• Asian equity markets were negative following the losses on Wall St where the majors suffered in a continued fallout from the tempered Fed rate cut expectations
• UK Chancellor Hammond told PM May he will fund her legacy spending plans if she allows Tory MPs free votes on efforts to stop a no-deal Brexit
• UK opposition Labour Party is set to declare it will campaign for remain in a second referendum on any deal put to parliament by a Tory PM
• US is set to impose duties on fabricated structural steel imports from China and Mexico but will not impose duties on structural steel from Canada
• Looking ahead, highlights include US NFIB Business Optimism & JOLTS, EIA Short Term Energy Outlook, UK Conservative Party Leaders Debate, Fed’s Powell, Bullard, Bostic & Quarles, US 3yr Auction

ASIA-PAC

Asian equity markets were negative following the losses on Wall St where the majors suffered in a continued fallout from the tempered Fed rate cut expectations and cautiousness ahead of Fed Chair Powell's testimony. ASX 200 (-0.2%) was once again led lower by gold miners and with financials pressured after APRA announced it will require Australia's major banks to increase total capital by 3ppts of risk-weighted assets by beginning of 2024 which despite being more generous on the timeline than the initial proposal, is estimated to total an extra AUD 50bln of funds to be put aside by the banks. Nikkei 225 (Unch.) initially bucked the trend as recent favourable currency moves kept the index afloat for most the session although eventually succumbed to the pressure in late trade. Hang Seng (-0.9%) and Shanghai Comp. (-0.6%) were lacklustre amid continued PBoC liquidity inaction and after less than constructive comments from China’s Vice Foreign Minister who warned of disastrous consequences if the US treats China as an enemy, while Geely Auto underperformed in Hong Kong after June sales volume slipped 29% Y/Y which prompted the automaker to cut its FY sales volume forecast by 10%. Finally, 10yr JGBs were flat with demand subdued as Japanese stocks remained afloat for most the session and amid mixed results at the 5yr JGB auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.8853 (Prev. 6.8881) 

China’s Vice Foreign Minister Le Yucheng warned of ‘disastrous consequences’ if the US treats China as an enemy and criticized Washington over reports some Chinese-American scientists were treated unfairly in the US. (SCMP)

Hong Kong Chief Executive Lam acknowledged that the controversial Extradition Bill is ‘dead’ but once again stopped short of withdrawing the bill. (Newswires)

Japan and South Korea are reportedly planning to discuss exports as early as this week. However, there were also comments from Japanese Trade Minister Seko that Japan is not thinking of withdrawing export restrictions on South Korea, while he suggested that whether Japan takes additional export restrictions depends on South Korea's response and that restrictions could either be strengthened or eased. (Newswires)

UK/EU

UK Chancellor Hammond told PM May he will fund her legacy spending plans if she allows Tory MPs free votes on efforts to stop a no-deal Brexit. (Times)

ComRes poll suggested that UK PM candidate Boris Johnson would win 345 seats in Parliament or a 40-seat majority if a general election was held with him as PM, while Labour would receive 207 seats. (Telegraph)

Whitehall sources suggested that if Boris Johnson becomes the next PM, he cannot wait until the summit in October and must start talks with EU quickly in order to avoid a no-deal Brexit and to secure a new deal he claims to want, while the sources added that preparations for a no-deal will also need to be ramped up. (Guardian)

UK opposition Labour Party is set to declare it will campaign for remain in a second referendum on any deal put to parliament by a Tory PM after union bosses agreed to support a change of policy. However, Labour are not committed to being pro-remain in all scenarios and if the Labour party won a General Election before the UK left the EU then they should seek to deliver a Brexit deal. (The Guardian)

UK BRC Sales Like-For-Like (Jun) Y/Y -1.6% vs. Exp. -1.1% (Prev. -3.0%); BRC said 12-month average total sales rose 0.6% which was the slowest pace since record began in 1995. (Newswires)

