• APAC stocks traded lower following the mostly negative lead from Wall St where sentiment was dampened by higher yields and weak data
• Fitch cut US sovereign rating from AAA to AA+; Outlook revised to Stable from Watch Negative
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.7% after the cash market closed down by 0.9% yesterday
• DXY is firmer and on a 102 handle, JPY leads the majors, antipodeans lag, EUR/USD sits just below the 1.10 mark
• Crude futures extended on gains amid tailwinds from the private sector inventory data which pointed to a record weekly drawdown of crude inventories
• Looking ahead, highlights include US ADP National Employment, Supply from Germany & US Quarterly Refunding Announcement
• Earnings from Hugo Boss, Telecom Italia, BAE Systems, Smurfit Kappa, Taylor Wimpey, Simon Property Group, Occidental Petroleum Corp, Exelon Corp, CVS Health Corp, Qualcomm & MetLife

US TRADE

EQUITIES

• US stocks were mostly lower with mild underperformance in the cyclical-focused Russell 2000 following weak economic releases in which ISM Manufacturing disappointed and JOLTS data printed beneath expectations, although the Dow bucked the trend and posted marginal gains after a very strong report from Caterpillar (CAT).
• SPX -0.27% at 4,576, NDX -0.25% at 15,718, DJIA +0.20% at 35,630, RUT -0.45% at 1,994.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fitch cut US sovereign rating from AAA to AA+; Outlook revised to Stable from Watch Negative. Fitch said the rating downgrade reflects an expected fiscal deterioration over the next 3 years, as well as a high and growing general government debt burden, while it expects the US general government deficit to rise to 6.3% of GDP in 2023 from 3.7% in 2022.
• US Treasury Secretary Yellen said she strongly disagrees with Fitch's decision to downgrade the US and noted that President Biden is committed to fiscal sustainability. Furthermore, the White House also said it strongly disagrees with Fitch's decision and that it defies reality to downgrade the US at a moment when President Biden has delivered the strongest recovery of any major economy in the world, while an administration official said Fitch's decision to downgrade the US ignores resilience and the underlying strength of the US economy with the downgrade a bizarre and baseless decision for Fitch to make, according to Reuters.
• US filed an action against Donald Trump and charged him with conspiracy to fraud, witness tampering and conspiracy against the rights of citizens, while he is summoned to appear in federal court in D.C. on August 3rd at 21:00BST/16:00EDT, according to Reuters.
• Fed's Goolsbee (voter) said JOLTS data looks consistent with a strong labour market moving to a more balanced phase and recent FOMC decisions have been "close calls" for him.
• Fed's Bostic (non-voter) said he would have "grudgingly" voted for a rate hike in July and if the economy evolves as he expects, would be comfortable advocating for no rate hike in September but noted that if progress on inflation unexpectedly stalls, he would be comfortable contemplating a rate hike. Bostic also commented they are in a phase where there is some risk of over-tightening and said the Fed should be cautious, patient and resolute, while he added there is still considerable momentum in the economy and data is consistent with 'orderly slowdown'.
• Apollo is leading the bankruptcy loan deal for trucking firm Yellow (YELL), according to Bloomberg.

APAC TRADE

EQUITIES

• APAC stocks traded lower following the mostly negative lead from Wall St where sentiment was dampened by higher yields and weak data, while participants also digested Fitch's credit rating downgrade for the US from AAA to AA+.
• ASX 200 declined with utilities, real estate and financials leading the broad-based retreat and with weaker AIG Manufacturing and Construction data adding to the glum mood.
• Nikkei 225 underperformed and dipped below the 33,000 level as the focus shifted to corporate earnings and despite comments from BoJ’s Deputy Governor Uchida who stuck to a dovish tone.
• Hang Seng and Shanghai Comp conformed to the risk aversion albeit with the downside in the mainland initially cushioned by further policy support and jawboning by Chinese agencies.
• US equity futures were pressured (ES -0.5%) at the resumption of futures trade after the US rating downgrade.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.7% after the cash market closed down by 0.9% yesterday.

FX

• DXY remained firm amid the risk-off conditions and after the recent rise in US yields in which the 10yr yield climbed back above 4% and the 30yr yield printed fresh YTD highs, while weak data releases stateside and Fitch’s rating downgrade for the US failed to derail the momentum in the greenback.
• EUR/USD was subdued owing to the firmer dollar and failure to sustain the 1.1000 status.
• GBP/USD remained lacklustre heading closer to Thursday's BoE rate decision and following the underperformance seen in its cyclical peers.
• USD/JPY was kept afloat amid the dollar strength, wider yield differentials and after comments from BoJ’s Deputy Governor Uchida who stuck to the dovish script.
• Antipodeans were pressured owing to the risk aversion and following mixed jobs and softer wages data from New Zealand.
• PBoC set USD/CNY mid-point at 7.1368 vs exp. 7.1664 (prev. 7.1283)

FIXED INCOME

• 10yr UST futures attempted to nurse some of the losses from recent bear-steepening ahead of the refunding announcement and saw a mild haven bid after Fitch downgraded the US from its AAA status.
• Bund futures were off lows but with the rebound contained amid a lack of pertinent catalysts.
• 10yr JGB futures suffered amid spillover selling from global counterparts and despite the BoJ’s presence in the market for nearly JPY 1.9tln of JGBs on top of its fixed-rate operations.

