• FOMC Minutes noted concern on trade policy risks but didn’t suggest anything that would likely swerve the Fed from its hiking path
• UK PM May is to unveil plans that involve UK agreeing to a formal treaty with EU post-Brexit that will tie the UK to Brussels rules on goods
• Looking ahead, highlights include US NFP, US trade, Canadian jobs, Baker Hughes

FOMC MINUTES

Most Fed policymakers said trade policy risks has intensified and were concerning, while the minutes also noted downside risk to US growth and inflation on the back of economic and political events in Europe and EM countries.

In addition, members also said many of their contacts expressed concern over tariffs which might affect investments.

Many members said gradual hikes could take the Fed funds rate above the neutral level sometime next year and a number of members said it may be appropriate to change part of policy statement that refers to accommodative policy.

Flattening of the yield curve was also discussed and members gave representation on recession risks based on spread between current Fed funds rate and expected rate several quarters ahead. (Newswires)

While the FOMC’s latest meeting minutes generally were in line with the post-meeting statement and press conference with Chair Powell, there were a few new pieces of information that warrant attention with the Fed clearly concerned about the risks of global trade wars. In terms of a reaction, the market was undecided on how to interpret the minutes, with the market initially tilting dovish on the discussion of trade risks and the yield curve, before turning slightly hawkish as the Fed seems content to tighten policy as it has previously said it would.

ASIA

Asian stocks traded mixed after the positive momentum from Wall St’s best performance in over a month stalled as focus shifted to the US-China tariffs. ASX 200 (+0.8%) and Nikkei 225 (+1.1%) were positive as both indices took impetus from their US counterparts, in which the mining sector led the gains in Australia and the prior day’s currency weakness provided some encouragement to Japanese exporters. Conversely, Hang Seng (-0.5%) weakened and Shanghai Comp. (-0.3%) briefly fell below the 2700 level for the first time since March 2016 amid the tit-for-tat tariffs and after PBoC inaction amounted to a considerable CNY 500bln net drain for the week. The KOSPI (-0.3%) was also subdued with index heavyweight Samsung Electronics dampened on disappointing preliminary Q2 results, while Singapore Straits Times Index (-2.0%) slumped from the open with developers hit by a surprise announcement yesterday of higher stamp duty rates and tighter loan-to-value limits as part of measures to cool the property market. Finally, 10yr JGBs have seen mild support overnight amid the overall cautious tone in the Asia-Pac region and BoJ’s presence in the market for JPY 810bln in JGBs, but with upside capped by resistance around the 151.00 level.

PBoC skipped open market operations for a net weekly drain of CNY 500bln vs. last week's CNY 370bln net drain. (Newswires)
PBoC set CNY mid-point at 6.6336 (Prev. 6.6180)

US President Trump confirmed China tariffs will be imposed after Thursday midnight and said another USD 16bln in tariffs are coming in 2 weeks. (Newswires)

China Mofcom stated that it has to fight back against US on trade and that it will continue evaluating impact of US tariffs. Furthermore, Mofcom added that US action regarding tariffs is bullying and triggers global market turmoil. (Newswires)

PBoC adviser Ma Jun said impact of US-China trade war is limited and sees US tariffs on USD 50bln of China goods to slow down China's growth by 0.2 ppts, while there were also comments from China Foreign Minister Wang Yi that China and EU should safeguard free trade and that China is willing to defend Iran accord with Europe. (Newswires/Xinhua)

UK

UK PM May is to unveil plans that involve UK agreeing to a formal treaty with EU post-Brexit that will tie the UK to Brussels rules on goods, according to reports in Telegraph. However, there were also reports citing senior officials in Brussels that PM May’s new plan will be ‘dead on arrival’ and EU officials also stated any hint of the UK wanting to be part of the single market on goods but not on services will not be accepted. (Newswires/Telegraph/Independent) Furthermore, it was also reported that UK Brexit minister David Davis is said to be fighting against PM May's Brexit White Paper and is said to oppose the plan to tie the UK to EU rules on goods. (Newswires) Overall, at least seven Cabinet ministers are expected to confront PM May today amid fears her Brexit plan will tie the UK to EU rules for the foreseeable future and put any US trade deal in jeopardy. (Times/Telegraph)

German Interior Minister Seehofer warned that EU rigidness regarding Brexit hinders reaching a security deal and puts lives at risk. (FT)
 

EU

Germany's SPD and conservatives reached an agreement on turning back certain migrants at the German-Austrian border, according to coalition sources. (Newswires)
 

FX

FX markets were rangebound with the DXY flat amid a lack of pertinent data overnight and following a relatively muted reaction to the FOMC Minutes which noted concern on trade policy risks but didn’t suggest anything that would likely swerve the Fed from its hiking path. EUR/USD and GBP/USD were also contained in which the latter languished at the prior day’s lows amid Brexit uncertainty with EU officials extremely doubtful on PM May’s new plan. Elsewhere, high beta currencies (AUD, NZD & CAD) were initially lacklustre due to trade concerns but later saw some support alongside gains in US equity futures amid comments from China’s Mofcom which reiterated past statements and so far refrained from declaring an official retaliation.

COMMODITIES

Commodities were mostly subdued alongside the cautious risk tone amid the US-China tariffs. Nonetheless, WTI crude futures are off worst levels and have reclaimed the USD 73.00/bbl level but remains far from making any significant recovery from the losses triggered by the recent surprise DoE crude inventory build. Elsewhere, gold was choppy following an indecisive reaction to the FOMC and with NFP data eyed next, while copper underperformed on China weakness and declined below the USD 2.80/lb level. 

Iranian President Rouhani told French President Macron that Europe's package of economic measures to make up for the US exit 'does not meet all the Iranian demands'. (IRNA)

Iran’s OPEC Governor stated that oil price above USD 100/bbl is yet to come and that President Trump is the one to be blamed. (Newswires)

CME raised NYMEX platinum future initial margins to USD 1870 per contract from USD 1650 per contract. (Newswires)

US

The treasury complex drifted on Thursday, and closes out the session in the middle of its ~10 tick trading range. As US traders got to their desk, the TPLEX rose, likely in sympathy with the Bund, which caught a bid as Italian BTPs sold-off. There was some further upside after a mixed ISM survey (it appears Treasuries looked through the data), though the T-Note found sellers around 120-13+, and after fleeting knee-jerk higher post-Fed minutes, the T-Note continued its move lower towards the middle of the range, to finish flattish. The curve continued to flatten on Thursday, with 2s10s, 2s30s, 5s10s and 5s30s narrowing to lows not seen in a decade. Attention falls on tomorrow’s payrolls data (preview below). US 10YR T-notes futures (u8) 2 ticks lower at 120-08.