• European bourses have continued the largely lacklustre trend from the US session
• China recently appointed hawkish Zhong Shan to the negotiations team, seen as an indication that China are in no rush to wrap up US-China discussions
• US & Japan are reportedly considering a trade agreement by September; may involve auto’s and agriculture
• Data: Canadian CPI, US Building Permits & Housing Starts
• Earnings: Netflix, eBay, IBM, Abbott Laboratories, Bank of America

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 (+0.5%) 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 (-0.3%) andKOSPI (-0.9%) weakened as the soured Japan-South Korea relations and ongoing trade dispute continued to take its toll, while Hang Seng (-0.1%) 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)

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)

US

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)

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)

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)

UK Brexit Secretary Barclay says the information about his meeting with EU's Chief Brexit negotiator Barnier is misleading; UK Brexit Secretary Barclay believes that a no-deal Brexit is underpriced. (Newswires) Follows reports that last weeks Brexit negotiations were amongst the most difficult to date, and EU Officias anticipate that discussion may become increasingly hostile

ECB's Coeure (Neutral) says looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and stronger wage growth, Incoming economic data and survey information point to somewhat weaker growth in the second and third quarters of this year. Reiterates that Governing Council is determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments, as appropriate. (Newswires)

UK CPI YY Jun 2.0% vs. Exp. 2.0% (Prev. 2.0%)

- UK Core CPI YY Jun 1.8% vs. Exp. 1.8% (Prev. 1.7%)

- ONS says motor fuel prices declined in June M/M but rose Y/Y and clothing prices dropped by less than in June last year. (Newswires)

EU HICP Final YY Jun 1.3% vs. Exp. 1.2% (Prev. 1.2%)

- EU HICP-X F&E Final YY Jun 1.3% vs. Exp. 1.2% (Prev. 1.2%, Rev. 1.0%)

- EU HICP-X F,E,A&T Final YY Jun 1.1% vs. Exp. 1.1% (Prev. 1.1%, Rev. 0.8%)

EQUITIES

A muted session thus far for European equities [Eurostoxx 50 Unch] as the region has derived little inspiration from a mixed Asia-Pac handover. Sectors are mixed with clear underperformance seen in the Energy sector following yesterday’s decline in oil prices, whilst defensive sectors are kept afloat by the somewhat cautious tone. Individual movers this morning have largely been driven by earnings. Swatch (+5.0%) rose to the top if the SMI as operating profits topped estimates and amid expectations of positive overall growth in FY 19. Likewise, ASML (+4.2%) rests near the top of the Stoxx 600 as the Co. beat on revenue forecasts and expects Q4 “to be very strong”. On the flip side, Ericsson (-4.9%) shares are pressured as the Co. expects negative impacts to increase in H2 this year. Finally, Swedbank (-5.8%) declined to the foot of the pan-European index as its firm earnings were overshadowed by shortcomings in regard to its money laundering investigation. 

EU anti-trust regulators to investigate Amazon (AMZN) regarding possible anti-competitive business practices, with focus on whether the Co.'s use of merchants' data breaches EU rules. (Newswires)

Apple (AAPL) – Co. are reportedly testing AirPod production in Vietnam as they intend to diversify their manufacturing sources beyond China. (Nikkei)

FX

NZD/CAD - Nzd/Usd has rebounded relatively firmly back above 0.6700 and is retesting the 200 DMA circa 0.6718 mainly due to the Greenback losing a bit of its retail sales momentum and the DXY fading just shy of 97.500, though the Kiwi may have gleaned some belated traction from yesterday’s rebound in GDT auction prices after the in line and firmer NZ CPI data for Q2 overnight. Similarly, Usd/Cad has retreated towards 1.3050 from close to 1.3100 as the Loonie eyes Canadian inflation data for independent impetus and draws some underlying support from firm crude prices in the run up.

CHF - Somewhat surprisingly perhaps, or at least unexpectedly, Usd/Chf and Eur/Chf are both firmer and nudging big figures at 0.9900 and 1.1100 respectively without any apparent rationale for Franc underperformance. However, following recent strength it would not be out of the realms of reality to point the finger at official intervention/rate checking or front-running the SNB.

EUR/JPY/AUD/GBP - All narrowly mixed vs the Usd, as the single currency clings on to the 1.1200 handle after a more concerted attempt to fill evidently substantial bids at the round number, albeit in no small part due to contagion from another bout of Sterling weakness as Cable tumbled further below 1.2400 and Eur/Gbp touched 0.9050. Note, however, Eur/Usd appears capped ahead of decent option expiries between 1.1250-55 (1.1 bn), just like Usd/Jpy within 108.12-32 given similar size expiry interest running off at 108.00 (1.5 bn) and 108.30 (1.1 bn) at the NY cut. Elsewhere, Aud/Usd has drifted back towards 0.7000 after topping out a few pips short of 0.7050 on Tuesday amidst less positive vibes on US-China trade prospects following President Trump’s latest tweets and tariff threats plus the appointment of a so called hawk to Beijing’s negotiating team. Back to the beleaguered Pound, no real reaction to largely in line UK inflation data, with the exception of PPI input prices that were considerably weaker than forecast.

EM - The Rand is a notable regional laggard, with Usd/Zar hovering near the top of a 14.0000-13.9500 range ahead of SA retail sales data at midday and the SARB meeting on Thursday when a rate cut is widely anticipated (-25 bp), while ongoing doubts about Eskom are also weighing on sentiment.

Notable Option Expiries:

- EUR/USD: 1.1220-30 (750M), 1.1250-55 (1.1BLN), 1.1350 (1.8BLN)

- USD/JPY: 107.50-60 (710M), 108.00 (1.5BLN), 108.30 (1.1BLN), 108.50-55 (725M)

FIXED INCOME

Not quite deja-vu, but a similar pattern to yesterday approaching the halfway stage in Europe as Bunds and Gilts sit just off best levels. The 10 year Eurozone bond retains a decent bid, albeit lagging behind its UK equivalent after a tepid 2048 German auction and inflation data too close to consensus of preliminary prints to warrant more than a cursory glance. For the record, intraday highs at 172.80 and 131.08 respectively have been posted and technical resistance has capped further gains ahead of the US open. However, in contrast to Tuesday US Treasuries are also holding a firm and flatter line following underperformance at the same stage, and with Wednesday’s data unlikely to prompt the same kind of price action as retail sales, although the Beige Book will be of interest ahead of the looming FOMC.

COMMODITIES

WTI and Brent futures are nursing some of yesterday’s losses after prices slid around 3% on comments from the US which suggested a tempering of US-Iran tensions, albeit this was later rebutted by Iran. Upside for the complex has been limited by a number of supply-side factors including the narrower-than-expected drawdown in API crude stocks (-1.4mln vs. Exp. -2.7mln).  Furthermore, refineries in the Gulf are restarting operations post-storm Barry, with only 59% of production still offline (vs. 69% on Monday). Elsewhere, gold prices are gravitating closer to the key 1400/oz mark as the Dollar index gains more ground above 97.00. Meanwhile, Dalian iron ore futures have retreated from recent record highs as investors digested news about higher transaction fees in all iron ore futures contracts on the DCE alongside a rise in iron ore shipments to China from Australia.

Shell (RDSA LN) 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)