• US President Trump sent tariff letters to 14 countries, including Japan, South Korea, South Africa, and Thailand, with tariff rates ranging between 25%-40%.
• Trump also warned against retaliation, although he also delayed the tariff deadline to August 1st - leaving room for negotiation.
• APAC stocks mostly traded with cautious gains as participants digested the Trump letters; Wall Street closed lower.
• RBA defied the broad consensus and instead decided to pause on rates through a 6-3 majority vote.
• European equity futures indicate a lower cash market open with Euro Stoxx 50 futures down 0.2% after the cash market closed with gains of 1.0% on Monday.
• DXY is steady, AUD is the clear outperformer across the majors, USD/JPY sits on a 146 handle.
• Looking ahead, highlights include German Trade, US NY Fed SCE, NFIB Business Optimism, EIA STEO, RBA's Bullock, ECB's Nagel & de Guindos, Supply from Netherlands, UK, Germany & US.

SNAPSHOT

US TRADE

EQUITIES

• US stocks declined amid trade tensions between the US and its trading partners with President Trump sending letters to over a dozen countries announcing tariff levels ranging from 25% to 40%, while the tariff levels on the countries were relatively similar to the tariff levels announced on "Liberation Day". Furthermore, Trump warned against any retaliation but also signed an Executive Order to delay the tariff deadline to August 1st.
• SPX -0.79% at 6,230, NDX -0.79% at 22,686, DJI -0.94% at 44,406, RUT -1.55% at 2,214.
• Click here for a detailed summary.

TARIFFS/TRADE

• US President Trump’s letter to Japan stated that from August 1st, the US will charge Japan a tariff of only 25% on any and all Japanese products sent to the US, separate from all sectoral tariffs and goods transshipped to evade a higher tariff will be subject to that higher tariff. Trump warned "If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 25% that we charge." Furthermore, he stated "If you wish to open your heretofore closed Trading Markets to the United States, and eliminate your Tariff, and Non Tariff, Policies and Trade Barriers, we will, perhaps, consider an adjustment to this letter." Trump also sent a letter to South Korea which declared a tariff of 25% on any and all Korean products sent into the US, separate from all sectoral tariffs. Furthermore, Trump’s letters announced to charge Malaysia, Tunisia and Kazakhstan tariffs of 25%, South Africa and Bosnia tariffs of 30%, Indonesia a tariff of 32%, Serbia and Bangladesh tariffs of 35%, Cambodia and Thailand tariffs of 36%, Laos and Myanmar tariffs of 40%. It was separately reported that the EU will not be receiving a letter setting out higher tariffs from the US, according to Reuters citing EU sources.
• US President Trump said regarding tariffs that the August 1st deadline is firm but he is open to other ideas, while Trump said he is close to making a trade deal with India and may adjust tariffs for some countries.
• White House announced that President Trump signed an executive order extending the tariff deadline to August 1st.
• White House Press Secretary said they are close on other trade deals, while a White House official said tariffs won't stack.
• US reportedly offered the EU a 10% tariff deal with caveats, although negotiations are still fluid, with any trade agreement subject to final approval by US President Trump, according to POLITICO.
• EU Commission President von der Leyen said Europe must show strength in trade negotiations with the US.
• EU is looking into a possible deal on cars to offset US car exports against imports, according to Reuters citing EU sources.
• Japanese PM Ishiba said haven't been able to reach an agreement because Japan kept defending what needs to be defended, and will continue dialogue with the US and seek a chance of agreeing on a deal that benefits both countries. Ishiba added they were able to avert a hike in tariffs to 30%-35%, as result of past negotiations, and the US has proposed to continue talks until the new August 1st deadline.
• Japanese Finance Minister Kato said they expect the US stance to change as they continue trade negotiations, while they will take necessary steps to help industries cope with US tariffs while communicating with other agencies.
• South Korea will step up trade negotiations with the US to win mutually beneficial results and clear up uncertainties caused by tariffs, while it added that trade talks with the US will be a chance to advance both countries' key industries through the 'Renaissance Partnership'.
• US will not impose a new 10% tariff against a BRICS member immediately if 'anti-American' policy actions are taken. according to a Reuters source. It was also reported that Brazilian President Lula said if US President Trump issues tariffs, other countries have the right to do the same, while he added that the world needs to find a way for transactions not to depend on the US dollar.

NOTABLE HEADLINES

• A joint NY and SF Fed paper cited still ongoing risk of near-zero interest rates and noted uncertainty keeps the risk of very low rates alive, while it added the Fed has more space to cut rates now without hitting the zero fed funds rate.

APAC TRADE

EQUITIES

• APAC stocks mostly traded with cautious gains as participants digested the latest trade-related developments including US President Trump's tariff letters to 14 countries so far including Japan, South Korea, South Africa, and Thailand with tariff rates ranging between 25%-40% and warnings against retaliation, although he also signed an Executive Order to delay the tariff deadline to August 1st.
• ASX 200 was indecisive as strength in tech and gold producers offset the losses in defensives, while an improvement in NAB Business Confidence was met with little fanfare as participants awaited the RBA rate decision which ultimately disappointed as the central bank defied the broad consensus for the first back-to-back cut since the pandemic, and instead decided to pause on rates through a 6-3 majority vote.
• Nikkei 225 recouped initial losses as recent currency weakness helped investors shrug off the tariff-related news with Japan facing a 25% tariff which is slightly higher than the 24% rate announced on Liberation Day.
• Hang Seng and Shanghai Comp were underpinned with the PBoC to support more onshore investors to invest in offshore bonds, while it will also expand the Bond Connect to include Chinese brokers, funds, wealth managers and insurers.
• US equity futures were rangebound as participants reflected on President Trump's tariff letters and deadline extension.
• European equity futures indicate a lower cash market open with Euro Stoxx 50 futures down 0.2% after the cash market closed with gains of 1.0% on Monday.

