• European bourses & US futures are in the red as sentiment continues to deteriorate from the APAC/Wall St. handover
• Fitch cut the US' sovereign rating from AAA to AA+; Outlook revised to Stable from Watch Negative.
• DXY benefits from the soured tone with JPY outperforming while EUR & GBP prove relatively resilient to the USD
• EGBs are firmer and benefiting from haven allure with USTs bid as such and giving up some pre-Quarterly Refunding concession
• Crude benchmarks retain a slight bid despite the above after Tuesday’s marked inventory draw; metals succumbing to risk
• Looking ahead, highlights include US ADP National Employment. US Quarterly Refunding Announcement. Earnings from Occidental Petroleum Corp, Exelon Corp, CVS Health Corp, Qualcomm Inc & MetLife Inc.

EUROPEAN TRADE

EQUITIES

• European bourses are in the red, Euro Stoxx 50 -1.4%, as sentiment continues to deteriorate from a downbeat Wall St./APAC handover.
• Sectors are similarly in the red with earnings dominating stock specifics while the Energy sector is the relative outperformer, but still lower, given benchmark action.
• Stateside, futures are lower as the risk-off trade continues with sizeable attention on Fitch's action, ES -0.8%; ADP and Quarterly Refunding dominate the calendar ahead intersected by numerous earnings.
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• Click here and here for a recap of the main European equity updates.

FX

• The broader Dollar and index are firmer in the European morning, propped up by the risk aversion seen across the market after Fitch downgraded US, upside levels include the 100 DMA (102.35), yesterday’s high (102.43), then the 50 DMA (102.45).
• The JPY is the current G10 outperformer following three consecutive sessions of losses in the aftermath of the BoJ’s decision last Friday, with potential tailwinds seen from the broader risk-off sentiment across markets.
• Antipodeans are once again the marked laggards amid the broader risk tone, hangover from the RBA hold, and overall bearish Kiwi jobs data overnight, while EUR and GBP are resilient to the Dollar’s strength despite a lack of headlines, data, and broader risk aversion.
• PBoC set USD/CNY mid-point at 7.1368 vs exp. 7.1664 (prev. 7.1283)
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• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• EGBs are firmer and currently benefiting from traditional haven allure as the broader risk tone continues to deteriorate despite an absence of fresh catalysts.
• Gilts are the sole core benchmark in the red as we near Thursday’s BoE announcement where another 25bp hike is expected though there is around a 35% chance of 50bp priced and 75bp of total tightening implied by February 2023.
• USTs are faring relatively well and giving up some of the marked concession which was built in on Tuesday's session both before and after the afternoon's data docket, concession which comes ahead of today's quarterly refunding announcement; Though, we are above Tuesday’s 110.26+ low by circa. 10 ticks as it stands.
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COMMODITIES

• WTI and Brent futures are off best levels but remain modestly firmer intraday, with the downside from risk aversion (after US’ rating downgrade by Fitch) cushioned by the mammoth drawdown in Private Inventories yesterday.
• Over to metals, the risk-off picture is clear. Spot gold and silver are firmer amid heaven flow and despite the stronger Dollar as the former initially battled overnight resistance at USD 1,950/oz but meanders around the level in European hours.
• Base metals are softer across the board as risk aversion and the Greenback hit the industrial metals, 3M LME copper declined from a USD 8,669/t high but maintains status above USD 8,500/t.
• Operations suspended at Ukraine's Izmail port on Danube, according to Reuters citing sources.
• 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.
• OPEC+ is unlikely to tweak its current output policy when it meets on Friday, according to multiple OPEC sources cited by Reuters.
• UK Government suspends anti-dumping duty on hot-rolled flat iron, non-alloy or other alloy steel with goods originating in Iran or Russia in some cases.
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NOTABLE US 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.
• Click here for the US Early Morning note.

NOTABLE EUROPEAN HEADLINES

• 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.
• ECB's de Guindos says "Policymakers should focus on preserving bank resilience to strengthen macroprudential stability at a time of economic uncertainty. This would ensure that sufficient capital buffers are available should widespread losses arise". Overall, the stress test confirms European banks could withstand a severe economic downturn.

DATA RECAP

• Swiss SECO Consumer Sentiment (Q3) SA -27.1 (Prev. -29.7, Rev. -29.6); "... the consumer sentiment index remains far below the long-term average (−6 points). High prices continue to squeeze household budgets."
• Swiss Manufacturing PMI (Jul 2023) 38.5 vs. Exp. 44.0 (Prev. 44.9)

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.
• 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.
• US and Mongolia reportedly prepare to sign an "open skies" deal which would grant airlines from both countries the right to operate in each other's countries, according to Reuters sources.
• Russian Kremlin says a call between President Putin and Turkish President Erdogan is taking place now.
• Russia's Defence Ministry says Russian forces start navy drills in the Baltic sea, according to Ria.

CRYPTO

• 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.

APAC TRADE

• 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.

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.
• 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. Adds, depending on the speed of the moves, BoJ will step in before the 10yr yield hits 1%.
• 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.
• Australian Trade Minister says they are hopeful that in the next few days, there will be a positive decision from China re. barley tariffs, if not will restart the WTO process.

DATA RECAP

• South Korean CPI MM (Jul) 0.1% vs. Exp. 0.2% (Prev. 0.0%); 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%); 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%); YY (Q2) 4.3% vs. Exp. 4.4% (Prev. 4.5%)