• European indices [Euro Stoxx 50 +0.2%] are little changed from their opening levels, with Stoxx price action initially dictated by Daimler’s profit warning
• Dollar is still somewhat softer to the benefit of G10 counterparts and bonds continue to slump
• US decided not to impose sanctions on Iran Foreign Minister Zarif for now, according to sources.
• US President Trump has declared a state of emergency in Louisiana and the NHC believe Barry may become a hurricane tonight/Saturday morning
• Looking ahead, highlights include, US PPI, Baker Hughes Rig Count, Norges Bank’s Nicolaisen, Fed’s Evans

ASIA-PAC

Asian equity markets were somewhat cautious as the region awaited the latest Chinese trade data and following a mixed performance on Wall St. where markets were tentative amid a plethora of Fed speakers, although the DJIA outperformed and rose above the previously uncharted 27K level. ASX 200 (-0.3%) was dragged lower by most mining-related sectors but with downside stemmed by resilience in the largest-weighted financials industry and strength in energy after news Santos is considering a takeover of rival Oil Search, while Nikkei 225 (+0.2%) mirrored an indecisive currency with index giant Fast Retailing the outperformer after it posted 9-month profit growth. Hang Seng (+0.2%) and Shanghai Comp. (+0.4%) were choppy ahead of the Chinese trade figures and after PBoC inaction resulted to a net weekly drain of CNY 220bln, although Chinese press reports continued to suggest potential for lower rates in China and more room for easing. Finally, 10yr JGBs followed suit to the weakness of their counterparts in US where the curve bear steepened in the aftermath of firmer than expected CPI data, while the tentative risk tone and BoJ presence for JPY 940bln of JGBs also failed to provide support for prices.

PBoC skipped open market operations for a net weekly drain of CNY 220bln vs. Prev. drain CNY 340bln last week. (Newswires) PBoC set CNY mid-point at 6.8662 (Prev. 6.8677)

PBoC Offical says they will further reduce real interest rates for small firms, and China will take macro-prudential measures when necessary to keep the Yuan basically stable. (Newswires)

Singapore GDP (Q2) Q/Q -3.4% vs. Exp. 0.1% (Prev. 3.8%) Singapore GDP (Q2) Y/Y 0.1% vs. Exp. 1.1% (Prev. 1.2%)

Chinese Trade Balance USD* Jun 50.98B vs. Exp. 44.65B (Prev. 41.66B)

- Chinese Imports YY* Jun -7.3% vs. Exp. -4.5% (Prev. -8.5%)

- Chinese Exports YY* Jun -1.3% vs. Exp. -2.0% (Prev. 1.1%)

US

Fed's Brainard (Voter, Dove) said downside risks and soft inflation argue for easing monetary policy, while she added that judgement on appropriate path of rates will depend on evolution of data and risks. Furthermore, Brainard said the economy is expanding solidly and financials markets are supportive of growth, but also noted capital spending is lacklustre and business sentiment is soft. (Newswires)

Fed's Kashkari (Non-Voter, Dove) reiterated that he supports a rate cut to re-anchor inflation expectations, while he suggested that a 25bps cut would not be enough of a shock and that 50bps cut is needed. (Newswires)

US President Trump said he is dropping efforts to include the citizenship question on the consensus but is not backing down on citizenship data efforts and said it is essential to have a clear breakdown of the number of citizens as well as non-citizens, while he is issuing an executive order to access citizenship records. (Newswires)

US House Speaker Pelosi said she sees the need to act on debt ceiling and budget caps before the August break. (Newswires)

Chinese Foreign Minister Yi urges the US 'not to play with fire' on the question of Taiwan. (Newswires)

UK/EU

BoE's Vlieghe says he sees the Bank Rate lowered to close to 0% in the event of a no-deal Brexit and it is highly uncertain when it would rise again

- Bank rate (in the event that a Brexit deal is completed) could reach 1% in 1 year, 1.25% in 2 years and 1.75% in 3 years

- would not need much of a hit on demand to justify cutting rates to zero, and it is more likely than not that rates would reach the lower bound following a no-deal Brexit; it is possible that the Bank may meed to increase rates, if inflation expectations become un-anchored by a no-deal Brexit

Initial interviews for the next Bank of England governor have been carried out, leaving the appointment process in limbo until a new chancellor is named. (Times)

Italian Economy Minister Tria says that Italy are ready to work with France and Spain to change European fiscal rules. (Newswires)

