• Reports of ECB concerns about European banks’ Turkish holdings slam the TRY to record lows
• EUR, European equities struggling as investors take flight to safe haven assets
• Looking ahead, highlights include, new Turkish economic model, 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 (-0.3%) and Nikkei 225 (-1.3%) 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. (flat) and Hang Seng (-0.8%) 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%)

EU/UK/US

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

UK GDP Prelim QQ Q2 0.4% vs. Exp. 0.4% (Prev. 0.2%)

UK GDP Prelim YY Q2 1.3% vs. Exp. 1.3% (Prev. 1.2%)

UK Industrial Output MM Jun 0.4% vs. Exp. 0.4% (Prev. -0.4%, Rev. -0.2%)

UK Industrial Output YY Jun 1.1% vs. Exp. 0.7% (Prev. 0.8%, Rev. 1.2%)

UK Manufacturing Output MM Jun 0.4% vs. Exp. 0.3% (Prev. 0.4%, Rev. 0.6%)

UK Manufacturing Output YY Jun 1.5% vs. Exp. 1.0% (Prev. 1.1%, Rev. 1.5%)

Norwegian CPI MM Jul 0.7% vs. Exp. 0.3% (Prev. 0.6%)

Norwegian CPI YY Jul 3.0% vs. Exp. 2.6% (Prev. 2.6%)

Swedish CPI MM Jul 0.5% vs. Exp. 0.5% (Prev. 0.2%)

Swedish CPI YY Jul 2.1% vs. Exp. 2.0% (Prev. 2.1%)

GEOPOLITICAL

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

EQUITIES

European equities have started the day negative (Euro Stoxx 50 -1.4%) as reports suggest the ECB is expressing concerns of a weak TRY on European banks. This is pressuring European banks as a whole (STOXX® Europe 600 Banks (SX7P) -1.7%) as investors are repositioning into safe-haven assets and away from the financial sector, which is the current sector underperformer. BNP Paribas (-3.7%), BBVA (-3.3%) and UniCredit (-3.1%) are bringing up the rear of the Stoxx 600 on the back of high exposure to Turkish assets.

FIXED INCOME

No surprise to see UK debt and STIR futures correct higher (bar the very front end of the curve) given confirmation of a weak start in EU stocks and the ongoing, albeit not so intense as it was pre-Liffe, Try-inspired safety flight. Gilts gapped up to 123.45 from yesterday’s 123.02 settlement level, so above ‘strong’ technical resistance around 123.39 from the off, and have advanced further to 123.53 for a 51 tick gain on the day before topping out, but Bunds have marginally extended their upside on Eurex to 163.13 (+63 ticks) with a bit more premium due to the latest decline in BTPs perhaps. Back to Liffe, 3 month contracts are still factoring ‘dovish’ BoE policy guidance and building in potential for a reversal of the latest rate hike on rising Brexit no deal risks. Note the raft of heavyweight UK data, including preliminary Q2 GDP, June ip, manufacturing and construction output, was mixed or close to consensus and had little impact. Turning to US Treasuries, firmer and flatter not far from overnight session highs on broad risk-aversion and ahead of potentially key data in the form of CPI.

FX

TRY - Almost relentless selling early Friday, to the point of a full-on capital flight at one stage, saw the Lira collapse to new all time lows vs the Usd with vendors and price feeds quoting levels for the pair anywhere between 6.0000-50 in fast, if not frantic market conditions. However, some respite for the Try ahead of and after Turkish current account data that was slightly better than forecast in the event, but the focus now very much on speeches from President Erdogan (midday and 14.30BST), and more importantly the Finance Minister’s new economic model (12.30BST). Usd/Try back under 6.0000, but only just.

DXY - The index is just off best levels, but riding high near fresh 2018 peaks around 96.182 and still over the big figure amidst widespread Dollar gains, bar vs the safest of safe-haven currencies, Jpy as the aforementioned Lira and EM meltdown spills over to majors. Technically, 96.512 is next on the radar, assuming no intervention to stop the rout and/or a major upset for the Greenback independently (weak CPI data?).

JPY - As noted, the exception to the rule, as Usd/Jpy trades mostly below 111.00 on risk-off positioning and the Jpy is also boosted by stronger than forecast Japanese GDP data overnight. Chart-wise, 110.53 represents nearest support and bids/stops are likely situated around 110.50.

CHF - Holding up better than other G10s vs the Usd circa mid-range between 0.9975-30, but forging more gains relative to the Eur just through 1.1400 as the single currency suffers from Try contagion and warnings from the ECB about Euro area banks that are especially exposed to Turkey.

AUD/EUR/GBP/CAD/NZD - It’s a list, and ordered by performance from worst hit to not quite so badly affected for all the well documented reasons ranging from ongoing trade wars, diplomatic sanctions and implications for the global economy/Central bank policy. Aud/Usd has slipped under 0.7300 as the YUAN loses recovery momentum, Eur/Usd tumbled through 1.1500 unceremoniously as barriers broke and stops were triggered and Cable caved through 1.2800 with little aid from mixed UK data, while the Loonie is back below 1.3100 vs its US rival ahead of Canadian jobs data. The Kiwi has lost grip of 0.6600, but holding up better than its antipodean counterpart as the cross slips back below 1.1100 from 1.1175 highs.

RUB/SEK/NOK - Also victims of the latest deterioration in sentiment, with the Rouble rout squeezing Usd/Rub up beyond 67.0000 before a modest pull-back, while the Scandi crowns are somewhat mixed after inflation data revealing bigger upside vs expectations from Norway compared to Sweden. Eur/Sek midway between 10.3580-4615 parameters, but Eur/Nok hugging the base of a 9.5410-5940 band.

COMMODITIES

Oil is set for its 6th weekly loss as the crude complex is being hit by a rising USD, and risk aversion with both WTI and Brent down ~0.8% on the day, and Brent set for a near 2% and WTI looking at a near 3% fall for the week.

In the metals complex, gold is down and straddling the USD 1210/oz level, as the rising dollar is hitting the gold market, which is looking at its 5th consecutive weekly fall. Copper has given up gains seen in early trade and is currently down 1.1% as an 11.3% fall in copper inventories seen by ShFE over the past week has not counteracted the USD hitting 13 month highs. Aluminium is also down 0.5% on the day.

IEA raise their 2018 oil demand growth forecast by 110k BPD to 1.49mln BPD, and see risks to 2019 oil demand growth from trade disputes and rising prices if supply is constrained.