FX

DXY was little changed near the prior day’s highs as most major currencies remained in a holding pattern due to the lack of key data releases and as participants await Fed Chair Powell’s testimony for clues on Fed policy as despite markets pricing in a 97.5% chance of a 25bps rate cut, some were not so convinced including Citi which suggested that a rate cut this month is still not a done deal. EUR/USD and GBP/USD were uneventful and consolidated around the lower end of the 1.1200 and 1.2500 handles respectively while in terms of the latest pertinent headlines, UK Chancellor Hammond has agreed to fund PM May’s legacy spending plans if she allows Tory MPs free votes on efforts to stop a no-deal Brexit, and a fresh ComRes poll also suggested that the Tories could win a 40-seat majority in an election with Boris Johnson at the helm. Elsewhere, USD/JPY was higher as it sustained the recent USD-induced gains and antipodeans were lacklustre with AUD dampened after weak Business Confidence and as AUD/NZD attempted a breakdown of the 1.0500 level.

Australian NAB Business Confidence (Jun) 2 (Prev. 7). (Newswires) Australian NAB Business Conditions (Jun) 3 (Prev. 1)

COMMODITIES

Commodities were mostly uneventful overnight in which WTI crude futures proceeded sideways following its recent failure to hold above the USD 58.00/bbl level despite the ongoing Iran-related concerns in which it exceeded agreed enrichment levels and suggested that enrichment of more than 20% was an option. Nonetheless, this failed to provide any sustained support for prices and focus for the energy complex now turns to the latest inventory reports beginning with the APIs later today. Gold also lacked excitement as the steadfast greenback contained the precious metal below the USD 1400/oz level, while copper prices weakened due to the risk averse tone, and failed to benefit from the upside China iron ore futures which surged around 6% shortly after the open on supply concerns and expectations of increased demand.

CME raised NatGas Henry Hub August 2019 maintenance margins by 10% USD 1650 from USD 1500 per contract. (Newswires)

GEOPOLITICS

US President Trump spoke to French President Macron in regards to ongoing efforts to ensure Iran does not obtain a nuclear weapon, while there were also reports that French President Macron's top diplomatic advisors will be travelling to Iran on Tuesday and Wednesday in an attempt to de-escalate US-Iran tensions. (Newswires)

US

The curve flattened, as traders continue to price out the prospects of a 50bps rate cut at the FOMC's July meeting, after the recent payrolls data placed less urgency on the central bank to fire an insurance rate cut, while the trade truce reached at the G20 last week also mitigates some of the immediate downside risks facing the US/global economy. At settlement the 2s/30s flattened the pronounced by 3.8bps, with the 2-year yield rising just under 1.5bps and the 30-year falling by just under 2.5bps. It is worth noting that markets still expect an insurance cut at the July meeting, where the implied probability of a July cut is around 97% on Monday; desks have been increasingly noting that the Fed has historically rarely disappointed when market expectations have been so aggressive. That is in spite of the economy ticking along nicely. Deutsche Bank's analysts said the strength of the NFP data calls into question whether the Fed should be cutting three times this year at all – the market is currently pricing around 67bps. It is hoped now that Fed Chair Powell will reveal some of the Fed's thinking at his dual testimonies this week (Wed/Thu). US T-note futures (U9) settled 1 tick higher at 127-16.

US is set to impose duties on fabricated structural steel imports from China and Mexico but will not impose duties on structural steel from Canada. Mexico later said that US countervailing duties on structured steel from Mexico has nothing to do with Section 232 tariffs or President Trump, while Mexico’s Deputy Foreign Minister said the preliminary subsidy determination announced by the US does not put USMCA ratification in danger and that tariffs are against private companies not the wider steel industry, but added that tariffs are a new problem and Mexico will have to be very active in supporting its steelmakers. (Newswires)

US President Trump said the US will no longer deal with the UK ambassador to the US, while he also reiterated criticism of the way UK PM May dealt with Brexit and looks forward to a new PM. (Twitter)