• European Indices opened in positive territory this morning though have recently drifted into negative territory [Euro Stoxx 50 U/C]
• In FX, the USD is somewhat softer as pricing for a 50bp FOMC move has continued to rise
• ECB’s Coeure says the protracted period of low inflation has caused concerns among financial market participants that current subdued underlying price pressures will persist in the medium term
• Looking ahead, highlights include US CPI, weekly jobs, OPEC monthly report (12:10 BST), Fed Chair Powell’s testimony to the Senate (text 1330BST, hearing 1500BST), Williams, Barkin, Bostic, Quarles, Kashkari, ECB’s Coeure, supply from the US

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 (+0.4%) 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 (+0.8%) and Shanghai Comp. (U/C) 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)

US

US is reportedly considering easing sanctions in exchange for North Korea freezing nuclear activities. (Newswires)

UK/EU

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)

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)

ECB’s Coeure says the protracted period of low inflation has caused concerns among financial market participants that current subdued underlying price pressures will persist in the medium term. The Governing Council is taking these concerns seriously. (Newswires)

- says pessimism priced into the bond market today may not necessarily presage downward pressure on inflation tomorrow, or at least not to the same extent

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)

Iran's Revolutionary Guard Deputy Commander says the enemy will regret detaining an Iranian oil tanker, reciprocal action for detaining the tanker is to be announced. (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)

EU are to suspend discussions on the Air Transport Agreement and postpone high-level talks with Turkey regarding 'illegal' drilling off Cyprus, according to a draft statement; if drilling continues further restrictive measuers will be considered. (Newswires)

EQUITIES

Major European indices opened in positive territory though have drifted into negative territory recently [Euro Stoxx 50 U/C]. Sectors are somewhat mixed and unsurprisingly Energy names outperform as the broader complex gains support from the ongoing weather situation in the Gulf of Mexico, which has led to multiple platform shutdowns. Other notable movers include, Indivior (+26.0%) who are topping the Stoxx 600 after raising their FY19 guidance after experiencing a stronger than expected H1. Separately, Deutsche Banks (-0.7%) woes are continuing as reports indicate that the US Justice Department is investigating the Co. in relation to the 1MDB funds. Elsewhere, sources indicate that Ab InBev (-0.8%) are to guide pricing for their Hong Kong Budweiser unit towards the bottom end of its indicative range; which implies a price of USD 8.3bln vs. the USD 9.8bln at the top of the scale. Finally, off of the back of a broker downgrade at UBS, Sika (-4.0%) are lagging the SMI; for reference, the Co. was downgraded to sell from neutral.

FX

USD - Dovish FOMC minutes have prompted another recalibration of market pricing for the July meeting and a further resurgence in expectations for a 50 bp rate cut to over 25% from as little as 2.5% at one stage post-NFP. Hence, the Greenback has pulled back further ahead of US CPI data that has assumed even more importance given Fed chair Powell’s growing concern about persistently weak inflation, in contrast to transitory factors that were deemed to be depressing prices not that long ago. Amidst widespread declines, the DXY has retreated below 97.000 towards 96.800 and not far from the 200 DMA (96.767) that was reclaimed on the back of last Friday’s stellar 200k+ payrolls count.

JPY/NZD/CHF/GBP - The major beneficiaries of the Buck’s demise as the Yen rebounds through 108.00 and gets close to decent option expiry interest layered from 107.80 (1.2 bn) to 107.70-65 (1 bn) before losing some momentum, while the Kiwi is consolidating strong recovery gains above 0.6650 after yesterday’s overnight stop or error trade induced spill and now eyeing NZ manufacturing PMI for independent inspiration. Elsewhere, the Franc is not far from 0.9850 and the Pound has reclaimed 1.2500+ status with more conviction, though could be hampered by 500 mn expiries at the strike.

