• US begins the process for installing 10% tariffs on USD 200bln of Chinese imports
• European equities hit and investors ditch high-beta currencies as risk-off tone returns
• Looking ahead, highlights include, US PPI, DoEs, BoC rate decision, supply from Germany and the US, ECB’s Mersch, BoE’s Carney, BoC’s Poloz and Fed’s Williams

 

TRADE

US Trade Representative Lighthizer announced US will impose tariffs of 10% on additional USD 200bln of goods from China, while a senior administration official stated that China is not seriously negotiating on trade and the list of new tariffs will not be implemented for 2 months with the final decision expected after Aug 30th. Furthermore, the new list was said to include electric vehicle batteries, leather products, air conditioners, fridges, furniture, tv components and several metals. (Newswires

China Assistant Commerce Minister said US is escalating trade tensions and that tariffs are a disruption to globalization and international order. The official stated that it is vital to send a positive signal of cooperation and stated ‘if they go low, we go high’ concerning trade. However, Mofcom later commented it strongly opposes US action and reiterated China will take countermeasures, while there were also later comments from China that the US putting out a list is unacceptable, and it will be forced to strike back. (Newswires)

ASIA

Asian stocks slumped across the board with sentiment spooked on increased trade concerns after the US announced a new tariff list on an additional USD 200bln worth of Chinese goods. The renewed US trade offensive picks up from Trump’s threats made last month and in turn weighed heavily on US equity futures as well as Asia-Pac bourses, while some commodities in Shanghai went into free fall alongside the broad risk-averse tone. ASX 200 (-0.7%) and Nikkei 225 (-1.2%) were lower with commodity-related sectors in Australia suffering after declines in the complex in which Shanghai Zinc fell 6% to hit limit down and copper fell to its lowest in about a year, while losses in Tokyo were exacerbated by safe haven flows into the JPY. Elsewhere, Hang Seng (-1.3%) and Shanghai Comp. (-1.8%) took the brunt of the increased trade tensions, although both were off the day’s lows after an initial composed response from China which stated it was vital to send a positive signal of cooperation and suggested that if the US will go low, it will go high. Finally, T-note futures traded higher overnight with prices spurred by the tariff list announcement, while 10yr JGBs were flat after they failed to benefit from the broad risk-averse tone, as well as the BoJ’s presence in the market for JPY 960bln in 1yr-10yr maturities.

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires)

PBoC set CNY mid-point at 6.6234 (Prev. 6.6259)

EU/UK/US

UK Conservative Party rebels are said to weigh voting against PM May's Brexit deal which reports suggest could bring down PM May's government later this year. (Newswires)

ECB's Villeroy reiterated the ECB's forward guidance by saying that QE should end in December, and the first rate hike may take place at the earliest "through the summer " of 2019 depending on the inflation outlook. (Newswires)

Fed's Evans states he is now comfortable with one or two more rate hikes this year; citing recent tax cuts, spending increases and more-stable price pressures. (WSJ)

EQUITIES

European equities (Euro Stoxx 50 -1.1%) are following in step with Asian stocks and falling sharply on the back of trade concerns as the US begun the process of imposing new 10% tariffs on a further USD 200bln of Chinese imports. This new list was said to include several metals and as such material names are underperforming alongside energy names (on softer oil prices), but losses are broad based and being seen across all sectors.

21st Century Fox have increased their bid for Sky (-0.6%) to GBP 14.00/share, an independent committee from Sky has said they have reached an agreement on this increased recommended pre-conditional cash offer

FIXED INCOME

Bunds and Gilts both recorded new session peaks earlier, albeit very marginal in the case of the latter, at 162.80 and 123.16 respectively (+42 and +24 ticks), before waning amidst a recovery of sorts in EU stock markets (or a degree of stability to be precise). Core debt futures may also have lost momentum due to issuance ahead of Germany’s new 10 year cash bond and during book building for the UK linker syndication (2041 maturity). In the event, the German auction was relatively well received and orders for the UK I/L swelled to more than GBP 20bln, with GBP 3.25bln sold at the tight end of price indications. Similarly, US Treasuries are off best levels, though still firm awaiting Wall Street’s reaction to latest US-China trade war manoeuvres that started after the closing bell on Tuesday and in advance of a busy agenda that includes PPI data and 10 year note supply.

FX

AUD - Extending recent losses vs its US counterpart and underperformance within the G10 bloc, with a further retreat from near 0.7500 peaks to breach support just ahead of the big figure below (0.7401 was the 10 DMA and support from there not seen until the 61.8% fib around 0.7377). The Aud continues to track US-China import tariff developments as a barometer for wider global trade contagion and repercussions given closest links and relations with China, while its NZD antipodean peer is less sensitive and has held up better as a result – cross back below 1.0900 but Kiwi losing 0.6800 vs the Usd.

CNH/CNY - Taking a direct hit from threats to raise the bar on imports to $250 bn in total by Beijing in response to a further $200 bn Chinese goods and services listed by the White House, but also weaker via the latest PBoC Cny fix amidst ongoing speculation that depreciation could be deployed as another trade war weapon. Usd/Cny closed around 6.6667, with resistance for Usd/Cnh just above 6.7000 subsequently tested.

CAD - Still rangy between 1.3110-75 vs its US rival and largely immune to fluctuating oil prices as attention turns to an almost completely priced in 25 bp hike from the BoC later today. Indeed, break-evens via options over the event are relatively low around +/- 80 pips, but the accompanying statement and post-policy meeting press conference by Poloz and Wilkins to present the latest MPR all provide plenty of potential to surprise with the emphasis on forward guidance and whether it’s a dovish, hawkish or neutral hike.

EUR/GBP/JPY/CHF - All very narrowly mixed vs the Dollar, with perhaps a mild preference for the safer-havens, as the single currency meanders between 1.1695-1750, Cable flits from 1.3235-85, Jpy straddles 111.00 and Franc trades within a 0.9905-50 band, eyeing further global protectionism moves, Brexit and any other drivers.

EM/SCANDI - Weaker across the board on general risk-off position and more independent bearish factors as the Lira lurches again on more fall-out from President Erdogan’s cabinet appointments and Usd/Try rallies to circa 4.7600+ again.

COMMODITIES

Oil is currently being hit by the risk-off mood, with both Brent and WTI in the red. Brent is falling faster than WTI as a result of Libya's NOC resuming control of Eastern oil ports, with operations set to resume to normal levels “in a few hours” as of 08:45 BST. This is undoing the support offered on Tuesday by a larger than expected draw in API crude inventories.

The metals sector is also seeing broad based losses, with Gold down 0.2%, copper fell over 3% during Asia-Pac trade to its lowest in around a year, Shanghai zinc fell limit down shortly after the Chinese open and lead is languishing around near 1 year lows.

Platinum is also in negative territory with the market set for its 4th consecutive surplus this year, on the back of falling demand in the auto sector, as according to the CPM Group.

US API Weekly Crude Stocks (6 Jul) -6.795M vs. Exp. -4.500M (Prev. -4.500M)

US API Cushing Number (6 Jul) -1.925M (Prev. -2.600M)

US API Weekly Gasoline Stocks (6 Jul) -1.590M vs. Exp. -0.800M (Prev. -3.000M)

US API Weekly Distillate Stocks (6 Jul) 1.952M vs. Exp. 1.200M (Prev. -0.438M)

Source: RANsquawk