• Asian equity markets traded indecisive as the euphoria from the US-China trade truce began to wane, Hong Kong played catch-up
• US Trade Representative Office proposed increased tariffs on EU products due to EU aircraft subsidies, in which it proposed adding more tariffs to USD 4.0bln of EU goods
• RBA lowered the Cash Rate by 25bps to a record low 1.00% as expected, AUD/USD saw short-lived downside
• Looking ahead, highlights include German Retail Sales, UK Construction PMI, Canadian Manufacturing PMI, OPEC+ Meeting, RBA’s Lowe, Fed’s Williams & Mester, BoE’s Carney, supply from the UK

ASIA-PAC

Asian equity markets traded indecisive as the euphoria from the US-China trade truce began to wane and with the region looking ahead to this week’s key risk events. ASX 200 (+0.4%) was underpinned by strength in mining names and amid a widely anticipated back-to-back rate cut from the RBA, while Nikkei 225 (+0.2%)was choppy and largely reflected the price action in the domestic currency. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (-0.1%) were mixed with the mainland dampened after another liquidity drain by the PBoC, while Hong Kong outperformed as it played catch up on return from the extended weekend and amid declines in money market rates, with casino stocks among the biggest gainers following the strong growth in Macau gaming revenue. Finally, 10yr JGBs were subdued by the indecisive risk tone and after mixed results at the 10yr JGB auction failed to spur prices.

PBoC skipped open market operations for a daily net drain of CNY 90bln. (Newswires) PBoC set CNY mid-point at 6.8513 (Prev. 6.8716)

US President Trump said a new round of trade talks with China have started and that he expects Chinese President Xi will move on some of the disputed issues. (Newswires)

Chinese Premier Li reiterated that China will not resort to competitive devaluations and will protect IP rights even more strictly, as well as further ease ownership limits in more sectors. Premier Li added that China will maintain prudent monetary policy and no 'flood-like' stimulus, but will use RRR, targeted RRR and lower real interest rate to help reduce funding costs for small firms. (Newswires)

UK/EU

UK PM candidate Hunt said German Chancellor Merkel told him she would look at a new package proposed by a new PM. (Newswires)

UK PM candidate Boris Johnson is considering proposals to reduce the size of the Cabinet after key backers urged him to slim down the government if he becomes PM. The Departments for Justice, Business, Culture, International Trade, Work and Pensions, Transport, and Brexit could all be abolished or merged with other departments. (Telegraph)

US Trade Representative Office proposed increased tariffs on EU products due to EU aircraft subsidies, in which it proposed adding more tariffs to USD 4.0bln of EU goods. (Newswires)

Italy cut its 2019 budget deficit target to 2.04% (Prev. 2.4%), according to a government source. (Newswires)

FX

In FX markets, DXY was steady around the prior day’s highs after having reigned supreme amongst its G10 counterparts in which EUR/USD slipped below its 200DMA and eventually gave up the 1.1300 handle, while a proposal by the USTR Office to increase tariffs on USD 4.0bln of EU goods due to EU aircraft subsidies, briefly added to the pressure for the single currency. GBP/USD remained dejected following its retreat from 1.2700 and USD/JPY mirrored the indecisive risk tone, while antipodeans were in a holding pattern as attempts by AUD/USD to recoup recent losses were limited ahead of the RBA rate decision in which they cut rates by 25bps as widely expected. The decision immediately saw an initial knee jerk reaction to the downside in AUD/USD, although this was short-lived, and the pair returned to pre-announcement levels as the cut was hardly a surprise considering markets had priced in more than 89% chance for the move.

RBA lowered the Cash Rate by 25bps to a record low 1.00% as expected and stated that it cut rates to support employment growth, as well as provide greater confidence on inflation. RBA noted that the economy can sustain a lower rate of unemployment and that employment growth remains strong, while it added that the outlook for the global economy remains reasonable and that there are signs house prices are stabilizing in Sydney and Melbourne. (Newswires) 

COMMODITIES

Commodities were mixed with WTI crude futures subdued amid the indecisive risk tone and after prices pulled back from USD 60/bbl and subsequently to below USD 59/bbl, despite the agreement by OPEC producers to extend the output cut deal by 9 months. The announcement was no surprise as Russia and Saudi had pre-agreed an extension at the G20, while there was some friction with Iran which opposed the rapid adoption of an OPEC and Non-OPEC cooperation charter. Elsewhere, gold prices saw marginal gains as the USD took a breather overnight and copper was kept subdued amid the lacklustre risk tone.

OPEC agreed to extend the oil output cut by 9 months at current quota levels, which means that the extension must now be approved by Non-OPEC partners including Russia at today’s meeting, while OPEC has also reappointed Secretary General Barkindo for 3 more years. (Newswires)

OPEC source said the closed OPEC meeting was long due to the discussion on the OPEC and Non-OPEC cooperation charter, in which Iran was opposed to the rapid adoption of the charter and a decision should be made in the next meeting. (Twitter)

GEOPOLITICS 

US President Trump said he had a great meeting with North Korea Leader Kim and looks forward to meeting him again soon, while he added that their teams will be meeting in the meantime to work out solutions to long-term and persistent problems. In related news, White House National Security adviser Bolton denied media reports the US may settle for a nuclear freeze by North Korea instead of full denuclearization. (Twitter/Newswires)

US President Trump suggested that Iran is playing with fire although he separately commented that hopefully the US will make a deal with Iran and that he would like to exit Afghanistan, but it is a tough position. (Newswires/Fox)

Israel PM Netanyahu said Israel will not allow Iran to develop nuclear weapons. (Newswires)

US

Support for FI in early European trade came from a weak Eurozone PMI, which strengthened the Bund (and the T-Note in sympathy). But as the US got to their desks, the complex was sold, though there was brief buying after a mixed ISM report. At settlement, major curve spreads were mixed, but not changing by more than 1bps and US T-note (U9) futures settled 9 ticks lower at 127-22.

US President Trump said Mexico tariffs are off the table and that the country is doing a good job. (Newswires)