COMMODITIES

• Crude futures extended on their gains amid tailwinds from the private sector inventory data which pointed to a record weekly drawdown of crude inventories, although further upside was capped amid the negative risk sentiment and after the US delayed its replenishment of the SPR owing to expensive prices.
• US Energy Inventory Data (bbls): Crude -15.4mln (exp. -1.4mln), Gasoline -1.7mln (exp. -1.3mln), Distillate -0.5mln (exp. +0.1mln), Cushing -1.8mln
• US Energy Department spokesperson announced the US pulled its offer to buy 6mln bbls of oil for the SPR due to market conditions, while a Bloomberg reporter noted that the Biden administration delayed the replenishment of the SPR after deciding the offers it received were too expensive.
• Bloomberg OPEC survey stated OPEC crude output plunged by the most in three years in July in which it fell by 900k BPD to average 27.79mln BPD.
• Spot Gold was contained with recovery attempts thwarted by a firmer dollar.
• Copper futures were subdued alongside the risk-averse mood in the Asia-Pac region.
• The EU and US are not likely to finalise a binding agreement on steel and aluminium this year, according to sources cited by Bloomberg. The sides will likely have to decide whether to impose tariffs on exports or extend the October deadline.

CRYPTO

• Bitcoin wiped out its initial advances after hitting resistance near the USD 30,000 level.
• Binance Japan launched crypto services with 34 virtual currencies, according to Nikkei.
• Binance CEO Zhao attempted to shut down the crypto exchange’s US offshoot earlier this year to protect the much larger global exchange amid mounting regulatory scrutiny, according to sources cited by The Information.

NOTABLE ASIA-PAC HEADLINES

• China's Finance Ministry said it cut value-added tax for small taxpayers, according to Reuters.
• China's cyberspace regulator drafts guidelines to strengthen the limit around minors' use of apps, smart terminals and app stores, according to Reuters.
• China said reports that it obstructed G20 discussions in reducing fossil fuels use are inconsistent with facts, while China regrets a failure to reach an agreement and blames geopolitical issues brought up by other countries, according to Reuters.
• US invited Chinese Foreign Minister Wang to meet with Secretary of State Blinken in Washington.
• BoJ Deputy Governor Uchida said at present, the risk of losing the chance to hit the price target with a premature shift from easy policy is bigger than the risk of being too late in tightening and Japan is now at a phase where it is important to patiently maintain easy policy. Furthermore, Uchida said last week's decision was a pre-emptive step at continuing monetary easing without disruptions and the BoJ must fine-tune YCC at times and make the policy more flexible.
• BoJ minutes from the June 15th-16th meeting noted members agreed BoJ must maintain current monetary easing to stably and sustainably achieve the price target, while many members said it was appropriate to sustain monetary easing to support changes seen in corporate wages and price-setting behaviour. Furthermore, a few members said a premature policy shift could mean the BoJ will lose the opportunity to achieve the price target.

DATA RECAP

• South Korean CPI MM (Jul) 0.1% vs. Exp. 0.2% (Prev. 0.0%)
• South Korean CPI YY (Jul) 2.3% vs. Exp. 2.4% (Prev. 2.7%)
• New Zealand HLFS Job Growth QQ (Q2) 1.0% vs. Exp. 0.5% (Prev. 0.8%)
• New Zealand HLFS Unemployment Rate (Q2) 3.6% vs. Exp. 3.5% (Prev. 3.4%)
• New Zealand HLFS Participation Rate (Q2) 72.4% vs. Exp. 72.0% (Prev. 72.0%)
• New Zealand Labour Cost Index QQ (Q2) 1.1% vs. Exp. 1.2% (Prev. 0.9%)
• New Zealand Labour Cost Index YY (Q2) 4.3% vs. Exp. 4.4% (Prev. 4.5%)

GEOPOLITICS

• Explosions were reported in Ukraine's capital of Kyiv and anti-aircraft units were in operation, according to Reuters citing Mayor Klitschko and military officials.
• Russian drones reportedly attacked port and grain storage facilities in Ukraine's Odesa region which set some of them on fire, according to the regional governor.
• Poland's Defence Ministry said it is deploying additional troops along the border with Belarus after 2 helicopters violated airspace, according to BNO News.
• US Pentagon offered accounting on replacing weapons sent to Ukraine, while it was reported that Lockheed Martin (LMT) reaped USD 2.3bln so far restocking the Pentagon, according to Bloomberg.
• Taiwan's Presidential Office said Vice President Lai will transit in New York and San Francisco, while it noted reports that VP Lai is planning to transit through Washington DC are false. Furthermore, it stated the transit arrangement is based on comfort and safety and should not be an excuse for conflict.

UK/EU

• The Times' Shadow MPC voted 8-1 in favour of a 25bps rate hike this month. All members agreed that the Bank should not provide financial markets with guidance about the future path of interest rates due to economic uncertainty