• Asian stocks were negative across the board amid trade-inspired spill-over selling from the US
• US Treasury Secretary Mnuchin suggested investment restrictions were not just specific to China but to all countries trying to steal US technology
• White House Trade Advisor Navarro provided momentary relief as he stated the US has no plans to impose investment restrictions but will defend itself against threats
• Looking ahead, highlights include US CaseShiller, Richmond Fed, NZ trade, BoE’s McCafferty, ECB’s de Guindos, Fed’s Kaplan and Bostic

ASIA

Asian stocks were negative across the board on spill-over selling from the US where sentiment was dragged amid trade concerns following Trump’s trade threats over the weekend and potential investment restrictions on China. This was also exacerbated after Treasury Secretary Mnuchin suggested this was not just specific to China but to all countries trying to steal US technology, which raised fears of widespread action and saw the tech sector bear the brunt of the increased protectionist views. ASX 200 (-0.3%) and Nikkei 225 (-0.1%) traded lower with losses in Australia led by commodity related sectors amid trade uncertainty and OPEC+ overhang, while a firmer JPY weighed on the Japanese benchmark. Hang Seng (-0.2%) and Shanghai Comp. (-0.8%) underperformed their peers with China dampened by trade tensions, as well as a net liquidity drain by the PBoC. Finally, 10yr JGBs were uneventful with prices stuck within Monday’s tight range and after the 20yr auction failed to spur demand despite firmer results.

PBoC injected CNY 80bln via 7-day reverse repos for a net daily drain of CNY 90bln, but stated that banking system liquidity will improve in the approaching few days. (Newswires)

PBoC set CNY mid-point at 6.5180 (Prev. 6.4893)
 

China President Xi reportedly told CEO’s he is to strike back at the US and warned executives there is no more turning the other cheek, which means American firms could face regulatory delays and consumer backlash. (WSJ)

UK/EU

UK PM May told EU’s Tusk that the UK will provide more detail on their vision for the future EU relationship in a white paper after the June council, according to a statement. (Newswires)

ECB's Coeure said QE reinvestments to be around EUR 15bln/month during 2019. (Le Figaro)

French Finance Minister Le Maire said he hopes US realizes soon that tariffs are bad for its own economy and that they will respond if under attack regarding tariffs, while he added time is running out on Brexit which is worrying. (Newswires)

S&P raised Greece sovereign rating to B+; Outlook Stable from B; Outlook Positive. (Newswires)

FX

FX markets were quiet overnight alongside a lack of tier-1 data, which kept the DXY near lows seen during US trade amid concerns regarding Trump trade policies. As such, EUR/USD marginally extended above 1.1700 and GBP/USD continued to eye the 1.3300 handle to the upside, while AUD/USD remained subdued on recent commodity pressure. Elsewhere, the risk averse tone spurred flows into JPY in which USD/JPY and JPY-crosses fully reversed an earlier aggressive spike that had been triggered by comments from White House Trade Advisor Navarro which provided momentary relief as he stated the US has no plans to impose investment restrictions but will defend itself against threats. MXN was also another outperformer which followed comments from Mexico presidential front runner Lopez Obrador’s adviser that they will do all they can to strengthen the currency.

An adviser to Mexico presidential front runner Lopez Obrador said they will do all they can to strengthen the MXN and that the currency is currently undervalued, while the adviser added the government would look to do this by creating investor confidence conditions and not through market intervention. (Newswires)

COMMODITIES

Commodities were lacklustre overnight amid the dampened risk appetite, although oil prices nursed some of the prior day’s losses in which Brent tested USD 75.00/bbl to the upside and WTI reclaimed USD 68.00/bbl, while focus turns to latest inventory reports beginning with the API’s scheduled later. Elsewhere, gold resumed its descent from the USD 1300/oz level and copper saw some mild short covering, although trade tensions between the world’s 2 largest economies and weakness in Chinese commodities overnight kept prices of the red metal near 3-month lows.

CME raised NYMEX crude oil future margins for August to USD 2750 per contract from USD 2550 and raised gasoline futures maintenance margins for September to USD 3200 per contract from USD 3100 per contract. (Newswires)
 

US

While stocks (and havens) were clearly shaken by the ramping up of global trade war tensions, the Treasury complex was more sanguine ahead of this week’s supply, with yields falling modestly across the curve, and major curve spreads were little changed (still, there was attention on 2s5s and 2s10s which ticked slightly lower to the flattest in over a decade). Some of the Treasury bid deflated, however, after conciliatory comments by White House Trade advisor Navarro. US 10YR T-notes futures (Sep 2018) 6+ ticks higher at 120-01.

White House Trade Advisor Navarro said the US has no plans to impose investment restrictions but will defend itself against threats to its technology, while Navarro also noted today's equity slide is an overreaction. (Newswires)