and indirects took 61.3% just beneath the auction average of 61.8%. US 10YR T-notes settled 1 tick higher at 119-16.

US President Trump's lawyers rejected Mueller's interview terms for the interview with the President. (Newswires)

Canada is said to join talks in Washington as soon as next week, while US & Mexico are said to focus on getting a deal on autos this week. (Newswires)