• European equities kick-start the week lower across the board (Eurostoxx 50 -0.6%) with sentiment in the region soured by contagion concerns
• USD/TRY soared through 7.0000 to a new record peak around 7.2150, and prompted the CBRT into action
• 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 (-0.4%) dragged by mining names, while Nikkei 225 (-2.0%) underperformed on safe-haven flows into JPY and with Mitsui Mining & Smelting down 15% post-earnings. Elsewhere, Shanghai Comp. (-0.3%) and Hang Seng (-1.5%) 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)

TURKEY

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 Reserve reduced by 250BPS for all maturities. Turkey’s Central Bank will meet banks' TRY liquidity needs at overnight rate of 19.25% after not opening the regular daily repo auction at 17.75% today due to unhealthy price formations, according to bankers. This could be the first step towards tightening policy through interest rate corridors, adding banks may not use overnight funding today due to low TRY liquidity needs; according to bankers. (Newswires)

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. (Newswires)

Turkish market regulator is warning against misleading rumours in the media which could result in fines or even prison time. (Newswires)

Turkish Presidential spokesman said the Treasury, Central Bank and Banking watchdog are taking necessary steps. (Newswires)

EU/UK/US

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)

US President Trump stated that a deal with Mexico is coming along nicely and that Canada must wait. (Twitter/Newswires)

GEOPOLITICAL

North Korea reportedly rejected several denuclearization proposals made by the US, while South Korea and North Korea are said to hold a summit in September. (CNN/Yonhap)

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

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. Additionally, Russian Finance Minister said Russia is to halt FX purchases for reserve, as speculated. Meanwhile, Russia's Kremlin said President Putin has not yet given any orders on drawing up retaliatory sanctions against the US as the scope of planned US measures is unclear. (FT/Newswires)

EQUITIES

European equities kick-start the week lower across the board  (Eurostoxx 50 -0.6%) with sentiment in the region soured by contagion concerns as the Turkish Lira extends on last week’s slump. As such, Turkey-exposed banks plumb the depths again with BNP Paribas (-1.0%), BBVA (-3.7%) and Unicredit (-3.2%) all near the foot of their respective bourses. Elsewhere, Germany’s DAX 30 is dragged lower by its third largest constituent, Bayer (-11.2%), after recently acquired Monsanto was ordered to pay USD 289mln in fines as a court ruled the company’s weedkiller caused cancer.

FIXED INCOME

The 10 year EU benchmarks probed a bit further either side of parity in recent trade, but have reverted to sit flat or very close to previous settlement levels amidst the ongoing EM malaise and other areas of risk, ie from global trade/tariff rifts, the Brexit stalemate and Italy’s new Government challenging the EU’s fiscal rules. Bunds and Gilts climbed to fresh intraday highs of 163.53 and 123.74 respectively before retreating to revisit or set new session lows on Eurex and Liffe at 163.22 and 123.50, but are now back to within a handful of ticks from unchanged, while US Treasuries are nearer overnight troughs, but rangy and the curve a little steeper against the backdrop of marginally lower Fed hike expectations. 

FX

TRY - The Lira remains front and centre of attention after more rousing attempts by Turkish President Erdogan to shore up the currency and coral support from the international investor community largely fell on deaf ears, with Usd/Try soaring through 7.0000 to a new record peak around 7.2150, and prompting the CBRT into action. However, still unable to intervene via conventional means (ie rate hikes) the Bank resorted to cutting Reserve Requirement Ratios for non-core FX liabilities by 400 bp alongside the Lira Required Reserve by 250 bp for all maturities, and the relief has been relatively limited as a result.

EM - Lira contagion has spread further across the region, with the Rand hit especially hard (Usd/Zar 15.4700+ at one stage , but the Idr, Twn and other Asian units also weakening to intervention tolerance levels, while the Mxn has unwound more NAFTA-related gains to trade back below 19.0000 vs the Usd.

DXY - Riding high amidst all the turmoil in high-beta/risk/yield currency counterparts, with the index just off fresh 2018 highs at 96.530, and now looking at chart targets ahead of 97.000 with fair resistance seen around 96.841.

JPY - Still bucking overall trends and outperforming due to its ultra safe-haven allure, with Usd/Jpy pulling back further from 111.00 and through 110.50 to test the water ahead of 110.00 where decent expiry option interest resides (1.3 bn up to 110.05 to be precise).

AUD/EUR - The biggest G10 losers and most adversely impacted by broad risk aversion again, with Aud/Usd sitting mid-range between 0.7250-0.7300 and the single currency down through 1.1400 to test the 200 WMA at 1.1360 before regaining a degree of composure.

CAD/GBP/CHF/NZD - The Loonie is holding within a 1.3140-75 range vs its US rival and well off recent highs as Canada’s diplomatic row with Saudi Arabia rumbles on, while Cable has pared some losses from a circa 1.2730 low, but remains capped well ahead of 1.2800 amidst ongoing Brexit uncertainty. The Franc veers from 0.9920-55 vs the Greenback and Kiwi hovers in a 0.6550-95 band, displaying more resilience than is antipodean peer on less exposure to Chine-US trade wars (and another rise in the PBoC’s Usd/Cny midpoint fix).

COMMODITIES

WTI (Unch) is flat on the day, while Brent (+0.3%) is modestly supported as US sanctions against Iran point towards tighter supply. WTI and Brent are in close proximity their 50 HMA to the downside at USD 67.14/bbl and USD 72.43/bbl respectively. Also of note: the OPEC Monthly Report is due to be released at 11:55BST. Elsewhere, spot gold fell to the lowest since March 15th 2017, weighed by the greenback as the yellow metal detaches itself from safe-haven properties. London copper is subdued on USD action and the risk-off sentiment.

India's Oil Corporation says Iran is giving insurance cover for oil shipments, having enough term oil shipments to cushion any Iranian shortfall. (Newswires)

Workers at three of Total’s North Sea oil platforms are to start a 12-hour strike at 12:00BST. (Newswires)