• Major European indices are tentative [Euro Stoxx 50 -0.1%] as participants await the today’s key event in the form of Fed Chair testimony & FOMC Minutes
• Core bonds reverse further following strong EZ data, better than expected GDP prints and a poor Bund auction
• NHC see a 90% chance of cyclone formation in the Gulf of Mexico within 48 hours, as such production platforms have begun stopping production and evacuating workers
• Looking ahead, highlights include BoC rate decision & press conference, DoE’s FOMC Minutes, Fed’s Powell (text 1330BST, hearing 1500BST), Bullard, BoE’s Tenreyro, 10yr supply from the US

ASIA-PAC

Asian equity markets traded somewhat mixed following a similar lead from Wall St. as participants await fresh clues on Fed policyfrom the upcoming Fed Chair Powell congressional testimony and FOMC minutes release. ASX 200 (+0.4%) was led higher by outperformance in the tech sector and as financials rebounded from yesterday’s capital buffer pressure with the Big 4 also helped after S&P provided more favourable outlooks on their credit ratings, while Nikkei 225 (-0.1%) was indecisive with sentiment at the whim of a choppy currency. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (-0.4%) lacked firm direction with initial upside seen after reports USTR Lighthizer and Treasury Secretary Mnuchin conducted a phone call with China Vice Premier Liu He which was said to have gone well and was constructive. However, the mainland briefly gave back the gains following liquidity outflows and as participants digested mixed inflation data in which PPI printed flat Y/Y which was softer than expected and lacked growth for the 1st time in nearly 3 years. Finally, 10yr JGBs were lower as they tracked the downside in T-notes and amid a lack of BoJ presence in the market today.

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires) PBoC sets CNY mid-point at 6.8856 (Prev. 6.8853)

Chinese CPI (Jun) Y/Y 2.7% vs. Exp. 2.7% (Prev. 2.7%). (Newswires) Chinese PPI (Jun) 0.0% vs. Exp. 0.3% (Prev. 0.6%)

White House Economic Adviser Kudlow said call between US and China officials went well and was constructive, while the sides are now talking about conducting a face-to-face meeting. (Newswires)

US President Trump reportedly softened criticism regarding China’s stance on Hong Kong protests in order to help trade talks progress. (FT)

South Korea President Moon commented that Japan exports curbs could be prolonged, while he added that South Korea is preparing countermeasures and will assist firms to reduce reliance on Japanese suppliers. (Newswires)

US

Fed's George (Voter, Hawk) says it does not look as if inflation expectations will surge in the near term, but does not rule it out. (Newswires)

US could issue new sanctions on Iran, according to a US official being cited by Al Jazeera, US Enovy Hook says the US are looking for a Congress-ratified agreement, not just a policitical commitment from the US administration. (Newswires)

UK/EU

UK GDP Estimate MM (May) 0.30% vs. Exp. 0.30% (Prev. -0.40%). (Newswires)

- UK GDP Est 3M/3M (May) 0.30% vs. Exp. 0.10% (Prev. 0.30%)

- UK GDP Estimate YY (May) 1.50% vs. Exp. 1.30% (Prev. 1.30%)

- ONS say the return to growth in May is predominantly due to Brexit-related partial recovery in car production, up by a record +24%; IT, communications and retail showed a strength in the 3-months to May, though the trend depicts a longer-term slowdown in services

French Industrial Output MM May 2.1% vs. Exp. 0.2% (Prev. 0.4%, Rev. 0.5%). (Newswires)

European Commission Forecasts: Summer (Interim) – cut EZ inflation forecast to 1.3% for 2019 & 2020 vs. Prev. 1.4%

    - GDP:

EZ – outlook unchanged for 2019 at 1.2%, for 2020 cut to 1.4% vs. Prev. 1.5%

Germany – 2019 unchanged; 2020 cut to 1.4% vs. prev. 1.5%

UK – 2019 & 2020 unchanged at 1.3%

Italy – 2019 & 2020 unchanged at 0.1% and 0.7% respectively

France – 2019 unchanged at 1.3%, 2020 cut to 1.4% vs. Prev. 1.5%.

GEOPOLITICS

Saudi released evidence that shows Iranian backed Houthi militants in Yemen attempted an attack on a merchant ship in the Red Sea yesterday using a remote-controlled boat filled with explosives. (Newswires)

Turkish Foreign Ministry says the Turkish Yavuz ship is off of Eastern Cyprus, and is to conduct drilling and they reject statements by Greece, Cyprus & EU officials that the activities are illegitimate; prior to this, US State Department urged Turkish authorities to halt drilling operations off the Cyprus coast. (Newswires)

EQUITIES

European indices are tentative this morning [Euro Stoxx 50 U/C], taking a similar stance to their Asia-Pac counterparts in awaiting testimony from Fed’s Powell later in the session. Once again, the Dax (-0.4%) is underperforming its peers, though not to the same extent as in the prior session, as BASF (-0.7%) continues to weigh after yesterdays profit warning as does Bayer (-1.0%) after the Co. state they are continuing, and on track with exiting the animal health business. Sectors are mixed with the notable outperformers being Energy names, in-line with the broader complex following yesterdays larger then expected API draw, while the Financial sector is also benefitting from some consolidation in Deutsche Bank after the Co’s restructuring plans were unveiled over the weekend (+2.1%), with other banking names being lifted as well this morning. As such, the FTSE MIB (+0.5%) is leading the bourses this morning with gains in the index stemming from strong Italian banking names this morning. Elsewhere, European semiconductors have benefitted from Taiwan Semiconductor’s strong monthly sales with the likes of Infineon (+2.0%), and STMicroelectronics (+2.2%) benefitting.