EU Industrial Production MM May 0.9% vs. Exp. 0.2% (Prev. -0.5%, Rev. -0.4%)

- EU Industrial Production YY May -0.5% vs. Exp. -1.6% (Prev. -0.4%)

GEOPOLITICS

US decided not to impose sanctions on Iran Foreign Minister Zarif for now, according to sources. (Newswires)

US Secretary of State Pompeo said the US condemns Iran's attempt to harass the UK vessel near Strait of Hormuz, while it commends the Royal Navy for ensuring freedom of navigation and will continue working with allies to ensure Iran does not disrupt maritime security and global commerce. (Twitter)

Turkish Defense Ministry says that the first parts for the S-400 will be delivered to Ankara today. (Newswires)

Grace 1's cargo has been confirmed as 2.1mln barrels of light crude oil., according to Gibraltar's Chief Minister; subsequently, Iran Cleric Sedighi says that Britain will be 'slapped in the face' for 'daring' to capture an Iranian oil tanker (Newswires)

EQUITIES

Major European Indices are little changed, and haven’t substantially deviated from their mildly positive opening levels [Euro Stoxx 50 +0.1%]. The Dax (U/C) was waylaid in pre-market trade where the future was initially higher by around 0.4%, however, following Daimler (-1.3) stating that their Q2 EBIT is to be significantly below expectations, at EUR -1.6bln vs. Prev. EUR +2.6bln, futures then indicated a lower open for the bourse. The profit warning from Daimler did impact the opening calls and initial cash levels for its major counterparts though the likes of Volkswagen (1.0%) and BMW (U/C) have largely recovered. Other notable movers this morning include, Ab InBev (-2.0%) who are subdued following a sources report that Budweiser’s Hong Kong unit will not price its IPO before Friday; follows on from reports earlier in the week that the pricing is to be at the lower end of the indicative range. A beat on EBIT Exp. has pushed EMS-Chemie (+6.0%) to the top of the Stoxx 600, with Swatch (+3.6%) just below this after being upgraded to buy at Goldman Sachs. Finally, and perhaps this mornings largest mover is Thomas Cook (-44.0%) after the Co. announced they are seeking a GBP 750mln injection from the Fosun Group, which would give the group a controlling stake in the tour operator and a minority interest within the airline its self; with the majority of the Co’s GBP 1.4bln in debt to be written off and converted into shares diluting the value for existing shareholders, hence the overwhelmingly negative reaction to this news.

FX

AUD/NZD/CAD/CHF - The non-US Dollars continue to prosper at the expense of their major counterpart, with the Aussie back on the 0.7000 handle, albeit just, Kiwi inching closer towards 0.6700 and Loonie not far from 1.3000 where big barriers reside having breached last week’s pre-NFP and prior 2019 peak of 1.3038. Usd/Cad continues to decline on Fed/BoC policy divergence as the former seems almost certain to deliver an insurance cut at the end of the month, while the latter is sticking to a neutral stance. Similarly, Aud/Usd is realigning after the RBA’s consecutive 25 bp OCR reduction and shift to wait-and-see mode, while Nzd/Usd appears to be biding time ahead of next week’s Q2 NZ inflation data that will be a key driver for the RBNZ. Elsewhere, the Franc is also gaining further ground vs the Buck after surpassing 0.9900, but also outperforming against the Euro with the cross eyeing 1.1100 following a break below 1.1150.

GBP/JPY/EUR/SEK/NOK - All moderately firmer, as Cable holds above 1.2500 and the Yen pivots 108.50 in close proximity to decent expiry options (1.2 bn between 108.50-40). However, the Pound has drifted back down from recovery highs closer to 1.2600 amidst dovish comments from BoE’s Vlieghe in the event of a no deal Brexit when he believes rates could be set near zero, while Usd/Jpy remains reluctant to venture too far under 108.00. By the same token, the single currency is still confined below 1.1300 amidst an array of expiries spanning 1.1250 (1 bn), 1.1270-75 (1.1 bn) and the big figure (1.1 bn), with no real boost from better than expected Eurozone ip data even though EGB yields have rebounded further in response. Hence, Eur/Sek has now slipped through 10.5500 and Eur/Nok is straddling 9.6100, though the Swedish Krona has been underpinned to an extent by Riksbank minutes retaining guidance for a repo hike around the turn of the year and its Norwegian neighbour is underpinned by firm oil prices.

