• Asian equity markets traded mostly lower as the region followed suit from the lacklustre performance on Wall St
• US President Trump suggested there is a long way to go regarding trade with China and that the US can put tariffs on another USD 325bln of goods if it wants
• US Secretary of State Pompeo stated that Iran has said it is prepared to negotiate about its missile program; Iran later refuted this
• UK PM candidate Boris Johnson is reportedly looking to hold early general elections which allies claim is to hit the Labour Party which is in no fit condition for an election
• Data: UK, EZ & Canadian CPI, US Building Permits & Housing Starts, supply from Germany, ECB’s Coeure
• Earnings: Netflix, eBay, IBM, Abbott Laboratories, Bank of America, ASML, Ericsson

ASIA-PAC

Asian equity markets traded mostly lower as the region followed suit from the lacklustre performance on Wall St where all major indices pulled back from record levels as participants digested the first bout of blue-chip earnings and with risk sentiment also pressured after comments from US President Trump added to the doubts for a near-term breakthrough with China. This weighed on the regional indices from the open although the ASX 200 (+0.4%) quickly bucked the trend with upside in defensive sectors and miners leading the turnaround including BHP which gained after it topped production estimates despite output declining Y/Y, although the energy sector underperformed after crude prices slipped around 3%. Nikkei 225 (-0.4%) and KOSPI (-1.0%) weakened as the soured Japan-South Korea relations and ongoing trade dispute continued to take its toll, while Hang Seng (-0.4%) and Shanghai Comp. (-0.2%) conformed to the glum after US President Trump suggested there is a long way to go regarding trade with China and that the US can put tariffs on another USD 325bln of goods if it wants. Furthermore, China made a hawkish addition to its trade team indicating that it is in no hurry to wrap up trade discussions, although pressure in the mainland was limited after the PBoC conducted a consecutive substantial liquidity injection. Finally, 10yr JGBs were subdued as prices initially ignored the upside in T-notes and weakness in stocks ahead of a 20yr JGB auction, which proved to be mixed but still showed a higher b/c to provide marginal support in late trade.

PBoC injected CNY 100bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.8827 (Prev. 6.8710)

US President Trump said we have a long way to go with China on trade and that the US can put tariffs on another USD 325bln of goods if we want to. (Newswires)

China recently appointed Zhong Shan to the trade negotiations team who is seen as very hawkish, which reports suggested is an indication China is in no hurry to wrap up trade discussions and may wait for the outcome of the 2020 elections. (SCMP)

South Korea rejected Japan's arbitration process offer, while South Korean Finance Minister Hong urged Japan to withdraw export curbs and said they will unveil plans soon to reduce dependence on Japan's industries. In related news, Japan government spokesperson said Japan strongly urges South Korea to take appropriate steps over wartime labour issue and that it will firmly respond in which the country is eyeing various options. (Newswires)

US and Japan are said to consider a possible small trade agreement by September which could involve agriculture and autos. (Newswires)

UK/EU

UK PM candidate Boris Johnson is reportedly looking to hold early general elections which allies claim is to hit the Labour Party which is in no fit condition for an election. (Times)

European Parliament voted in favour of Von Der Leyen as EU Commission President (384 votes for vs. 374 votes needed), while Von Der Leyen later stated she will work constructively with any British PM regarding Brexit negotiations. (Newswires)

FX

DXY slightly eased off the prior day’s highs but still held on to most of the recent gains after having reclaimed 97.00 and with the advance also fuelled by better than expected Retail Sales. As such, the greenback’s major counterparts only managed to nurse partial losses with EUR/USD and GBP/USD dispirited after having slipped to test 1.1200 and 1.2400 respectively, with the latter also at its weakest since early-2017 amid increasing concerns of a no-deal Brexit. USD/JPYis rangebound with price action contained in between large option expiries for today’s New York cut at 108.00 (USD 1.5bln) and 108.30 (USD 1.3bln), while antipodeans were also hampered due to their high-beta characteristics and amid declines in the commodities complex.

