• European indices are largely unchanged this morning [Euro Stoxx 50 U/C] as sentiment slips from yesterday’s G20 inspired gains
• 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
• 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
• Russia approves the OPEC+ output deal extension for nine-months, and the pact for an extension is to be signed soon., OPEC sources
• Looking ahead, highlights include, Canadian Manufacturing PMI, OPEC+ Meeting, Fed's Mester & BoE’s Carney

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 (U/C) was underpinned by strength in mining names and amid a widely anticipated back-to-back rate cut from the RBA, while Nikkei 225 (+0.1%) was choppy and largely reflected the price action in the domestic currency. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp. (U/C) 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)

China's Premier Li states that China will significantly lower real financing costs for small firms, aiming for 1 percentage point cut this year. (Newswires)

US

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)

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

UK/EU

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)

- Subsequently, these reports have been dismissed by sources close to Boris Johnson. (Twitter/Politics Home)

UK Markit/CIPS Cons PMI (Jun) 43.1 vs. Exp. 49.3 (Prev. 48.6)

- UK home-building PMI sub-component turns negative for first time in 17 months

- New orders dropped to the largest extent in just over 10-years, IHS's Moore

ECB’s Lane in the context of a time estimation on negative rates states that, it depends on what happens, as you know the world is quite uncertain, we have a baseline forecast which remains optimistic for Europe but we recognise there are downside risks., (Newswires)

ECB Policy Makers see no need to rush into a rate cut in July., sources. (Newswires)

DIHK cuts German 2019 export growth forecast to 1% vs. 2.5% in Autumn 2019, add that trade disputes and protectionism are affecting German Co's abroad

- German engineering orders -7% May, domestic orders -1% and foreign orders -9%., VDMA. (Newswires)

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)

EQUITIES

Major European indices are mixed and overall largely unchanged [Euro Stoxx 50 U/C] as sentiment deteriorated overnight with the notable development being that the US Trade Representative Office has proposed increasing tariffs on EU products as a result of the aircraft subsidies; with a proposed USD 4.0bln of additional tariffs being added.  The tariffs would be on-top of the USD 21bln worth of tariffs announced by the USTR in April, with the products in question encompassing a vast range including whisky, iron tubes and cheese; a public hearing on these additions is scheduled for August 5th. Airbus (-0.9%) are afflicted on these additions as they are at the center of the European aircraft subsidies. Similarly, sectors are mixed with utilities and consumer staples outperforming on the day. In terms of this mornings notable movers, Adidas (-0.4%) opened lower after a downgrade at HSBC. Separately, but still within the Dax (-0.2%), Deutsche Bank (-0.7%) have slipped into negative territory as the broader index deteriorates on the back of negative comments from the VDMA this morning; however, the Co. did open around 1.1% higher on reports that they are considering lowering their capital buffer in order to fund the Co’s overhaul. Finally, Casino (+2.0%) are higher after selling 8 stores. 

FX

AUD/NZD - The Aussie has staged another strong rebound from fleeting overnight lows as bears quickly seized the opportunity to book profits in wake of the RBA’s decision to cut the OCR by another 25 bp, and other short positions were covered/squeezed on the accompanying statement suggesting no rush to ease again at the next policy meeting. Subsequently, comments from Governor Lowe appear to affirm a wait-and-see stance given back-to-back moves and Aud/Usd is inching closer to 0.7000 from 0.6958 lows, while Aud/Nzd has rebounded from sub-1.0450 towards 1.0500, with the Kiwi independently hampered by a further deterioration in NZIER business sentiment and ASB’s call for 2 more RNBZ rate reductions. Consequently, Nzd/Usd is hovering closer to the bottom of a 0.6657-80 range and eyeing the latest GDT auction next.

GBP/EUR - The Pound has tumbled to the base of the G10 pile on the back of June’s UK construction PMI that confounded expectations for a modest recovery and slumped even deeper into contraction at 43.1, much worse than the manufacturing miss on Monday. Moreover, components like housing and new orders were bleak, as the former fell below zero for the first time in 17 months and the latter weakened the most in over a decade. Cable is clinging to 1.2600 and Eur/Gbp is edging up towards 0.8960 as the single currency rebounds further from daily chart support vs the Dollar ahead of a Fib (circa 1.1277 and 1.1259 respectively) on ECB sourced reports downplaying July rate cut speculation. However, Eur/Usd faded around 1.1320 and could be drawn back towards decent option expiry interest between 1.1295-1.1300 (1 bn), especially after considerably weaker than forecast German retail sales data and some bleak numbers/outlooks from the likes of the DIHK and VDMA.

