Lingering geo-political concerns continue to weigh on Asian equities.

NZD underperforms as the RBNZ kept a somewhat dovish-to-neutral tone.

Looking ahead, highlights include UK Mfg. and Construction output, US PPI and comments from Fed’s Dudley.

ASIA

An attempt by Asian indices to pick themselves up from the recent geopolitical-triggered losses, gradually petered out tspanoughout the session which saw the region’s bourses negative across the board. ASX 200 (-0.2%) and Nikkei 225 (-0.1%) failed to sustain the early gains as financials dragged Australia lower, while Japanese stocks reversed ahead of tomorrow’s Mountain Day holiday. Markets in China lagged with the Shanghai Comp (-1.1%) dampened by a lukewarm liquidity operation and with China considering measures for deleveraging in state-owned enterprises, while Hang Seng (-1.5%) underperformed as investors used the escalation of global tensions as an opportunity to book profits in the index which had already surged by around 25% YTD. Finally, 10yr JGBs traded flat as the risk sentiment in Japan lacked conviction and with the BoJ’s Rinban announcement somewhat tepid.

PBoC injected CNY 50bln in 7-day reverse repos and CNY 40bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point 6.6770 at (Prev. 6.7075)

EUROPE/UK

UK RICS Housing Price Balance (Jul) 1% vs. Exp. 9% (Prev. 7%). (Newswires)

FX

A choppy performance in NZD/USD stole the limelight with initial upside seen after the RBNZ rate decision, in which the central bank kept rates unchanged at 1.75% as expected and maintained projections to suggest a hike in Q3 2019 vs. calls for forecasts to be pushed back. However, upside in NZD/USD was later pared as the bank kept a dovish-to-neutral tone and stated that it is always open to FX intervention. Elsewhere, most FX pairs traded range-bound with tier-1 data on the light side and CNY remained underpinned after the PBoC set the strongest reference rate since September.

RBNZ kept the OCR unchanged at 1.75% as expected and affirmed projections which suggested a hike in Q3 2019. (Newswires)

RBNZ stated that numerous uncertainties remain and that policy may need to adjust accordingly. RBNZ also said that monetary policy will remain accommodative for a considerable period and that headline inflation is likely to decline in the upcoming quarters,

RBNZ Governor Wheeler commented that the bank is always open to FX intervention and that they are still neutral on rates. Wheeler also stated that he doesn't expect a rate increase in the foreseeable future and does not think a rate cut is needed to get inflation back to target. (Newswires)

RBNZ Assistant Governor McDermott states that the change in NZD language is to signal unease, adding that NZD does need to adjust down. (Newswires)

COMMODITIES

Commodities traded quiet overnight with gold remaining near 9-week highs after prices rallied the most since May due to increased geopolitical tensions. Elsewhere, copper and WTI were similarly uneventful with prices unchanged during Asia trade.

GEOPOLITICAL

North Korea stated its military will have a strike plan against Guam completed by mid-August and then wait for leader Kim's order. The nation also stated that a sound dialogue is not possible with US President Trump and that his comments on fire and fury comments are nonsense. (Newswires)

US

Safe havens benefited from the war rhetoric with treasuries rallying and the 10y yield falling as much as 7bps at one stage. A sloppy 10y auction saw prices reverse course with the issuance covered just 2.23 times, the lowest since November 2016. Sep’17 10y T-note futures settled at 126.00+, up 11 ticks.

Fed's Evans (Voter, Dove) said that a December rate hike is possible but depends on inflation and that it is quite reasonable to begin reducing balance sheet in September. Evans added he wants more evidence that inflation getting to 2% sooner rather than later and that the Fed should be very careful in assessing future hikes. (Newswires)

Fed's Bullard (Non-Voter, Dove) said he is not too optimistic on inflation gains this year and that the Fed does not need to be pre-emptive amid weak inflation. (Newswires)