• Asian equity markets began the week lower across the board with sentiment in the region spooked on spill-over concerns as the Turkish lira extended on last week’s slump
• Sell-off in TRY sparks EM currency sell-off although TRY later found support on announcement of measures
• Looking ahead, today’s calendar lacks tier 1 data

ASIA

Asian equity markets began the week lower across the board with sentiment in the region spooked on spill-over concerns as the Turkish lira extended on last week’s slump following a defiant tone from Turkish President Erdogan, which triggered capital control concerns and who labelled the weakness in TRY as a ‘currency plot’. This pressured the major indices from the get-go with ASX 200 (-0.6%) dragged by mining names, while Nikkei 225 (-1.9%) underperformed on safe-haven flows into JPY and with Mitsui Mining & Smelting down 15% post-earnings. Elsewhere, Shanghai Comp. (-1.7%) and Hang Seng (-1.9%) were also heavily weighed alongside the broad EM-triggered mayhem and continued liquidity inaction by the PBoC. Finally, 10yr JGBs were higher with prices underpinned by safe-haven demand, although upside was also capped amid a lack of Rinban announcement with the BoJ only in the market for Treasury discount bills.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8629 (Prev. 6.8395)

UK/EU

UK Visa Consumer Spending fell 0.9% Y/Y in July vs. Prev. increase of 0.7% in June. (Newswires)

UK employers expect to offer median pay increases of 2.0% over next 12 months which was inline Q/Q. (Newswires)

Trade experts warn UK PM May the Brexit tariff plan is “fanciful”, while also questioning the reliability to track goods. (Times)

Senior Brussel figure stated the immediate consequence of a no-deal Brexit could be worse for the EU than the UK. This comes ahead of the next round of Brexit talks scheduled for Thursday. (Times)

The UK is working on options to avoid a hard border with Ireland; according to people familiar with the matter. One option would effectively prolong large parts of the transition phase; according to one official. (Newswires)

According to a major new poll, more than 100 parliamentary seats that backed Brexit in 2016 have flipped to support staying in the EU. (Sky News)

Fitch upgraded Greece by 2 notches to BB- from B; Outlook Stable and reaffirmed Lithuania at A-; Outlook revised to positive. (Newswires)

FX

In FX markets, USD/TRY initially surged over 10% against the greenback to above the 7.0000 handle in continuation of the TRY sell-off and after a defiant tone from President Erdogan. This was then brought back down after measures from Turkey in which the banking regulator placed a limit on FX swaps, although the support was brief and USD/TRY resumed its surge and homed in on the earlier record highs. This triggered EM currency contagion fears in which ZAR slumped as much as 10% to its lowest in over 2 years, while TWD fell to its weakest since March 2017 and IDR declined to a near 3-year low which prompted Bank Indonesia intervention. The turmoil underpinned safe-haven currencies across the board with JPY the notable benefactor, while USD also strengthened against most its major counterparts which saw EUR/USD slip below 1.1400 and AUD/USD relinquish the 0.7300 handle.

Turkish President Erdogan stated the economy is not in a crisis and that weakness in TRY is a currency plot, while he added that Turkey will win this economic war and are undergoing preparations to use national currencies for trade with nations such as China and Russia. There were also comments from Turkish Finance Minister Albayrak that the government has an action plan regarding the currency and will take necessary measures on Monday to ease market concerns, while he stated they will not convert nor seize FX deposits and that the currency is being directly targeted by the US President. In related news, Turkish Presidency Communication Chief Altun stated Erdogan’s comments were a warning against FX flight, while the banking regulator also announced to limit swap transactions in which banks’ total swap transactions has been capped at 50% of banks’ equity. (Newswires)

Turkish Central Bank has reduced the Reserve Requirement Ratios for non-core FX liabilities by 400BPS alongside the Lira Required Reserved reduced by 250BPS for all maturities. (Newswires)
 

COMMODITIES

Commodities were lacklustre overnight with demand sapped by a broad risk-averse tone and as focus centred on the sell-off across EM currencies. As such, WTI crude futures were relatively flat as the rebound from Friday stalled ahead of the USD 68.00/bbl level, while metals were also uneventful in which gold was subdued by a firmer green back and copper languished amid the risk averse tone.

US Baker Hughes Total Rig Count (10 Aug) 1057 (Prev. 1044). (Newswires)
 

GEOPOLITICAL

Turkish Foreign Ministry stated that Turkey will retaliate as necessary to the latest US tariffs after President Trump tweeted that he authorised a double up on tariffs on steel and aluminium with respect to Turkey. However, there were also comments late on Friday from Trump Lawyer Sekulow that they are close to reaching an agreement on Pastor Brunson. (Newswires)

North Korea reportedly rejected several denuclearization proposals made by the US. (CNN)

Officials on Friday stated that Iran conducted a test launch of a ballistic missile which was its first for the year. (Fox)
 

US

Treasuries rallied throughout the day, with yields falling to a 3week low at one point, as risk-aversion spurred by the currency crisis in Turkey shifted investors’ position away from risky assets into a bid for safe-havens. Amid decent volume, the short end of the curve was hit more than the long end; 5yr yields were lower by c.7bps and 30yr yields were lower by c.6bps.The 10yr yield posted the biggest one-day fall since late May, hitting a low of 2.85%. 2s5s narrowed by c2.5bps, 2s10 by c.2bps, whilst 5s30 widened by c.1.5bps. US 10YR T-notes settled 21 ticks higher at 120-12.

US President Trump stated that a deal with Mexico is coming along nicely and that Canada must wait. In related news, there were comments on Friday from Mexico’s Economy Minister that NAFTA talks have progressed well that week and will do the upcoming week also. (Twitter/Newswires)

Russian Finance Minister Siluanov stated that Russia will further reduce holdings of US securities in response to sanctions, but is not planning to shut down US firms. (FT)