EM - Although the Greenback is off lows and the DXY is probing 97.000+ levels again, the latest leg up in Usd/Try is mainly due to heightened US/EU-Turkey angst and anticipation that tougher sanctions are on the way. Note also, the Lira’s lurch towards 5.7150 at one stage also came amidst reports that the first batch of S-400 missile system components have arrived from Russia.

Option Expiries of Note:

- EUR/USD: 1.1200-10 (2BLN), 1.1215-20 (500M), 1.1250 (1BLN), 1.1270-75 (1.1BLN), 1.1300 (1.1BLN), 1.1325 (340M), 1.1350 (300M)

- GBP/USD: 1.2580 (600M)

- USD/CAD: 1.3000 (460M), 1.3050 (1BLN), 1.3100 (2.1BLN)

- USD/JPY: 107.50 (1.3BLN) , 107.70 (500M), 108.00 (566M), 108.20-25 (500M), 108.40-50 (1.2BLN), 109.00 (1.4BLN)

Riksbank Minutes:

- The board members supported the picture of the economic outlook and inflation prospects described in the draft Monetary Policy Report.

- Floden says he does not believe than the Krona depreciation helps the Bank to stabilize inflation around its long term target

- Jansson says the problems and risks relating to inflationary pressures in Sweden and developments abroad mean than may fear that the probability currently embedded in out repo-rate path of a rate increase as early as October

- It was noted that participants on the financial markets seem to be expecting significantly worse economic development in the period ahead and hence further monetary policy stimuli.

FIXED INCOME

Although the omens were good via French and Italian outturns, the pan Eurozone ip data beat seemed to spark the latest shank down in bonds, as Bunds slumped to a new 171.25 Eurex low having marginally extended recovery gains to 6 ticks on the day at 171.88 in advance, with the heavy selling spreading across the bloc and beyond. Indeed, Gilts have been dragged down from 130.54 (+18 ticks) towards the early Liffe trough (130.14) and the US Treasury complex is softer/curve steeper ahead of US PPI and another Fed speaker to close out a busy week, highlighted by Powell’s semi-annual testimony that removed residual doubt about a July FOMC ease, albeit with the size still up for some debate.

COMMODITIES

WTI and Brent are in positive territory and adding to the weeks gains of around USD 4.0/bbl on the back of significant drawdowns in weekly crude data, ongoing geopolitical tensions including the seizure of Iran’s Grace 1 which is carrying 2.1mln/bbl of light crude and the Gulf of Mexico storm. On the latter, the NHC have most recently stated that Storm Barry may become a hurricane by Friday night or early Saturday, in terms of production, reports are indicating that around 53% of the Gulf’s production is shut; the concern/focus may switch more towards refineries as the storm approaches land with Louisiana representing 20% of the US’ refinery capacity. This morning saw the release of the final monthly oil market report, where the IEA maintained their 2019 global oil demand growth estimate at 1.2mln BPD; for reference, earlier in the week OPEC also maintained their forecast at 1.14mln BPD while EIA cut theirs to 1.07mln BPD.

Gold (+0.1%) Is modestly firmer this morning benefiting from the dollars ongoing weakness. However, the metal has drifted back towards the USD 1400/oz mark and if this mornings relatively rangebound trade continues is set to finish the week within a few dollars an ounce of where it started; and indeed in a similar area to the last two weeks closing figures. Elsewhere, copper prices have continued to trade sideways post the key Chinese data, which had little impact on the metal.

IEA Monthly Report: 2019 global oil demand growth estimate 1.2mln bpd (maintained) and sees 2020 at 1.4mln bpd

- Balances show the potential for oversupply next year, with a 2.1mln bpd expansion of non-OPEC supply, led by the US, versus 2mln bpd in 2019

- That will lower the requirement for OPEC crude, with the call on OPEC plunging to 28mln bpd in Q1 2020. OPEC has not produced at such a low level since Q3 2003

- Global demand growth is set to accelerate from an exceptionally weak 310k bpd in Q1 2019 and 800k bpd in Q219 to reach 1.8mln bpd in the second half of the year as economic activity improves and petrochemical plants ramp up

- Iranain oil exports fell by 450k bpd in June to 530k bpd

NHC stated that a hurricane warning was issued for parts of the Louisiana coastline and that Tropical Storm Barry could become a hurricane by Friday night/Saturday when the center of the storm is close to the Louisiana coast (Newswires)

Norway Prelim June oil production at 1.067mln bpd, according to the oil directorate. (Newswires)