• USDTRY remains low as tensions abound in turkey despite Pastor Brunson’s appeal rejection
• Rising USD pressuring base metals, which is dragging on FTSE mining names
• Looking ahead, highlights include, US retail sales, industrial production, SOMA and DoEs

ASIA

Asian equity markets were mostly negative as the region failed to take impetus from the gains on Wall St where all majors edged higher as Turkey and EM contagion concerns subsided. Nikkei 225 (-0.7%) weakened amid profit taking following the prior day’s gains of over 2%, while ASX 200 (+0.4%) remained afloat on technical buying as the index reclaimed the 6300 level but with upside capped by losses in financials as Australia’s largest lender CBA suffered on criminal misconduct allegations. Elsewhere, Shanghai Comp. (-2.0%) saw hefty losses and the Hang Seng (-1.5%) declined to its lowest in around a year in a continuation of the recent underperformance as Tencent and tech names remained pressured, while the PBoC skipped reverse repo operations for a 19th consecutive occasion and although it later announced CNY 383bln in 1yr MLF loans, this was still lower than its previous MLF operation of CNY 502bln in late July. Finally, 10yr JGBs were marginally higher with only minimal support seen amid the profit taking seen in Japanese stocks and BoJ’s presence in the market in which the central bank kept its purchase amounts unchanged.

PBoC refrained from reverse repos but announced to lend CNY 383bln through 1yr Medium-term Lending Facility. (Newswires)

PBoC set CNY mid-point at 6.8856 (Prev. 6.8695)

Chinese House Prices (Jul) Y/Y 5.8% (Prev. 5.0%). (Newswires)

Indonesian Lending Facility Rate* Aug 6.25% vs. Exp. 6.0% (Prev. 6.0%)

Indonesian Deposit Facility Rate* Aug 4.75% vs. Exp. 4.5% (Prev. 4.5%)

Indonesian 7-Day Reverse Repo* Aug 5.50% vs. Exp. 5.25% (Prev. 5.25%)

EU/UK/US

UK CPI YY Jul 2.5% vs. Exp. 2.5% (Prev. 2.4%)

UK Core CPI YY Jul 1.9% vs. Exp. 1.9% (Prev. 1.9%)

GEOPOLITICAL

Turkish Court has rejected appeal to release Pastor Brunson. The TRY weakened in reaction to the news with USD/TRY jumping higher from 6.0400 to 6.1360. Later, the Turkish Presidential Spokesman said he expects the TRY recovery to continue, and he expects problems with the US to be resolved, but says the US needs to stop trying to influence the Turkish judiciary. (Newswires)

Turkey raised tariffs on imported goods including cars, alcohol and tobacco from the US, while Turkish Vice President Oktay stated that they increased tariffs on some US imports as a response to the US administration's deliberate attacks on the Turkish economy. (Newswires/Official Gazette)

EQUITIES

European equities have started the day marginally positive in a news-thin day as certain European bourses, including the FTSE MIB, are shut due to a public holiday. The metals sector is slightly underperforming on softer base metals prices, with the Stoxx 600 basic resources index breaking its July-low support level to the downside .

The day has been dominated by earnings news flow, where Admiral Group (+4.2%) and Vestas Wind Systems (+7.5%) beat on expectations and are leading the gains in the Stoxx 600. William Demant (-7.2%) missed on expectations, however, and are at the foot of the Stoxx 600.

FIXED INCOME

Tangible evidence of underlying demand for core debt via the latest German tap auction that drew stronger demand vs the previous 2046 cash offering at a lower average yield and with circa 50% less retention, so better on all standard issuance metrics. Moreover, 10 year Bund futures have rebounded a bit further from worst levels to print a fresh Eurex peak at 163.37 (+16 ticks vs -11 ticks at one stage) and Gilts have hardly been deflated by UK CPI and other inflation data, at 123.50 vs the 123.52 Liffe high (+14 ticks vs -2 ticks in very early trade). Meanwhile, US Treasuries close to overnight session pinnacles and retain a flatter bias along the curve in the run up to a busier agenda that includes key/hard data in the shape of retail sales and ip, plus prelim labour costs and productivity for Q2 and relatively up to date survey news via the Empire State manufacturing index.

FX

TRY - Lira moves and Turkish news remain firmly in the spotlight, as other EM currencies continue to trade in lock-step and contagion spreads via the Usd through the G10 community. Indeed, the DXY climbed to fresh 2018 highs just shy of 96.900 (96.878 to be precise) when the Try retreated towards 6.6000 vs the Dollar and duly eased back when the pair breached 6.0000 to the downside before another bounce on headlines reporting that a Turkish Court has rejected a US appeal against the house arrest of Pastor Brunson – Usd/Try circa 6.2000 at writing.

EM - Lots more evasive action by various Central Banks and authorities to stem the capital flight, with an ‘unexpected’ Indonesian rate hike accompanied by further measures or verbal pledges to inject liquidity and contain excessive price action/speculative attacks. However, many regional currencies have lost recovery momentum and handed back a chunk of Tuesday’s recovery gains if not more in some cases.

NZD/CHF - Bottom of the heap of majors, with the Kiwi only just hovering above 0.6550 vs its US counterpart and back below 1.1000 vs its antipodean peer despite extended AUD weakness alongside the YUAN by official and free-float market forces (Cny and Cnh both under 6.9000 vs the Usd and revisiting line in the sand intervention territory). On that note, the SNB appears to have reached its tolerance limit with the Franc and as suspected reiterated the need for ZIRP and FX intervention to curb Chf demand and stabilise fragile FX developments. Usd/Chf rebounding as a result towards parity and Eur/Chf close to 1.1300 vs 1.1275 at one stage.

GBP/JPY/EUR/CAD/AUD - All softer vs the Greenback to varying degrees, with Cable only just recovering from a sub-1.2700 dip on firmer, but broadly in line with consensus UK inflation readings, while Usd/Jpy has rebounded a bit further from recent lows to probe higher above 111.00 from 111.15-40 and Eur/Usd meanders between 1.1350-15. Note, barrier interest is reported at 1.1300 while on the flip side today is another SOMA redemption day and Nordea notes that since February EUR/USD has fallen between 14:30BST and 17:30BST without fail during those hours (today’s maturities equate to a net USD 12.6bln drain). The Loonie has lost some traction from crude prices and trades within 1.3095-50 parameters with a hefty option expiry (1 bn) running off at the bottom end at the NY cut, and similarly Aud/Usd is now eyeing 0.7200 barriers and stops below having breached support at 0.7250 overnight.

COMMODITIES

The crude complex has continued the pullback seen in yesterday’s trade that was exacerbated by a surprise build in API crude inventories, with Brent and WTI breaking though the USD 72/BBL and USD 67/BBL levels to the downside.

Taking a look at metals, all of zinc (-2.2%), lead (-1.9%) and gold (-0.5%) are down with the yellow metal below the USD 1190/OZ level, as the rising USD is hitting the metals sector as a whole. Copper is also down about 2% on the day and has hit a 13 month low, with the construction material hammered by the Escondida copper mine union stopping a strike amid a new contract offer

Iranian Oil Minister to attend JMMC meeting in Algeria in September

US API Weekly Crude Stocks (10 Aug) +3.66M vs. Exp. -2.50M (Prev. -6.00M). (Newswires)