JPY - The Yen retains a relatively firm underlying bid on safe-haven grounds as the initial post-G20 euphoria dissipates and attention shifts back to the global slowdown and geopolitical factors, like the ongoing US-Iran spat. Hence, Usd/Jpy remains capped around 108.50 and the 30 DMA (108.55), but also confined on the downside at 108.00 given a generally firm Greenback as the DXY has bounced further from recent lows and back over the 200 DMA (96.690) into a loftier 96.624-879 band.

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)

RBA Governor Lowe says the two cuts in interest rates the Board has delivered recently will make an important contribution to putting us on a better path and winding back spare capacity

- Given the circumstances, the Board is prepared to adjust interest rates again if needed to get us closer to full employment and achieve the inflation target

- Australia's terms of trade have risen again, largely due to higher iron ore prices. Investment in the resources sector is also expected to increase over the next few years, after having declined steadily for almost seven years - are expecting a solid upswing in the resources sector, which will help the overall economy

- The exchange rate has depreciated over the past couple of years and, on a trade-weighted basis, is at the bottom end of its range of recent times., helping support important parts of the economy.

- Are expecting stronger growth in household disposable income over the next couple of years, partly due to the expected implementation of the low and middle income tax offset

ANZ has cut variable mortgage rates by 25bps effective July 12 following the RBA's rate cut. (Newswires)

- CBA have cut their Standard Variable Rate home loans by 19-25bps, following the RBA rate decision

- NAB are to reduce their variable rate on home loans by 19bps as of July 12th

FIXED

Gilts have forged more gains beyond the 131.00 handle and the equivalent 10 year yield is on the brink of 75 bp in wake of the BoE rate cutting kind of UK construction PMI that bodes badly for the big services survey on Wednesday, especially given the more pronounced contraction in manufacturing seen yesterday. The 10 year contract just topped out at 131.29 and was only briefly derailed in wake of 2024 DMO supply that seemed to encounter a degree of digestion, but was reasonably well received. Conversely, Bunds remain just shy of their fresh high in wake of ECB sources shying away from a July ease and with the Eurozone periphery outpacing the core, while US Treasuries are firmer and flatter in to Fed commentary and Empire State manufacturing.

COMMODITIES

The oil complex is somewhat subdued as the G20-driven positive sentiment waned. Brent (-0.4%) and WTI (-0.4%) have failed to find much support this morning on OPEC agreeing to extend the oil output cut by 9-months; with the OPEC+ meeting commencing today and the press conference expected at around 12:00 BST. In terms of recent commentary sources indicate that Russian Energy Minister Novak has given his support to the extension, with the deal to be signed soon. Nonetheless, markets will remain on guard for any dissent at today’s meeting from the non-OPEC members, with the joint verdict on an extension not expected until the OPEC+ press conference. From a technical perspective for WTI, PVM highlight that USD 59.07/bbl and USD 58.57/bbl are the two ‘pivot points’ to keep an eye on. Looking ahead, aside from the OPEC+ meeting we have the API report which last week posted a headline draw of -7.55mln BPD.

Gold (+0.5%) has reverted back towards the USD 1400/oz level after yesterday’s G20-induced decline; with today’s reversion stemming from a decidedly less-positive market sentiment than yesterday. However, the USD 1400/oz level remains elusive for the yellow metal this morning, for reference session high is currently just over USD 1397/oz. In contrast to yesterday’s gains, copper has remained largely negative throughout the session as risk sentiment turning negative is weighing on the red metal.

Saudi Energy Minister Al-Falih states that he is 100% confident that a OPEC+ deal for a 9-month extension will be achieved today. (Newswires)

Subsequently, Russia approves the OPEC+ output deal extension for nine-months, and the pact for an extension is to be signed soon., OPEC sources. (Newswires)

Iraq’s oil exports from their Southern ports at 3.39mln BPD for June., according to oil officials. (Newswires)