• US President Trump denounces Chequers deal and said a soft Brexit would probably kill a potential future trade deal between UK and US
• Sterling slipping, Dxy rising above 95.000 and equities up approaching week-end
• Looking ahead, highlights include, Uni. of Michigan Sentiment, Baker Hughes, BoE’s Cunliffe, Fed’s Bostic, earnings from Wells Fargo, and Citi

ASIA

Asian equity markets were mostly higher as the region took impetus from the upside in Wall St where all majors extended on gains after China’s lack of retaliation and in which tech outperformance pushed the Nasdaq to a fresh record high. This led to a positive open for ASX 200 (-0.1%) and Nikkei 225 (+1.9%) although the Australia index then floundered amid weakness in its top-weighted financials sector, while the Japanese benchmark sustained its outperformance as exporters cheered a weaker currency and with a surge in Fast Retailing on strong earnings. Elsewhere, Hang Seng (+0.2%) conformed to the predominantly positive risk tone in the region, while Shanghai Comp. (-0.2%) was negative after the PBoC refrained from reverse repo operations and with some jitters ahead of Chinese Trade Data, although the mainland index has since moved off its lows after the PBoC later announced an MLF operation and after data printed mixed with a larger than expected surplus, which eased some of the data-related fears. Finally, 10yr JGBs were flat with demand sapped amid outperformance of riskier assets in Japan, although downside was also stemmed by the BoJ’s presence for JPY 670bln of JGBs in the belly to super-long end.

 

PBoC refrained from reverse repos, but later announced to lend CNY 188.5bln via 1yr Medium-term Lending Facility. (Newswires)

PBoC set CNY mid-point at 6.6727 (Prev. 6.6726)

 

Chinese Trade Balance (CNY)(Jun) 261.9B vs. Exp. 182.5B (Prev. 156.5B).

Chinese Exports (CNY)(Jun) Y/Y 3.1% vs. Exp. 4.1% (Prev. 3.2%)

Chinese Imports (CNY)(Jun) Y/Y 6.0% vs. Exp. 13.1% (Prev. 15.6%)

China Aggregate Financing (Jun) CNY 1.8trl vs. Exp. CNY 1.4trl

China M2 Money Supply (Jun) Y/Y 8.0% vs. Exp. 8.4%

China New Yuan Loans (Jun) CNY 1.84trl vs. Exp. CNY 1.52trl

China's Customs said China trade stability faces challenges from increasing external instability and uncertainty, while it also commented that China will not impose special regulatory measures on US goods nor will it delay US goods at ports. (Newswires)

EU/UK/US

US President Trump has warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US as they would be dealing with the EU instead of the UK. (Telegraph) This also comes amid reports that UK PM May could suffer the defeat of a crucial Brexit bill as early as Monday after Eurosceptics reacted angrily to the white paper she published yesterday. (Times)

US Commerce Secretary Ross said will sell all his equity holdings and buy US Treasuries. (Newswires)

EQUITIES

European equities are largely in the green, with the Euro Stoxx 50 (+0.2%) breaking through its 50DMA in late European trade yesterday and finding support at this level (3,452) this morning. Tech stocks are leading the gains (Infineon +1.7%, Micro Focus +4.3%) and all sectors positive as the positive sentiment from the US continues into European trade.

The IBEX (-0.3%) is once again the only index in the red, and fallen through its 50DMA, with bank stocks extending the losses seen in yesterday’s trade (BBVA -1.2%, Santander -1.1%). The FTSE 100 is outperforming as the GBP is softer.

ThyssenKrupp (-0.6%) have named Guido Kerkhoff as their new CEO

FIXED INCOME

Debt futures have built up a head of steam and sufficient bullish momentum to breach upside levels that were holding firm, with Bunds through 163.00 and Gilts almost reaching 123.50, albeit in relatively thin trading conditions. The precise Eurex and Liffe intraday highs are 163.19 and 123.49, +42 and +34 ticks respectively, and the comparatively low Summer volumes may actually be exacerbating price moves, although the catalyst and impetus for buyers appears to have come from an unlikely or at least indirect source in the form of widespread Usd gains in FX markets. Back to bonds, and from a chart perspective Bunds will be eyeing channel resistance up at 163.40, while Gilts have 123.64 to aim for before 123.88. Turning to US Treasuries, more flattening and knock-on gains in keeping with their EU counterparts.

FX

DXY - The index is back above 95.000 and seemingly heading for strong close to the week, with momentum to challenge the current ytd high (95.531 from June 28) given blanket gains vs G10 peers.

GBP/NZD - An unfortunate, if not unlucky Friday 13th for the Pound and Kiwi thus far, with Cable hit by more negative White Paper headlines amidst reports that US President Trump has delivered a damning verdict via a warning to UK PM May about the ‘soft’ proposal killing prospects of a trade deal between the 2 nations. Market contacts noted stops on a break of 1.3175 after the loss of 1.3200 and there is little in the way of support before the next psychological level at 1.3100 vs a circa 1.3105 low, and ahead of a speech from BoE’s Cunliffe due at 12.30BST. Meanwhile, Nzd/Usd has retreated through 0.6750 following a disappointing NZ manufacturing PMI overnight.

EUR - The single currency also a victim of overall Dollar strength, or vice-versa, and looking vulnerable for a deeper pull-back from recent peaks having breached some key chart supports (like the 20 DMA at 1.1654 and a 50% Fib at 1.649 from the 1.1508-1.1790 rally from 2018 low to nearly July peak), with 1.1600 next in sight.

AUD/CAD - The Aud is back below 0.7400 after deriving some relative and temporary support from China’s bigger than expected trade surplus overnight, while the Loonie is back down near 1.3200 vs the Usd and also feeling the weight of another retreat in crude prices.

JPY/CHF - Both extending recent losses vs the Greenback, with BoJ sources suggesting another push-back in inflation target expectations at the end of month policy meeting sparking a further rise in the headline pair through any residual supply at 112.50 to 112.80, and with 113.00 the obvious objective. Similarly, Usd/Chf is grinding higher with no real support for the Franc via a pick-up in Swiss producer/import prices (y/y), and this year’s previous high at 1.0057 now only 5 pips away.

CNH - The off-shore Yuan is back below 4.7000 vs the Usd and levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

COMMODITIES

Oil is currently in the red, with Brent -1.0% and WTI -0.3% as we approach the weeks end, and is set for its second consecutive weekly fall. Both measures are finding support at moving average levels, however, with WTI still supported by its 50DMA (USD 69.43/BBL), and Brent finding support at its 100DMA (USD 73.07/BBL) level.

Russian Energy Minister Novak said he is not ruling out an output adjustment depending on other countries or a quick move on >1mln BPD from OPEC+ if needed. He also said he sees Russia's output boost by the end of July at 200k BPD

Gold prices are sliding as the DXY is extending its rally past the 95.000 level. Shanghai steel has hit a 10 month high on the back of low inventories and source reports suggesting the closure of steel mills in China’s largest steel making city, Tangshan, for 5 days amid pollution concerns. Copper is down 0.5% and set for the 5th consecutive weekly fall as US-China trade concerns are weighing on the construction material.