FX

• DXY traded uneventfully overnight but held on to most its recent spoils after strengthening as trade developments dominated headlines with US President Trump sending letters to 14 countries so far including Japan, South Korea, Kazakhstan, Indonesia, Myanmar, Malaysia, Laos, South Africa, Thailand, Serbia, Bangladesh, Bosnia, Cambodia and Tunisia, with tariff levels ranging from 25% to 40%. The key differences in the trade letters when compared to "Liberation Day", are the emerging theme of discontent from the US administration on transhipped goods, while Trump warned against retaliation and threatened to add any tariff increase by countries to the tariff levels they had just received, but essentially kicked the can down the road with the tariff deadline pushed back to August 1st.
• EUR/USD nursed some of the prior day's losses with the mild recovery facilitated by a report that the US offered a deal to the EU for a 10% baseline tariff on EU goods with some exceptions for sensitive sectors including aircraft and spirits.
• GBP/USD gradually edged higher after the recent whipsawing through the 1.3600 level amid the mildly positive risk tone.
• USD/JPY attempted to extend on gains after reclaiming the 146.00 status owing to the recent momentum in the dollar.
• Antipodeans regained some composure following yesterday's cyclical underperformance with AUD/USD further boosted after the RBA surprised markets by unexpectedly keeping rates unchanged through a 6-3 vote, which also briefly supported NZD ahead of tomorrow's RBNZ rate decision.
• PBoC set USD/CNY mid-point at 7.1534 vs exp. 7.1772 (Prev. 7.1506)

FIXED INCOME

• 10yr UST futures got some slight reprieve after declining yesterday as the curve steepened ahead of supply and FOMC Minutes.
• Bund futures languished near the prior day's lows amid reports of the US offering the EU 10% tariffs with caveats, while German Trade Data and a Bobl auction are scheduled for today.
• 10yr JGB futures struggled for direction amid the choppy mood in Tokyo and with prices not helped by weaker demand at the 5-year JGB auction.

COMMODITIES

• Crude futures slightly pulled back after advancing throughout most of the prior day despite bearish OPEC+ reports, as Saudi OSPs and tariff updates provided some tailwinds.
• US President Trump signed an Executive Order aiming to end subsidies for foreign-controlled energy sources.
• Spot gold took a breather after yesterday's notable rebound off support around the USD 3,300/oz level.
• Copper futures were rangebound amid the lack of conviction in the region as participants digested the latest global trade developments.

CRYPTO

• Bitcoin gradually trickled lower to beneath the USD 108k level.

NOTABLE ASIA-PAC HEADLINES

• PBoC said it will support more onshore investors to invest in offshore bonds and will expand the bond connect to include Chinese brokers, funds, wealth managers and insurers, while it will also increase the quota under the swap connect.
• Chinese President Xi stressed developing the real economy to build up national strength and said the real economy should not be abandoned, nor should the traditional industries, according to Xinhua.
• Chinese Premier Li Qiang said China is confident in driving economic growth and has the resources to counter external headwinds.
• RBA unexpectedly kept the Cash Rate unchanged at 3.85% (exp. 25bps cut) with the decision made by a majority of 6-3 votes, while it stated that the Board will be attentive to the data and evolving assessment of risks to guide its decisions. RBA also noted that inflation has continued to moderate and the outlook remains uncertain although the Board continues to judge that the risks to inflation have become more balanced and the labour market remains strong. Furthermore, the Board remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply and it judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5% on a sustainable basis.

DATA RECAP

• Australian NAB Business Confidence (Jun) 5.0 (Prev. 2.0)
• Australian NAB Business Conditions (Jun) 9.0 (Prev. 0.0)

GEOPOLITICS

MIDDLE EAST

• US President Trump said he's got great cooperation from countries neighbouring Israel, when asked about Palestinian relocation plans. Trump noted Iran talks are scheduled and that Iran will not be a nuclear state, while he hopes they don't have to do another strike on Iran.
• White House said US Envoy Witkoff is to travel to Doha later this week for a Gaza ceasefire, while it was separately reported that Witkoff said they have an opportunity to get a peace deal in Gaza and that the Iran meeting will be in the next week or so.
• Israeli delegation's refusal of provision for free and safe entry of aid to Gaza is the main obstacle in ceasefire talks and prevents progress, according to Reuters citing Palestinian sources.
• Israeli officials think US President Trump could give them the green light to attack Iran again if the Iranians try to move enriched uranium or restore enrichment facilities, according to Axios.
• Russian Foreign Minister Lavrov said Russia is to supply Iran with enriched uranium at a level sufficient for a peaceful nuclear program, according to Al Jazeera.

RUSSIA-UKRAINE

• US President Trump said they have to send more weapons to Ukraine and that they have to defend themselves, while the Pentagon later announced the Department of Defense will send additional defensive weapons to Ukraine.
• Ukrainian President Zelensky vowed to replace Kyiv's ambassador to Washington who was criticised by Trump allies in a move expected to come alongside a major wartime cabinet reshuffle, according to FT.