• European Indices are subdued [Euro Stoxx 50 -0.5%] as a profit warning from BASF weighs heavily on the Dax (-1.1%)
• China’s Vice Foreign Minister Le Yucheng warned of ‘disastrous consequences’ if the US treats China as an enemy
• 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 state this should not impact the USMCA ratification
• Looking ahead, highlights include US JOLTS, EIA Short Term Energy Outlook, UK Conservative Party Leaders Debate, Fed’s Powell, Bullard, Bostic & Quarles and ECB’s Lane, 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 (-0.1%) 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 (+0.1%) 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 (-0.8%) andShanghai Comp. (-0.2%) 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)

US

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)

China's Foreign Minister strongly opposes US arms sales to Taiwan, and call on the US to withdraw these arm sales to Taiwan. (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)

EQUITIES

Major European indices are in the red this morning, [Euro Stoxx 50 -0.7%] losses are largely led by the Dax (-1.3%) as BASF (-6.0%) and Deutsche Bank (-4.5%) weigh on the index due to a profit warning and in continuation from yesterday’s restructuring downside respectively. BASF are firmly in the red after the issuance of a profit warning where notably the Co. now expect Q2 EBIT before special items to print at EUR 1.0bln, which is 47% down on the prior readin; additionally, Co. have lowered their FY outlook and are planning approximately 6k job cuts by the end of 2021. BASF’s downside has led to the Stoxx Chemical sector (-2.1%) underperforming its peers as the Co. hold a 13.4% weighting in the index. Additionally, the likes of Lanxess (-4.0%), Evonik (-3.0%) and Covestro (-6.0%) are suffering in sympathy. Separately, Danske Bank (-4.0%) also issued a profit warning, where the Co. revised their FY19 outlook down and believe that the generally weak momentum is set to continue. At the other end of the Stoxx 600 are Ocado (+5.6%) as the Co. reported H1 revenue of GBP 874mln which is 10.5% above the prior, aiding the FTSE 100 (-0.2%) in outperforming its peers, albeit still in negative territory, with the bourse also receiving some respite from a softer Sterling this morning.

FX

AUD - The biggest, but not the only G10 loser by any means as the Usd extends its post-NFP gains across the board and the DXY breaches 97.500 to trade at fresh multi-week highs of 97.588. However, the Aussie has been hit independently by a deterioration in NAB business and ANZ consumer confidence that together overshadowed an uptick in the former’s gauge of conditions. Aud/Usd has fallen through 0.6950 and Aud/Jpy is down through the 200 HMA (75.64), while the Aud/NZD cross is breaking below 1.0500 again or testing bids/support at the psychological level even though the Kiwi is also retreating further vs its US counterpart and only just holding above 0.6600.

GBP - No deal Brexit risk and the prospect if not distinct probability of more bleak UK data on Wednesday have piled further pressure on the Pound as Cable slides to a fresh 6 month low and through the 1.2481 base posted last Friday. 1.2450 may offer Sterling some reprieve, though in truth there is little in terms of technical levels until 2019 troughs seen in early January around 1.2435-39 ahead of big option barrier defences lying at 1.2400.

CAD - The Loonie has declined through 1.3100 ahead of Canadian housing data and tomorrow’s BoC policy meeting, with little support derived from firm crude prices or the fact that Canada has been excluded from US tariffs on fabricated structural steel imposed on China and Mexico.

EUR/JPY - Also weaker vs the Dollar as the single currency dips through 1.1200 and nearer short term support around 1.1180-70, while the Yen retreats closer to 109.00 and tests a major Fib just ahead of the big figure at 108.92 (38.2% retracement of the move from 112.40 to 106.78).

EM - Broad weakness vs the Buck, but the Lira is outperforming or holding up better than regional peers in wake of its more pronounced declines on Monday due to CBRT personnel changes and investor angst over the loss of independence/credibility. Usd/Try sitting tight within a 5.7450-7230 range in contrast to Usd/Zar up above 14.2300 and Usd/Rub over 63.8800.

FIXED INCOME

Core bonds have pulled back further amidst big block trades in US Treasury futures and options centred on 10 year notes and all seemingly targeting or hedging for more downside price movement. As a result, the benchmark has probed just below last Friday’s post-NFP low, while Bunds hit 173.10 and Gilts 131.57 before finding their feet. It is still too early to call an end to the overall bull run, but buyers are clearly wary about stepping back up to the plate given the headline BLS beat and prospect that Fed chair Powell may not commit to July easing or cave to growing outside pressure to signal a concerted rate cutting cycle alongside an end to QT. Note also, it is conceivable that a building supply pipeline warrants concession even though demand for issuance appears strong, and especially via syndication. 

COMMODITIES

WTI and Brent futures have been choppy this morning, with initial weakness seen in-line with this morning profit warning driven poor stock performance. However, the complex is now in positive territory and towards the top end of the day’s range following industry sources state that Russia’s July 1st-8th oil output fell by 3%; which provided a bullish catalyst for oil on an day of relatively light newsflow for the complex thus far. Looking ahead, we have the weekly API release are expectations are for a headline draw of around 2.5mln; in addition, the EIA release their Short Term Energy Outlook which this month contains their Expanded Forecast Discussion at 17:00 BST, with the API and OPEC reports to follow later on in the week.

Gold (-0.7%) is subdued as the yellow metal failed to hold onto the USD 1400/oz mark overnight, and is now towards the session low of USD 1388/oz as the dollar continues to strengthen and extend on its post-NFP gains. Separately, Copper prices are moving towards their lowest level in around 3 weeks on the risk-averse tone and ahead of the week’s key risk events of Powell’s dual testimony.

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

Russian oil output -3% for July 1st-8th vs. June average, falling to 10.79mln BPD vs. Prev. 11.15mln BPD; Rosneft's oil output for the same period is -11%., according to industry sources

- Oil output from Russia's Rosneft has fallen due to oil production at the Yuganskneftegaz unit being 30% lower during July 1st - 8th vs. June average; additionally, Transneft are to limit oil intake from Rosneft., according to sources