• A cautious end to the week so-far European Indices [Euro Stoxx 50 -0.2%] ahead of NFPs
• In FX, USD outperforms G10 counterparts as participants return from Independece Day holiday
• Looking ahead, highlights include US & Canadian Jobs Reports, Canadian Ivey PMI

ASIA-PAC

Asian equity markets were mixed following the non-existent lead from Wall Street where markets were shut due to Independence Day and with the region tentative heading into the key US Non-Farm Payrolls data. ASX 200 (+0.5%) was positive with the index led higher by strength in financials and real estate after APRA effectively relaxed guidance on mortgage lending in which banks will be able to review and set their own minimum rate floor in assessing serviceability, although gains were capped for most the session by weakness in the commodity-related sectors. Elsewhere, Nikkei 225 (+0.2%) was choppy as it failed to find inspiration from the highest growth in Household Spending since 2015, due to a humdrum tone in the currency and the KOSPI (+0.1%) traded cautious amid losses in index heavyweight Samsung Electronics which beat expectations in its preliminary earnings for Q2 but still showed oper. profit slipped by 56% Y/Y. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.2%) were initially subdued after further PBoC inaction resulted to a net weekly liquidity drain of CNY 340bln, while there were also recent mixed comments from China’s MOFCOM which confirmed US-China trade teams are in communication but also suggested that tariffs must be removed for a trade deal to occur. Finally, 10yr JGBs were marginally higher and briefly reclaimed the 154.00 level with mild support seen amid the lacklustre risk tone in Japan and BoJ’s presence in the market for JPY 555bln of JGBs.

PBoC skipped open market operations for a net weekly drain of CNY 340bln. (Newswires) PBoC set CNY mid-point at 6.8697 (Prev. 6.8705)

China reportedly wants Huawei clarification before making agricultural purchases from the US. (SCMP)

China’s Global Times Editor tweeted that China will fulfil its commitments once China and the US reach a deal and that the US shouldn’t set unfair conditions to prevent China breaking promises as Beijing will certainly reject those conditions. (Twitter)

Indian Budget Summary: government vowed to continue with structural reforms, are to maintain FY19/20 gross borrowing at INR 7.1tln, with the deficit/GDP target at 3.3%. Government is to buyback INR 500bln of bonds in 2019/20, increase customs duty on precious metals to 12.5% and impose special additional excise duty on petrol and diesel by INR 1. 

UK/EU

UK PM candidate Johnson vowed to make Britain the greatest place on Earth and unite the country by delivering Brexit. In other reports, Johnson suggested he could maintain lavish spending promises even if in the event that a no-deal Brexit wiped out the scope for extra borrowing by instead using the GBP 38bln “divorce settlement” payment with the EU. (Telegraph/Guardian)

UK Justice Secretary Gauke said he thinks the House of Commons will ‘find mechanisms’ to prevent the UK leaving EU without a deal and criticised Boris Johnson’s ‘do or die’ pledge. (Independent)

Several Tory MPs stated that they were on standby in the event of a snap election in October. (FT)

UK Halifax House Prices MM* Jun -0.3% vs. Exp. -0.2% (Prev. 0.5%, Rev. 0.4%)

- UK Halifax House Prices 3M/YY* Jun 5.7% vs. Exp. 5.9% (Prev. 5.2%)

German Industrial Orders MM (May) -2.2% vs. Exp. -0.1%. (Prev. 0.3%; Rev. 2.5%) (Newswires)

GEOPOLITICS

Iran summoned the UK ambassador in Tehran after British Royal Marines seized a Panamanian-flagged tanker suspected of smuggling 2mln bbls of Iranian oil to Syria. (Newswires)

Russian Deputy Foreign Minister says that Moscow will take steps to strengthen the armed forces of Venezuela., Ria

