• Asian equity markets traded mostly lower after a lacklustre lead from the US amid underperformance in energy names and Netflix earnings weighing on Nasdaq futures
• The UK government has managed to avoid defeat on its Customs Bill after caving into the demands of Brexiteer MPs
• Looking ahead, highlights include, UK labour market report, US industrial production, APIs, BoE’s Carney, Fed’s Powell and supply from Germany

ASIA

Asian equity markets traded mostly lower after a lacklustre lead from the US where energy underperformed amid a slump in crude and Nasdaq futures took a hit after-market on disappointing earnings and subscriber numbers from Netflix. ASX 200 (-0.5%) was negative with the index dragged by losses in energy names following a decline of around 4% in oil due to concerns a supply glut could return and as miners suffered from early weakness in Shanghai metal prices. Conversely, Nikkei 225 (+0.9%) bucked the trend on return from the extended weekend amid JPY weakness, while Shanghai Comp. (-1.0%) and Hang Seng (-1.0%) led the declines despite continued liquidity efforts by the PBoC, amid overhang from trade uncertainties and with energy names pressured. Finally, 10yr JGBs were uneventful with prices subdued amid a positive tone in Tokyo stocks but with downside also restricted amid the BoJ’s presence in the market concentrated in the short end and belly of the curve.

NDRC said China faces large difficulties in achieving stable development during H2 amid shocks from trade tensions but added that China has ample of space to deal with shocks. (Newswires)

PBoC injected CNY 70bln via 7-day and CNY 30bln via 14-day reverse repos for a net daily injection of CNY 90bln. (Newswires)

PBoC set CNY mid-point at 6.6821 (Prev. 6.6758)

Chinese House Prices (Jun) Y/Y 5.0% (Prev. 4.7%). (Newswires)

UK/EU

Notable Cross Border Tax Bill Amendment Votes:

- UK House of Commons voted (316 to 289) against New Clause 11 of the Cross-Border Tax Bill which would have made establishing tariff free access to the EU as a negotiating objective for the UK Government.
- House of Commons voted (305 to 302) to approve New Clause 36 which prevents the UK collecting taxes on behalf of another territory or country, unless this were done on a reciprocal basis.
- House of Commons voted (303 to 300) to approve Amendment 73 which commits the Government to having a separate VAT system to the EU.
- House of Commons voted 318 to 285 to approve the third reading of the Cross-Border Tax Bill which progresses the bill to the House of Lords. (Newswires)

- House of Commons voted (316 to 36) against New Clause 16 which would have required approval from Scottish Parliament to implement some of the powers in the Bill.

Subsequently, Conservative Eurospectics have declared that they have killed off UK PM May’s Chequers plan by making her adopt changes that will leave it ‘dead on arrival’ in Brussels. (Telegraph) Remain-supporting MPs are said to be furious with May caving to the demands of the Eurosecptics. (Times)

UK Defence Procurement Minister and Remain advocate Guto Bebb resigned after the government accepted ERG amendments. (Newswires)
 

FX

In FX markets, the DXY was lacklustre overnight but consolidated around the 94.50 level, while EUR/USD saw mild gains after support held at 1.1700 and GBP/USD attempted to nurse some of yesterday’s Brexit-related declines which were triggered by the UK government’s acceptance of amendments proposed by hard-line Eurosceptic MPs. Elsewhere, USD/JPY and JPY-crosses were slightly higher on the return of Japanese participants, while AUD/USD was initially choppy after the RBA minutes stuck to reiterations before it later coat-tailed on NZD outperformance after the RBNZ’s preferred inflation gauge rose to its highest in 7 years which overshadowed the earlier softer than expected CPI data.

RBA minutes from July 3rd meeting stated the board judged it was appropriate to maintain policy and that the next rate move is likely to be a hike if the economy improves as expected but added it saw no strong case for a near-term change. The minutes also noted that AUD had declined slightly but remains in range of the past 2 years and that recent data consistent with view for GDP to increase a bit more than 3% in 2018 and 2019. (Newswires)

New Zealand CPI (Q2) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.5%). (Newswires)
New Zealand CPI (Q2) Y/Y 1.5% vs. Exp. 1.6% (Prev. 1.1%)

New Zealand RBNZ Q2 sectoral factor model inflation Y./Y at 1.7% vs. Prev. 1.6% during Q1; highest in 7 years. (Newswires)
 

COMMODITIES

Commodities were mixed with WTI crude futures flat near the USD 68.00/bbl level after the prior day’s 4% declines due to concerns a supply glut could return amid reports the US open to considering waivers on Iran sanctions and with refineries coming back online, as well as recent chatter US was considering dipping into the strategic petroleum reserve. Elsewhere, gold prices traded flat amid consolidation in the greenback and with participants awaiting Fed Chair Powell’s testimony later, while copper was higher on a continuation of yesterday’s rebound to eye the USD 2.90/lb level.

US Senator Grassley introduced a bill against OPEC 'price fixing' and stated that OPEC output quotas keep prices artificially high. (Newswires)

Goldman Sachs said it still expects Brent crude to retest USD 80/bbl although it may occur in late 2018 rather than previous forecast of summer, in which it cited US policies on oil. (Newswires)

US

Yields were higher across the curve in thin volume, with the curve modestly bear-steepening at settlement, which was 2s10s rise by just shy of 1bps, but still within the 25bps handle. Short-dated yields rose to highs not seen in almost a decade ahead of Tuesday’s testimony by Fed chair Powell (See below for preview). There was little by way of major moves in Treasuries after retail sales data, however, losses appeared to be scaling back in afternoon trade as equities, and more noticeably, oil found selling action. US 10YR T-notes futures (U8) settled 6 ticks lower at 120-05+.

Fed's Kashkari (non-voter, dove) said policymakers are focused on the flattening of the yield curve and that he is unsure whether the flattening yield curve signals a recession ahead. Furthermore, Kashkari stated that Fed is risking inverting the yield curve by continuing to hike and that there is little reason to raise rates further since doing so could trigger a recession. (Newswires)

Mexico said it will take defensive actions and respond to US trade measures. (Newswires)