FX

USD - The Dollar is somewhat softer vs G10 counterparts on balance as the clock ticks down to the first semi-annual testimony from Fed Chair Powell and minutes to June’s FOMC policy meeting that in theory should be relatively redundant barring any major revelations that supplement or contradict the tone of his text and Q&A. The DXY just dipped under 97.350 and close to technical support around 97.312 (55 DMA) having held below/respected daily chart resistance at 97.680 yesterday.

CHF/GBP/EUR - The major outperformers, albeit marginal, with Usd/Chf drifting back down towards 0.9900 and the Franc also outpacing the Euro within a 1.1140-20 range despite some rare Eurozone data beats via French and Italian ip that have underpinned the single currency in Usd terms, but not threatened stops said to be in place on a break of 1.1240 or the 55 DMA (1.1233). Meanwhile, the Pound has rebounded a bit more firmly from another test of early 2019 ‘flash crash’ lows against the Buck and 0.9000+ vs the Euro in the wake of a raft of UK data, as firmer than forecast 3 month rolling and y/y GDP prints appear to have overshadowed misses in other metrics. Cable is nudging back up towards 1.2500, but could be capped by some option expiry interest spanning 1.2495 and the big figure.

CAD/NZD - The Loonie has bounced from recent lows vs its US peer against the backdrop of firm oil prices, but more in anticipation that the BoC will retain a hawkish stance or bias in comparison to the Fed chair. Usd/Cad has eased back towards 1.3100 with options indicating a 75 pip break-even for the policy pronouncements that coincide with Powell’s presentation, although his text will be released at 13.30BST and for previews of both events see the Ransquawk Research Suite. Elsewhere, the Kiwi has staged an even more impressive recovery from what looks to have been a stop-driven plunge overnight through 0.6600 vs the Greenback to circa 0.6570, and the allure of mega expiries at 0.6610 may well be the catalyst as 2.4 bn rolls off at the NY cut.

AUD/JPY/NOK - All on the defensive, as the Aussie only just survived a test of 0.6900 with the aid of cross-winds from the aforementioned Kiwi nosedive and Aud/Nzd reclaiming 1.0500+ status before reversing again, while the Yen got to within 2 pips of 109.00, but is now off worst levels as offers at the big figure remained untouched and hefty expiry interest (1.7 bn at the strike) also kept the headline pair in check. The Norwegian Krona weakened in wake of softer than expected inflation data, but Eur/Nok pulled up just shy of a key chart level in the form of the 100 DMA at 9.7147.

EM - The Mxn remains under pressure following the resignation of Mexico’s Finance Minister and not far from 19.2000+ lows vs the Usd, while Usd/Try rallied to 5.7500+ peaks amidst more Turkish intransigence on its drilling activities and S-400 missile order that have rattled relations with the EU and US respectively.

Australian Westpac Consumer Confidence Index (Jul) 96.5 (Prev. 100.7); 2-year low. (Newswires)

Australian Westpac Consumer Confidence (Jul) M/M -4.1% (Prev. -0.6%)

FIXED INCOME

The great debt retracement continues, as Bunds reverse over 2 full points from contract pinnacle to 172.02 in wake of a meek 10 year German auction despite a healthy looking concession and Gilts breach sub-131.00 support on the back of better than feared UK GDP data before finding bids at 130.89. Meanwhile, French OATs have extended their post-ip losses to 100+ ticks and Italian BTPs only derived fleeting encouragement from a better than expected recovery in output. Elsewhere, US Treasuries have been dragged down further in contagion and caution ahead of Fed chair Powell, with the curve steeper in advance of the 2nd slug of supply and a rather tepid reception for 3s on Tuesday, although the 10 year offering around 2.10% may be more attractive.

COMMODITIES

WTI and Brent are firmer on the day and currently just below session highs, with WTI remaining around the USD 59.00/bbl level after the complex benefitted from the larger than expected headline API draw last night at -8.129mln vs. Exp. -3.1mln, with participants now looking to today’s EIA release for confirmation of this. An additional factor for this mornings upside is the ongoing weather situation in the Gulf of Mexico, where the NHC are currently stating that there is a 90% chance of a cyclone forming within the next 48 hours; as such multiple production platforms have begun evacuating workers and shutting production. As a reference point, the Gulf of Mexico accounts for around 15% of the US’s total production.

Gold (-0.2%) remains capped below the USD 1400/oz level and has thus-far failed to benefit from the mild dollar weakness as participants await Fed Chair Powell’s testimony and the FOMC minutes later in the session. Elsewhere, a Brazilian court has ruled that Vale must remedy all damages from January’s dam collapse, with no monetary value being set as the judge did not believe it is yet possible to quantify the compensation figure.

BHP, BP, Chevron and Shell began evacuating staff and shutting in production at offshore platforms in the Gulf of Mexico as a precaution, while NHC said that there is a 90% chance of a cyclone formation in the next 48 hours in the north-eastern Gulf of Mexico. (Newswires)