EQUITIES

European indices are little changed/modestly into negative territory this morning [Euro Stoxx 50 -0.2%] as bourses lack any firm direction due to the US market holiday and the relatively quiet newsflow ahead of the US Jobs Report later on in the session. Sectors are largely negative, with some underperformance seen in tech names as Samsung Electronics reported earnings last night where Q2 operating profit fell by 56% Y/Y. Separately, mining names are suffering on the pullback in iron ore prices and amidst reports that Chinese regulators are to examine the drivers behind the metal’s recent price surge; as such, Rio Tinto (-2.4%) and Anglo American (-2.6%) are towards the bottom of the Stoxx 600. Elsewhere, at the bottom of the Stoxx 600 are Hexagon (-14.0%) after the Co. stated that they have been impacted due to a China slowdown in July, stemming from the ongoing US-China trade dispute. Finally, Osram Licht (+1.8%) are firmer this morning after confirming that they support the Bain & Carlyle takeover for EUR 35.00 per share.

FX

USD - The Dollar is edging higher ahead of US jobs data, albeit not independently or directly as G10 and EM rivals weaken further or retreat in advance of the big release. The DXY has inched back up towards 97.000 and into a marginally firmer range, but may be capped by resistance seen between the big figure and 97.010 awaiting the latest BLS report and return of US markets after yesterday’s market holiday.

CHF/NZD - The major underperformers, though not by much, as the Franc and Kiwi hover around 0.9875 and 0.6670 respectively vs the Greenback and both still within recent trading parameters awaiting further direction from the aforementioned NFP metrics.

JPY/EUR/SEK - The Yen has slipped back to around 108.00 from safe-haven highs circa 107.50 earlier this week, but may derive some support from decent option expiry interest at the 108.00 strike (1 bn), or heavy supply said to be stacked from 108.50 if the US labour data is strong. Meanwhile, the single currency is testing key downside technical levels in wake of yet more poor German data, like converged DMAs and a Fib in the 1.1259-62 region, but outpacing the Swedish Krona amidst a sharp slide in Hexagon shares (due to the IT firm flagging weakness in China). Indeed, Eur/Sek has rebounded firmly from sub-10.5000 levels towards 10.5500.

AUD/CAD/GBP - The Aussie is holding up better than its G10 peers and forming base above 0.7000/1.0500 vs the Usd and Nzd as post-RBA short covering continues, while the Loonie has lost some ground after a trade data-related boost as the focus switches to Canadian jobs data alongside NFP. However, Usd/Cad remains closer to weekly lows between 1.3045-70, and Cable is also nearer the bottom end of a 1.2550-87 range after this week’s bleak UK PMIs and further survey evidence of Brexit uncertainty weighing on the economy (BDO retail activity weak and IoD business morale worse).

Turkish Finance Minister reiterates that he sees an improvement in Turkish economic indicators, economic recovery to be more rapid in H2 2019. (Newswires)

FIXED INCOME

Fresh intraday lows for Bunds, Gilts, US Treasuries etc signal a bit more caution or desire to lighten positions ahead of NFP, but Spanish Bonos seem to be succumbing to specific/localised negative factors in wake of the BoS judgement that banks need to raise capital buffers. However, the is little to suggest the overall bull run is petering out by any means as 10 year benchmarks are still only moderately below par and not that far from all time peaks and yields are still hugging record lows.

COMMODITIES

WTI and Brent futures have lost some ground in early trade, but have recently picked back up with the former just below the USD 57.00/bbl mark whilst the latter is around the USD 63.50/bbl mark. While newsflow remains light, it’s worth keeping in mind that WTI prices did not settle yesterday amid the US Independence Day holiday, thus a divergence in prices is observed. Elsewhere, gold is tentative, as usually the case in the run-up to NFP data with the yellow metal still above the USD 1300/oz level, having traded in a wide weekly 1382-1437 range. Meanwhile, copper prices are heading for the first weekly drop in a month as the red metal is pressured by a sluggish demand outlook and an increase in supplies. Finally, Dalian iron ore futures fell over 7% after China Iron & Steel Association urged the government to maintain order amid rising iron ore prices and wants prices to return to a reasonable level, while it was also reported that China regulators are to examine the drivers for the increase in iron ore prices.

China Iron & Steel Association urged the government to maintain order amid rising iron ore prices and wants prices to return to a reasonable level, while it was also reported that China regulators are to examine the drivers for the increase in iron ore prices. (Newswires)