COMMODITIES

Commodities were mostly lacklustre overnight in which WTI crude futures was stuck at the prior day’s lows below USD 58.00/bbl after prices slipped around 3% during US trade on comments from the US which suggested a wind-down of US-Iran tensions and that Iran is prepared to negotiate regarding its missile program. This was later refuted by the Iranian side, although the energy complex still failed to recoup the losses as efforts to normalize output in the Gulf of Mexico and a narrower than expected draw in headline API crude stockpiles kept prices restrained. Elsewhere, gold prices were also kept in check and briefly eyed USD 1400/oz to the downside as the greenback held near the prior day’s best levels, while attempts to nurse losses in copper were suppressed by the downbeat risk sentiment and as Chinese iron ore prices pulled back from record levels.

API Weekly Energy Inventories (15 July): -1.4mln (exp. -2.7mln, prev. -8.129mln).(Newswires)

US Gulf of Mexico Crude oil production cut by 58% (Prev. 69%) due to Tropical Storm Barry. In related news, Shell said it is continuing work to return to pre-storm output levels of oil and gas in Gulf of Mexico. (Newswires)

Australia Port Hedland iron ore exports to China were at 42.0mln tons in June vs. Prev. 37.8mln tons in May. (Newswires)

GEOPOLITICS

US President Trump said a lot of progress has been made with Iran and that the US wants to help and work with Iran, while he added that the US is not looking for a regime change. There were also separate comments from US Secretary of State Pompeo that Iran has said it is prepared to negotiate about its missile program, although the head of Iran’s Media Office later refuted claims that Iran is willing to negotiate on its defensive missile program at some point in which he stated that Iran’s missiles are absolutely and under no condition negotiable with anyone or any country. (Newswires/Twitter)

US President Trump said US has made tremendous progress with North Korea and that timing is not of the essence. (Newswires)

US State Department spokesperson said US President Trump is studying all options regarding Turkey sanctions. (Newswires)

US

The curve bear flattened; yields higher across the curve (2s +3.1bps, 5s +3.5bps, 10s +3.4bps, 30s +3bps) despite dovish rhetoric from Fed officials and geopolitical tensions bubbling away. The complex took its cue from June's retail sales data, which beat expectations. However, the data will likely only have a limited impact on the Fed's policy, where it is expected to cut rates by at least 25bps at its July policy meeting. Pricing for a 50bps rate cut fell slightly in wake of the data, however. And the Fed commentary did little to add to '50bps cut' pricing. The markets have priced 31bps of cuts for the July meeting (implying a 25bps rate cut, with a 24% chance of a 50bps rate cut), and around 66bps of easing is priced through the end of the year (at the end of last week, it was about 70bps). At settlement, major curve spreads were slightly narrower. US T-note futures (U9) settled 8 ticks lower at 126-29+.

Fed Discount Rate minutes stated nearly all regions supported keeping the discount rate steady aside from St Louis Fed President Bullard who wanted a decrease in the discount rate. (Newswires)

Fed Chair Powell (Neutral) reiterated Fed will act as appropriate to sustain US economic expansion and that uncertainties around solid baseline outlook has increased, while he added overall US growth appears to have moderated in Q2 and that consumer spending growth has bounced back but business investment has slowed. Powell added that the manufacturing sector has been weak since start of 2019 and despite low unemployment and solid growth, inflation pressures remain muted. (Newswires)

Fed's Evans (Voter, Dove) said a little more accommodation may be needed to get inflation back to target and that even if a US-China trade deal is reached, he would still call for cuts unless he saw signs that it would bring up inflation. Furthermore, Evans believes 50bps of easing is required to lift inflation and said it is a question of strategy regarding a either a 25bps or 50bps rate cut in July as a larger cut might achieve inflation goals more quickly. (Newswires)

Fed's Daly (Non, Voter, Dove) said she is not leaning one way or the other regarding July interest rate decision and that it is too early to tell if additional stimulus is required to reach above trend growth. Daly also commented that real side data has been a little stronger than expected and that there are no clouds looming on consumer spending or healthy labour market. (Newswires)

Fed’s Kaplan (Non-Voter, Dove) said a rate cut could be warranted based on bond market signals although cuts could be limited or restrained, while Kaplan added it is possible there is more slack in the labour market and that he sees inflation being muted this year. (WSJ)

US House Speaker Pelosi said she will speak to Treasury Secretary Mnuchin on Wednesday regarding debt-ceiling and that an announcement on the debt-ceiling will occur soon. (Newswires)