• Asian equity markets mixed; China underperforms as trade fears linger
• FX markets quiet with DXY holding above 95.00; NZD soft as growth slows
• Looking ahead, highlights include rate decisions from BoE, SNB and Norges Bank

ASIA

Asia traded mixed although were initially mostly higher following a similar showing on Wall St where most major indices finished positive in which the Nasdaq Comp. and Russell 2000 rose to fresh record highs, while the DJIA lagged and posted a 7th consecutive loss. ASX 200 (+1.2%) was led higher by tech which mirrored the outperformance of the sector stateside and with sentiment also underpinned after the Australian parliament passed the income tax cut package. Furthermore, the biggest gaining stocks APN Outdoor and Gateway Lifestyle were boosted by takeover approaches which lifted the former by over 10%. Elsewhere, the weak-JPY-increased-risk dynamic spurred Nikkei 225 (+0.7%), while Hang Seng (-0.9%) and Shanghai Comp. (-0.2%) initially conformed to the improved global risk sentiment amid injections by the PBoC which also expects further increases in liquidity, although the tone in China later soured following comments from China’s Mofcom which renewed its tough talk on trade against the US. Finally, 10yr JGBs were flat with demand sapped amid gains in riskier Japanese assets and weaker demand in the 5yr JGB auction.

PBoC injected CNY 60bln via 7-day reverse repos and CNY 40bln via 14-day reverse repos for a net daily injection of CNY 30bln, while the PBoC was also reported to expect banking system liquidity to increase further. (Newswires)
PBoC set CNY mid-point at 6.4706 (Prev. 6.4586)

China Mofcom said US is being unpredictable and challenging, while it added that China has to respond strongly. Mofcom also stated China will act to defend its interests and that it has no choice but to implement new tariffs on certain US products in areas where broader tariff cuts were announced. (Newswires) Elsewhere, there were separate reports that China could take action against Dow-listed US firms. (Global Times)

US President Trump is said to be mulling plans to curb Chinese investment in over 1000 US firms and is expected to announce fresh restrictions at the end of the week. (Politico)

Japan is to sign free trade agreement with EU on July 11th. (Newswires)

UK/EU

House of Lords accepted the UK government proposal on the Brexit 'meaningful vote', as expected. (Newswires)

UK manufacturing bounced back in Q2 with output from factories growing at its fastest pace since December last year, according to the CBI. (Times)

S&P affirmed EU at AA; Outlook Stable. (Newswires)

FX

FX markets traded relatively quiet overnight, although the greenback remained firm and above the 95.00 level which restricted its major counterparts across the pond with EUR/USD and GBP/USD little changed. Elsewhere, JPY once again took most the focus with USD/JPY and JPY-crosses supported by outflows from the safe-haven currency, while antipodeans were subdued with underperformance in NZD following GDP data and amid cross-related flows in which AUD/NZD broke through the prior day’s resistance.

New Zealand GDP (Q1) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.6%). (Newswires)
New Zealand GDP (Q1) Y/Y 2.7% vs. Exp. 2.7% (Prev. 2.9%)
New Zealand GDP Annual Average (Q1) 2.7% vs. Exp. 2.8% (Prev. 2.9%, Rev. 2.8%)
New Zealand GDP Expenditure (Q1) Q/Q 0.3% vs. Exp. 0.1% (Prev. 0.4%)

COMMODITIES

Commodities were subdued during Asia trade with oil futures marginally lower overnight amid OPEC chatter which suggested that Iran was softening its stance to output increases. As such, WTI crude futures pared some of the prior day’s divergence from Brent seen in the aftermath of a larger than expected build in DoE inventories. Elsewhere, gold prices extended on losses as the greenback remained firm, while underperformance in China due to further fighting talk by Mofcom clouded over copper.

Saudi Arabia is said to be seeking a collective increase of between 600k-800k bpd, although target is not yet final and is a basis for talks with other producers, according to a senior OPEC official. (FT)

Saudi Energy Minister Al-Falih said the market demands more oil in the second half of 2018 and that he is encouraged to be converging to a good decision over an agreement which will be based on fundamentals, while he also stated that every energy minister he has spoken to has agreed it is time to change course. (Newswires)

Iran Oil Minister Zanganeh said Iran may agree to output increase through producers who have overdelivered on cuts, while he added that OPEC members are discussing reverting back to 100% compliance and can agree to increase supply without the need of a fresh agreement. In related news, a senior OPEC source suggested that reducing compliance down to 100% would involve adding 1mln bpd. (Newswires)

US

The Treasury complex edged lower on Wednesday and gave up some of the gains seen in the two previous sessions, as it took a breath from escalating trade conflict between the US and China. The yield curve bear-steepened, with short-dated yields higher by c.2bps and longer dated yields higher by c.3bps. There were negative ticks in afternoon trade after Walmart launched a bumper USD 16bln multi-tranche M&A bond. But generally, major curve spreads were little changed/slightly steeper, with 2s10s and 2s20s wider by c.1bps at settlement, while 2s30s and 5s30s were wider by less than 1bps. US 10YR T-note futures (Sep 2018) settled 7+ ticks lower at 119-19+.

US President Trump said he expects quarterly GDP to move much higher and that he will announce a new form of healthcare in 2 weeks. Furthermore, Trump also commented that the immigration issue will be part of the requirements for Mexico in NAFTA, while he earlier stated that new deals on trade are to be announced soon. (Newswires)

Canadian Foreign Minister Freeland said planned counter-tariffs against the US are strong and that they need to be, while she reiterated Canada sees no link between tariffs and NAFTA talks. (Newswires)