AUD/CAD/EUR - The Aussie has also bounced firmly from lows and a probe under key Fib support with the aid of diverging RBA/Fed policy outlooks, as the former shifts to neutral or wait-and-see mode following back-to-back 25 bp eases. Aud/Usd is hovering around 0.6975 and seeking further guidance/direction from RBA’s Debelle later today. Similar story for the Loonie following Wednesday’s BoC meeting that revealed more caution and downside risks to base-line assessments and forecasts, but ultimately maintained an on hold stance, with Usd/Cad settling lower after knee-jerk moves and currently pivoting 1.3050. Continuing the Central Bank theme, ECB minutes could undermine the single currency if dovish enough, as Eur/Usd stalls ahead of 1.1300 having breached 1.1250 and the 200 DMA (1.1255), while decent option expiries lying between 1.1290-1.1300 (1.3 bn) may also prove tough to overcome.

SEK/TRY - The Swedish Krona has crossed a key chart level in the form of the 100 DMA at 10.5920 vs the Euro in wake of mixed inflation data, as the core CPIF measure that strips out energy prices accelerated and is seen keeping the Riksbank on track to raise the repo around the turn of the year. Conversely, the Turkish Lira is bucking broad trends and underperforming yet again amidst a ramp up in EU angst over Turkey’s ongoing drilling off the coast of Cyprus, and in particular the threat of more restrictive measures. Usd/Try up around 5.6670 within 5.6900-6590 parameters and compared to Usd/Zar sub-13.9300.

Option Expiries of note:

- EUR/USD: 1.1225-35 (1.1BLN), 1.1250-60 (870M), 1.1290-1.1300 (1.3BLN)

- GBP/USD: 1.2500 (500M)

- USD/CAD: 1.3050 (385M), 1.3075-80 (600M), 1.3100 (1BLN), 1.3200 (1.2BLN)

- USD/JPY: 107.65-70 (1BLN), 107.80 (1.2BLN), 108.00 (663M), 108.25-40 (1BLN). 108.50 (1.4BLN), 109.00-20 (3BLN)

- EUR/JPY: 122.25-30 (752M), 122.75 (1.1BLN)

FIXED INCOME

Gilts are now lagging core counterparts and probing fresh Liffe intraday lows at 130.90, with no obvious catalyst for the reversal from new session highs forged earlier (131.39), although Bunds are also sagging having breached chart support around 172.43 a while ago and then attempting to regroup. The latter now testing/breaking another downside technical level around 172.29 at 172.17, with US Treasuries down in sympathy and the curve steepening ahead of CPI and long bond supply. Perhaps BTP outperformance is weighing on the 10 year German benchmark, while comments from ECB’s Coeure do not look that influential at face value in the run up to minutes, so this looks more like a recoil from Powell part one in case he tweaks dovish overtones during take 2.

COMMODITIES

WTI and Brent have remained modestly firmer in what has been a quiet session thus far. The complex continues to derive support from the weather situation in the Gulf of Mexico where most recently the NHC are expecting the disturbance to become a tropical depression today; in terms of the impact, yesterday it was reported that 32% of the Gulf’s production has been halted, with the Gulf representing around 15% of the US’ total production. Additionally, the OPEC monthly report is scheduled for release today (12:10 BST) and for reference on Tuesday the EIA cut 2019 oil demand growth view to 1.07mln BPD, -150k BPD.

Gold (+0.3%) is continuing to benefit from the softer post-Powell dollar, with the yellow metal now firmly above the USD 1400/oz level having printed a session high of USD 1427/oz. This mornings dollar drive strength from gold is likely being derived from market pricing now indicating around a 25% chance of a 50bp cut at July’s FOMC meeting, as such today’s inflation metrics and the second set of comments from Chair Powell may well prove pertinent for the yellow metal. Elsewhere, copper prices are little changed after yesterdays dollar driven rally.

NHC say the disturbance is expected to become a tropical depression later on today; storm surge, heavy rains and hurricane conditions are possible across the North/Central Gulf Coast in a few days. (Newswires)