• FTSE 100 lags following a plethora of large cap ex-dividends and energy names underperforming
• TRY hits new lows; RUB weakens on US sanctions
• 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 (+0.5%) 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 (+0.9%) 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%)

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)

EU/UK/US

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

GEOPOLITICAL

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

Russian embassy says the new US sanctions are "draconian" and not backed by facts or evidence, while there were reports Russia may respond to the US with the use of countersanctions law. (Newswires)

EQUITIES

European equities trade flat-to-lower (Eurostoxx 50 Unch) with heavier underperformance in the FTSE 100 (-0.6%) following a plethora of large cap ex-dividends. Softer oil prices also weigh on index’s energy giants while the sector as a whole lags. Consumer discretionary outperforms on the back of Adidas (+7.4%) lifting the sector and supporting the DAX 30 (Unch) amid earnings. Of note: Deutsche Bank upgraded the European auto sector to overweight from benchmark, while the firm downgraded European pharma and consumer staples.

FX

NZD - By far the biggest G10 loser as the RBNZ tweaked OCR rate projections out to the end of next year and stressed that a hike is firmly off the table given increased risks of a cut. The Kiwi has nosedived in response and further on dovish comments from deputy Governor McDermott to test support around 0.6650 vs its US counterpart and 1.1175 vs its AUD antipodean peer, which is holding up better with the YUAN in wake of stronger than expected Chinese CPI and PPI data overnight (Aud/Usd between 0.7415-55).

TRY/RUB - Bringing up the rear again in the EM area, as US sanctions continue to bite and investors take flight, while the Rouble is also losing more ground due to ongoing weakness in oil prices. Usd/Try is just off a new all time high circa 5.4475 and Usd/Rub a fresh ytd peak around 66.7100.

GBP/EUR - Broad risk aversion due to ongoing global trade and diplomatic spats from the US to China, EU, Turkey, Russia, Saudi Arabia and Canada, plus heightened risks of a no deal Brexit continue to take their toll on Sterling and the single currency to varying degrees. Indeed, Cable has fallen again and through 1.2850 for what seems to be daily 2018 lows, but Eur/Gbp is not extending too much further above 0.9000, for now, as the single currency also fails to maintain gains over 1.1600 vs the Greenback ahead of key technical resistance levels.

JPY/CHF/CAD - All moderately softer vs the Dollar, but sticking close to recent ranges with Usd/Jpy pivoting around 111.00 and hefty option expiries from the big figure upwards (1.8 bn between 111.00-05, 1.1 bn from 111.25-30 and 2 bn at 111.50-55), while the Franc remains anchored either side of 0.9950 and Loonie is back on the 1.3000 handle after very volatile moves on Wednesday following reports that Canada may be allowed to attend US-Mexico NAFTA negotiations having been excluded from the latest talks.

FIXED INCOME

It’s been a case of nearly, but not quite for the 10 year EU benchmarks as nearest bullish chart levels/targets were tested and marginally eclipsed, though lacking the depth of conviction due to summer volumes (in part) for a further extension and clean breaks. Indeed, Bunds got to 162.48 (+37 ticks), but failed to push on through 162.50 to really tempt stops, and similarly Gilts only inched a couple of ticks beyond 123.10 before losing momentum and retreating to a new Liffe low of 122.92 as their Eurozone equivalent recoils to 162.23. In truth, it has all reverted to relatively grey seasonal trade (like the UK weather!) with even FX markets calming down after runs on EM currencies and more downside for the current G10 whipping boys, Kiwi and Pound. Back to debt futures, US Treasuries are essentially flat ahead of some decent data (for the first time this week) and final auction as $18 bn long bonds go under the hammer.

COMMODITIES

WTI (Unch) and Brent (Unch) are trading within the prior day’s range, with WTI futures breaching USD 67/bbl to the upside. Brent initially flip-flopped either side of USD 72/bbl before grasping a firmer footing north of the level. News flow has been light for the complex. Elsewhere gold continues to move off intraday highs of USD 1216.29 as the dollar strengthens in European trade. Copper takes a breather having surged overnight, stabilising around USD 2.765/oz.