• Asian equity markets were mostly negative with sentiment subdued after a lacklustre lead from Wall St.
• Heading into European trade, EUR/USD tripped stops on a break of 1.1500 to the downside to print its weakest level in around a year
• Looking ahead, highlights include UK GDP and output, US CPI and Canadian jobs

ASIA

Asian equity markets were mostly negative with sentiment subdued after a lacklustre lead from Wall St. where weakness in energy and financials dragged the DJIA and S&P 500, while the Nasdaq just about remained afloat to notch its 8th consecutive gain. ASX 200 (-0.1%) and Nikkei 225 (-0.7%) were lower with Australia weighed by weakness in energy stocks, while Tokyo trade failed to benefit from stronger than expected GDP amid a firmer currency. Elsewhere, Shanghai Comp. (-0.1%) and Hang Seng (-0.4%) traded choppy amid a lack of fresh drivers and after the PBoC refrained from operations again for a neutral position for the week. Finally, 10yr JGBs were higher with demand spurred by losses in riskier assets and with the BoJ also present in the market for nearly JPY 800bln in JGBs. 

PBoC skipped open market operations and were net neutral for the week vs. last week's CNY 210bln net drain. (Newswires)
PBoC set CNY mid-point at 6.8395 (Prev. 6.8317)

Japanese GDP (Q2) Q/Q 0.5% vs. Exp. 0.3% (Prev. -0.2%). (Newswires)
Japanese GDP Annualised (Q2) 1.9% vs. Exp. 1.4% (Prev. -0.6%, Rev. -0.9%)

UK/EU

BoE’s McCafferty (Hawk) said UK wage growth to reach 4% next year, while he also stated the City was currently pencilling in two interest rate rises in the next two years but added that the increases would probably be “front-end loaded”. (Guardian)

US and EU have begun laying groundwork for a trade agreement with the State Department instructing EU embassies to source trade deliverables, while EU delegation is planning a Washington trip late this month. (Newswires)

ECB concerns are said to be increasing regarding EU banks' exposure to Turkey amid a slump in TRY. (FT)

One of out a hundred banks and building societies have passed on last week’s BoE rate hikes in full to its savers, causing anger from MPs and campaigners. HSBC and Barclays have raised cost of mortgages but left savers without any benefits (Times)

FX

In FX markets, the DXY was initially flat as it took a breather from yesterday’s gains against its major counterparts which kept EUR/USD and GBP/USD at the bottom halves of the 1.1500 and 1.2800 handles respectively, before EUR/USD then tripped stops on a break of 1.1500 to the downside to print its weakest level in around a year and which in-turn underpinned the greenback. Antipodeans were also subdued and failed to make any meaningful recovery from the recent descent in which NZD/USD tested 0.6600 to the downside in the wake of the dovish RBNZ, while AUD/USD languished after an unsurprising SOMP which reiterated the view for no near-term change in rates and lowered underlying inflation forecasts. Elsewhere, USD/JPY retreated below 111.00 and JPY-crosses extended on losses amid flows into JPY spurred by a risk averse tone and firmer than expected GDP numbers, while TRY continued to tumble and extended on fresh record lows amid the ongoing diplomatic spat related to the detained US pastor and as reports noted increasing concern at the ECB of banks’ exposure to Turkey.

RBA Statement on Monetary Policy reiterated that the board sees no strong case for a change in rates in the near-term and that higher rates are likely to be appropriate at some time if the economy evolves as forecast. In addition, the RBA maintained December 2018 GDP growth forecast at 3.25%, but trimmed December 2018 underlying CPI forecast to 1.75% from 2.00%. (Newswires)
 

COMMODITIES

Commodities were flat overnight with WTI crude futures range-bound below the USD 67.00/bbl and are still on course to post losses of around 2.50% for the week. Elsewhere, gold was also uneventful and remained near the prior day’s lows as the greenback remained firm, while copper mirrored the risk averse sentiment and lacklustre trade across the complex.

GEOPOLITICAL

Satellite images suggested that North Korea is continuing work on a secondary cooling system at its 5MWe reactor, according to 38 North. (Newswires)
 

US

The Treasury complex drifted higher on Thursday, with yields suppressed by unchanged PPI and ahead of the CPI release due tomorrow. The yield curve bull-flattened with yields hitting session lows following the 30yr auction; 5yr yields lower by c.3bps and the 30yr yield by c.4bps. The US sold $18bln in 30yr bonds tailing by 0.3bps at a high yield of 3.09%. The bid-to-cover posted at 2.27x, below the previous auction and the 6wk average, at the lowest level since February. In terms of internals, dealers were awarded the biggest share since February, indirects were awarded shares well above the trendline whilst directs took the smallest portion since January. US 10YR T-notes settled 7 ticks higher at 119-23.

Fed’s Evans (Non-Voter, Dove) said the US economy is performing ‘very well’ and that one or two more rate hikes is reasonable by the end of year. Evans also commented that fundamentals are ‘extremely strong’ with uncertainty surrounding trade offset by business confidence following tax cuts and moves towards deregulation, while he added that he now feels inflation has returned to near the 2% target and is likely to remain there.  Furthermore, Evans commented that debate over whether to pause or continue higher into restrictive policy to intensify the next year as they approach the neutral interest rate. (Newswires)

Mexico’s Economy Minister Guajardo said NAFTA talks are going well but there is no NAFTA deal yet while he added they are doing their best to get a NAFTA auto deal done as soon as possible. (Newswires)

Canada's ambassador to the US McNaughton said relations with the US are strong despite the tariffs and that an auto deal is getting close, but a sunset clause does remain a sticking point. (Newswires)