• European equities trade mixed (Eurostoxx 50 -0.1%), UK’s FTSE 100 outperforms as it plays catch-up
• The Dollar has lost more ground vs most G10/major rivals, but remains mixed vs EMs
• Looking ahead, highlights include a speech by ECB’s Praet, and weekly API crude inventories

ASIA

Asian equity markets traded mostly higher as the region got a tailwind from US where the S&P 500 and Nasdaq extended on record highs with sentiment supported after US and Mexico reached a trade agreement. This lifted the ASX 200 (+0.6%) back above the 6300 level with gains led by outperformance in financials, while Nikkei 225 (+0.1%) was underpinned by a weaker currency but with upside capped by resistance around 23000. Shanghai Comp. (-0.1%) and Hang Seng (+0.3%) both initially conformed to the positive tone although the mainland then failed to sustain gains amid ongoing US-China trade uncertainty and as focus shifts to earnings with 3 of China’s big 4 banks to announce results today. Finally, 10yr JGBs traded subdued with demand sapped as focus centred on riskier assets and following weaker demand at the enhanced liquidity auction for longer dated JGBs.

PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires)

PBoC set CNY mid-point at 6.8052 (Prev. 6.8508)

HKMA buys HKD 7.85bln as HKD hits the weak end of the trading range. (Newswires) This follows earlier reports the HKMA purchased HKD 2.8bln overnight and HKD 3.93bln yesterday to defend the trading band.

China Premier Li says China treats both domestic and international companies equally, and firmly upholds multilateralism, pledging to adopt stricter intellectual property rights, saying they will not allow forced technology transfers. (Newswires)

US

White House Economic Adviser Kudlow said Mexico-US trade agreement is a significant victory for the economy and that they would like a good deal with Canada but may resort to auto tariffs if Canada rejects the deal. Kudlow also commented that US-Mexico trade agreement can be pushed through Congress and stated ‘will see’ in regards to Canada, while Kudlow also commented that that they have things cooking with EU and that China should just agree to some of the US trade demands.

EU/UK

US President Trump and German Chancellor Merkel agreed on more discussions concerning US-EU trade barriers. (Newswires)

UK PM May reportedly signalled a no-deal Brexit is not the end of the world. (Newswires)

UK PM May is to announce plans to boost UK’s in Africa post-Brexit. (BBC)

The French Government is to prepare contingency plans in the case the EU and UK fail to agree terms of Brexit. (Newswires)

German Foreign Minister Maas says expects US to revoke threatened tariffs and stop threatening the European auto industry

CENTRAL BANKS

BoE's Carney reportedly asked to remain BoE Governor until 2020 (vs. originally ending 2019). UK Treasury spokesman says they do not recognize the Evening Standard report on BoE Carney's extension (Evening Standard/Newswires)

GEOPOLITICAL

US Secretary of State Pompeo said Iran does not control Strait of Hormuz which is an international waterway and that the US will continue to ensure freedom of navigation and free flow of commerce in international waterways. (Newswires)

Russia plans to respond to US sanctions according to reports citing Foreign Minister Lavrov. (Tass)

Iranian President Rouhani said Tehran will defeat economic challenges and anti-Iranian officials in the White House. (Newswires)

EQUITIES

European equities trade mixed (Eurostoxx 50 -0.1%) with underperformance in Italy’s FTSE MIB with Italian banks plumbing the depths while UK’s FTSE 100 outperforms as it plays catch-up following a public holiday on Monday. In terms of sectors, material names outperform on the back of firmer base metal prices while telecom names underperform. For stock specifics, Faurecia (+4.4%) climbed to the top if the Stoxx 600 following an upgrade at Kepler Cheuvreux while Sybank (-9.8%) and Baloise (-3.4%) share fell amid disappointing earnings

FX

USD - The Dollar has lost more ground vs most G10/major rivals, but remains mixed vs EMs, as the Try continues to weaken in contrast to the Cny (and Cnh in response) that saw the strongest fixing in more than a year overnight. Hence, the index has been drifting down further below 95.000 within a new 94.920-595 range, with nearest supports seen at early August lows (circa 94.491), assuming 94.500 does not hold.

CHF - The Franc is benefiting most from the weaker Greenback and trading close to 0.9750, though not really outperforming in cross terms as Eur/Chf holds firmly above 1.1400.

EUR/CAD/NZD - All mildly firmer vs the Usd, with the single currency extending yesterday’s post-Ifo recovery gains to around 1.1700 and not really hindered by considerably weaker than forecast Eurozone headline M3 data, while the Loonie has breached 1.2950 through heavy offers layered down to 1.2940 and the Kiwi is back probing 0.6700. Back to the Cad, renewed NAFTA or updated US-Mexican style trade agreement hopes continue to prop the currency and on that note a phone call between President Trump and Canadian PM Trudeau is said to have been constructive, according to the latter.

GBP - Mixed fortunes for the Pound as Cable revisits 1.2900 by virtue of the aforementioned broad Usd downturn, but Eur/Gbp climbs towards 0.9075 on heightened prospects of a no deal Brexit. Note: reports about Governor Carney being approached to extend his term until 2020 from 2019 sparked some limited Gbp weakness but not sustained and UK Treasury has declined to comment.

AUD/JPY - Narrowly mixed vs the Usd around 0.7350 and 111.00 respectively, with the Aud undermined by the ongoing US-China import tariff stand-off, but Jpy gleaning some support due to its safe-haven status, the Dollar’s demise and key chart levels/supply (unlike Eur/Jpy that touched 130.00 earlier amidst macro, leverage and fast money buying).

SEK - The G10 laggard, and largely due to significantly weaker than expected Swedish retail sales data, with Eur/Sek up to 10.6675 at one stage.

FIXED INCOME

Bunds have bounced relatively firmly from worst levels to trade up at a fresh Eurex peak of 162.87 (+23 ticks) on a combination of receding EU cash bourses, more downside in Italian debt pre-CTZ auction (mixed to respectable in the event) and renewed underlying demand due to broader risk-off themes (ie global trade, diplomatic and political factors). Elsewhere, Gilts continue to lag on catch-up dynamics, but have pared losses to just 11 ticks at 123.22 vs 37 ticks at worst reflecting its safe-haven properties as a core bond. However, US Treasuries remain largely side-lined and flat ahead of more supply and a pretty busy data line-up including the first take of July trade that obviously takes on extra importance given all the tariff impositions and threats of more to come.

COMMODITIES

Commodities are benefitting from the slight pullback of the dollar with Brent futures marginally higher while WTI futures test the USD 69/bbl level to the upside. Saudi Energy Adviser stated the current US sanctions are unlikely to completely stop Iranian exports, ahead of oil-related sanctions are to come into effect in November. News flow has be relatively light, traders will be keeping an eye on the API crude inventories released after-market today; the Street expects crude stocks to draw by 500k bbls in the week, distillates are seen building by 1.4mln, and gasoline is expected to build by 400k bbls; according to a Reuters poll. Traders are also citing reports on Monday that showed OPEC+ compliance fell, though output still remains below target.  Elsewhere, gold has gained a firmer footing above USD 1200/oz, attributed to the ongoing dollar weaker.