• Asian equity markets traded positively as the region took advantage of the tailwind from the US, post-Powell
• FOMC Minutes stated that many participants saw a rate cut as warranted in the "near term" if trade and other global risks continued to weigh on the outlook
• In FX, DXY remained pressured and slipped below 97.00 with EUR/USD and GBP/USD holding above 1.1200 and 1.2500 handles respectively
• Looking ahead, highlights include, ECB minutes, US CPI, weekly jobs, OPEC monthly report, Fed Chair Powell’s testimony to the Senate (text 1330BST, hearing 1500BST), Williams, Barkin, Bostic, Quarles, Kashkari, ECB’s Coeure, supply from Italy and the US

FOMC MINUTES

FOMC Minutes stated that many participants saw a rate cut as warranted in the "near term" if trade and other global risks continued to weigh on the outlook, while several policymakers also said a rate cut could be appropriate if the incoming data showed further deterioration and a couple of participants favoured cutting rates at the June meeting. (Newswires)

Furthermore, participants focused on global risks and discussed "at some length" soft business investment data from Q2, while many attached significant odds to less favourable outlooks than their base case of continued growth and strong hiring. Many also noted that growth and inflation risks had shifted "notably" in the weeks leading up to the meeting and are now "weighted to the downside".

ASIA-PAC

Asian equity markets traded positively as the region took advantage of the tailwind from the US where a dovish testimony by Fed Chair Powell kept the door open for a July rate cut, which lifted all major US indices to all-time highs and the S&P 500 to briefly above the monumental 3000 level for the first time ever. ASX 200 (+0.5%) was led higher by commodity-related sectors after gold surged back above the USD 1400/oz level and oil prices rallied around 4% on bullish inventory data, but with the gains limited by initial weakness in financials after APRA advised an increase in minimum capital requirements of AUD 500mln each for 3 of the Big 4 banks and as Westpac faces legal proceedings in New Zealand for allegedly breaching the Credit Contracts Act. Nikkei 225 (+0.5%) were marginal as the upbeat momentum was partially offset by a firmer currency, while Hang Seng (+1.1%) and Shanghai Comp. (+0.3%) advanced with energy names frontrunning the outperformance in Hong Kong and as sentiment was also underpinned after China announced to take measures to stabilize trade as well as lower import tariff levels. Finally, 10yr JGBs were higher as they tracked the moves in T-notes in the aftermath of Powell’s dovish testimony, but with upside limited amid gains in stocks and weaker demand at the enhanced liquidity auction for longer-dated JGBs.

PBoC skipped open market operations for a net daily drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 6.8677 (Prev. 6.8856)

US Treasury Secretary Mnuchin reportedly urged US companies to seek exemptions from Huawei blacklisting. (WSJ)

China's Vice Foreign Minister said problems faced by US is not China's fault and that Chinese people were finding it more challenging to engage in exchanges with US counterparts. (Newswires)

South Korea is said to have made a new proposal to Japan regarding labor compensation issue, while it was also reported that Japan and South Korea are to hold trade discussions on July 12th. (Newswires)

UK/EU

BoE's Tenreyro said a small amount of policy tightening will likely be needed in the event of a smooth Brexit and that if a Brexit deal is reached, a stronger GBP would ease inflation pressure especially given the prospects of looser policy abroad. Tenreyro added she does not see inflation pressures picking up in the next few months but noted that core inflation metrics still stable and that there are few signs of weakness in inflation expectations, while the labour market remains tight. (Newswires)

Britain has failed to make meaningful progress towards a free trade deal with the United States amid poor communication and staff shortages in Whitehall, according to leaked documents. (Telegraph)

UK RICS House Price Balance (Jun) -1 vs. Exp. -12.0 (Prev. -10.0, Rev. -9). (Newswires)

US officials are reportedly studying French plans to tax tech companies which might set the stage for potential retaliatory tariffs and USTR has been given up to a year to ascertain if tax plan affects US companies. (Newswires)

Germany's transatlantic coordinator Peter Beyer said Europe should brace for US tariffs on several fronts in the months ahead, adds Trump administration seems poised to impose tariffs on aircraft subsidies, European auto imports and the Nordstream 2 gas pipeline. (Newswires) 

FX

DXY remained pressured and slipped below the 97.00 level following Fed Chair Powell’s dovish testimony. As such, price action in its major counterparts have all been driven by the softer greenback with EUR/USD and GBP/USD holding above the 1.1200 and 1.2500 handles respectively, while USD/JPY retreated below 108.00 which pressured JPY-crosses in sympathy. Antipodeans also continued to edge marginal gains due to their high-beta characteristics and as a lack of key data releases meant there was little to shift the status quo of broad USD weakness.

COMMODITIES

Commodities were mostly higher overnight as the positive risk tone and weaker greenback underpinned WTI crude futures above USD 60.00/bbl to extend on the prior day’s 4% rally, which was spurred by a much larger than expected drawdown in EIA crude inventory report and amid evacuations in the Gulf of Mexico where at least 32% of production was halted due to a looming cyclone. Geopolitical tensions surrounding Iran remain another bullish factor on prices as there were reports that Iran Revolutionary Guards attempted to seize a British oil tanker in the Strait of Hormuz but then backed off after a warning from a Royal Navy warship, which Iran denied. Elsewhere, goldcontinued to benefit in the aftermath of Powell’s dovish testimony which had jolted the precious metal back above the USD 1400/oz level, while copper was steady overnight as it took a breather after the prior day’s rally was halted by resistance at USD 2.70/lb.

US Gulf of Mexico crude oil production was reportedly cut by 32% (a 603k BPD cut) with 15 platforms and 4 rigs evacuated and three rigs moved ahead of the storm, according to the US government. NHC said heavy rains and flooding is already occurring over portions of southeast Louisiana and repeated that a tropical cyclone is expected to form on Thursday over Gulf of Mexico. (Newswires)

GEOPOLITICS

US Defense Official said Iranian Revolutionary Guards attempted to seize a British oil tanker in the Persian Gulf but was unsuccessful. According to reports, 5 boats thought to be Iranian approached the British oil tanker and asked it to stop in nearby Iranian waters but then backed off after a warning from a British warship, although Iran’s Revolutionary Guard later denied it attempted to stop the British oil tanker. (Newswires)

United States Forces Korea said North Korea's Hwasong-15 ICBM is capable of hitting anywhere in the US mainland in its first official assessment of the long-range missile. (Twitter/Yonhap)

US

The curve bull-steepened after Fed Chair Powell’s testimony to lawmakers left the door open for a rate cut at the July policy meeting. In wake of Powell’s testimony, money markets now price around 68bps of easing through the year end (it was around 51bps pre-Powell’s testimony). Crucially, the prospects of a double rate cut are being priced back in, after the markets priced them out in wake of the solid NFP report last week; markets now see an approximately 25% of a double cut – that had fallen to around 2.5% after the payrolls data. After the testimony, the US sold 10-year notes at 2.057%, a poor auction which tailed by 0.7bps, and on cover beneath recent averages. Dealers had the highest takedown since October 2018. At settlement, major curve spreads were wider, with the most notable steepening seen in 2s30s, which was greater than +11bps on the session. US T-note futures (U9) settled 4+ ticks higher at 127-14.

Fed's Bullard (Voter, Dove) said at the moment he would support a 25bps rate cut but 50bps is too much and that he has pencilled in another rate cut before year end but is dependent on the economy. (Newswires)