• European bourses are firmer as the tone improves while US futures attempted to claw back recent downside
• DXY dips under 102.50, Yuan in focus during APAC hours given Chinese inflation; Antipodeans lead
• Core fixed benchmarks are relatively contained, Gilts bid and Bunds pressured post supply, US 10yr due
• Crude benchmarks inch higher, with focus on earlier Saudi updates while metals derive support from the USD
• Chinese inflation data was mixed but showed consumer prices in deflationary territory for the first time in more than two years
• Looking ahead, highlights include EIA Weekly Energy Inventories, Supply from the US, Earnings from Walt Disney.

EUROPEAN TRADE

EQUITIES

• European bourses are firmer across the board, Euro Stoxx 50 +1.4%, with newsflow light and the main mover being banks clawing back downside from the Italian windfall tax following an adjustment.
• As such, the FTSE MIB +1.9% outperforms while the OMX Copenhagen +0.4% is the relatively underperformer as Novo Nordisk pares some of Tuesday's pronounced gains.
• Stateside, futures are on the front foot and making up for some of the prior session's downside, ES +0.3%, as risk sentiment improves and was further assisted by Fed's Harker.
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• Click here and here for a recap of the main European equity updates.

FX

• DXY dips under 102.50 to a 102.29 session trough, but price action overall remains contained in quiet trade and newsflow.
• Yuan was in focus during APAC hours given Chinese inflation, with the CNH benefitting post-release and spurred further by reports China's major state-owned banks are seen selling dollars to buy Yuan.
• Antipodeans are the relative outperformers given the week's hefty losses thus far, as sentiment improves slightly and the USD pulls back as mentioned.
• EUR and GBP are both benefiting from the tone/broader USD action, with specifics limited and EUR perhaps deriving support from the Italian government altering its windfall tax.
• PBoC set USD/CNY mid-point at 7.1588 vs exp. 7.2198 (prev. 7.1565)
• China's major state-owned banks were seen selling dollars to buy yuan in the onshore spot FX market.
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• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• Core benchmarks are relatively contained and yet to deviate much from the unchanged mark in limited newsflow ex-supply; though, there is a minor discrepancy between the performance of core and periphery EGBs.
• Gilts have been the relative outperformers throughout the session with specifics limited though it is worth highlighting that UK debt didn’t benefit quite as much from the week’s initial bullish price action; the 10yr DMO outing was well received and spurred a fresh session high.
• Bunds have been in-fitting but came under some pressure following a relatively tepid German sale, though it is worth caveating that summer conditions apply and desks point out the timing coincided with large volumes going through, which are likely sell orders.
• Stateside, USTs are in-fitting and given the action, there is little of note occurring across the curve where yields are under very modest pressure.
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COMMODITIES

• Energy tilts firmer after an overnight session of sideways trade, complex continuing to derive support from Saudi commentary earlier in the week.
• Crude benchmarks are currently above the USD 83.00/bbl and USD 86.50/bbl marks for WTI Sep'23 and Brent Oct'23 respectively.
• Spot gold sees marginal gains, albeit as a function of the softer USD with the yellow metal in a tight range.
• LME copper trades with modest gains but remains under the USD 8,500/t mark in a USD 8,487.50-347.50/t range.
• Iranian oil official says Iran is to produce an extra 250k BPD of oil by the end of summer, according to Tasim.
• India Food Secretary says India has adequate stocks of rice and wheat. Follows on from rice prices within Asia lifting to their highest since 2008.
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NOTABLE US HEADLINES

• Click here for the US Early Morning note.

NOTABLE EUROPEAN HEADLINES

• UK government is pushing back against attempts by some members of the House of Lords for tighter corporate transparency and warned that publishing all trust data could be problematic, according to FT.
• Cap on Italy bank windfall tax halves the estimated hit on average CET1 to 30bps with Fineco (FBK IM) and Bper (BPE IM) among banks benefiting the most, according to Jefferies; elsewhere, cap at 0.1% of assets for new Italian bank tax equates into an aggregate total impact of EUR 1.9bln for banks/asset gatherers, via UBS.
• Swedish NIER Forecasts (July): economy heading for a downturn. Riksbank Rate, end-2023: 4.0% (prev. 3.75%)

GEOPOLITICS

• Russia's Defence Minister says Russia is to build up forces at the Western borders, according to Tass.
• Russia shot down two combat drones that were headed towards its capital, according to AFP News Agency citing the Moscow Mayor.
• Polish Deputy Interior Minister says 2k troops to be sent to the Belarus border, via PAP.

CRYPTO

• Fed announced the creation of an activities supervision program to oversee bank tech initiatives which will focus on activities related to crypto, blockchain tech and non-bank tech partnerships, while the Fed said state member banks should receive written non-objection from the Fed before issuing, holding or transacting in dollar tokens, according to Reuters.

APAC TRADE

• APAC stocks traded mixed as participants digested a deluge of earnings releases and the latest inflation data from China which was mixed but showed consumer prices in deflationary territory for the first time in more than two years.
• ASX 200 was just about kept afloat by the outperformance in its top-weighted financial sector after Australia’s largest lender CBA posted a record FY profit.
• Nikkei 225 ultimately weakened with trade initially indecisive amid an influx of earnings releases and with the biggest winners and losers all driven by corporate results including SoftBank which was near the bottom end of the spectrum after its surprise loss.
• Hang Seng and Shanghai Comp were subdued as markets reflected on the mixed inflation data from China which showed CPI Y/Y slipped into deflation territory, albeit at a narrower-than-expected drop in prices, while factory gate prices continued to fall at a steeper than forecast pace.

NOTABLE ASIA-PAC HEADLINES

• US is set to limit the scope of the China investment ban with a revenue rule and the order limiting investments is expected in the approaching days, according to Bloomberg.
• US lawmakers asked the FCC to address potential threats from Chinese cellular Internet of Things modules in US networks.
• China's National Bureau of Statistics said the Y/Y decline in consumer prices is only temporary.
• China government considering holding leaders with Japan on the sidelines of the ASEAN meeting in Indonesia, according to Kyodo.

DATA RECAP

• Chinese CPI MM (Jul) 0.2% vs. Exp. -0.1% (Prev. -0.2%); YY (Jul) -0.3% vs. Exp. -0.4% (Prev. 0.0%)
• Chinese PPI YY (Jul) -4.4% vs. Exp. -4.1% (Prev. -5.4%)
• New Zealand 1yr Inflation Expectations (Q3) 4.2% (Prev. 4.3%); 2yr Inflation Expectations (Q3) 2.83% (Prev. 2.79%)