• Asian equity markets traded negatively as the risk-averse tone rolled over from Wall St where all major indices declined for a 2nd consecutive day
• US-China trade talks reportedly stalled as the Trump administration determines how to address Beijing’s demands of easing restrictions on Huawei
• BoK cut the 7-Day Repo Rate by 25bps to 1.50% vs. Exp. unchanged
• UK House of Lords backed an attempt to prevent the next Prime Minister from shutting down Parliament in order to force a no-deal Brexit
• Looking ahead, highlights include UK Retail Sales, SARB & BoK Rate Decisions, Fed’s Williams & Bostic, supply from Spain and France
• Earnings: Microsoft, Union Pacific, Morgan Stanley, Phillip Morris, SAP, Novartis, Danske Bank

ASIA-PAC

Asian equity markets traded negatively as the risk-averse tone rolled over from Wall St where all major indices declined for a 2nd consecutive day amid mixed earnings, in which the S&P 500 gave back the 3k level and with futures pressured after-market following disappointing Netflix results which missed on revenue, as well as global subscriber growth and posted its first ever decline in net US subscribers. ASX 200 (-0.4%) and Nikkei 225 (-1.9%) were lower in which the energy sector led the declines in Australia after further pressure in oil prices and reduced quarterly revenue from Santos and Woodside Petroleum, while the Japanese benchmark underperformed from a double whammy of a stronger currency and wider than expected decline in Exports. Hang Seng (-0.5%) and Shanghai Comp. (-0.7%) were dragged lower by weakness in the blue-chip oil names and amid ongoing trade uncertainty with US-China talks said to have stalled as the Trump administration determines how to respond to Beijing’s demands of easing restrictions on Huawei. Finally, 10yr JGBs were higher as they tracked the upside in T-notes with prices underpinned by safe-haven demand and following a continued decline in exports.  

US-China trade talks reportedly stalled as the Trump administration determines how to address Beijing’s demands of easing restrictions on Huawei. (WSJ)

US Secretary of State Pompeo criticised Chinese treatment of Uighurs and stated the US may be considering a more proactive response, while reports added the US has been holding off on sanctions against Chinese leaders amid trade talks. (NYT)

BoK cut the 7-Day Repo Rate by 25bps to 1.50% vs. Exp. unchanged. BoK Governor Lee said the decision was not unanimous as board member Lee Il-Houng dissented and that they have some policy room left, while the BoK also downgraded 2019 South Korean growth forecast to 2.2% from 2.5% and 2019 inflation forecast to 0.7% from 1.1%. (Newswires)

Japanese Trade Balance (JPY)(Jun) 589.5B vs. Exp. 420.0B (Prev. -967.1B, Rev. -968.3B).(Newswires) Japanese Exports (Jun) Y/Y -6.7% vs. Exp. -5.6% (Prev. -7.8%) Japanese Imports (Jun) Y/Y -5.2% vs. Exp. -0.4% (Prev. -1.5%)

UK/EU

UK House of Lords backed an attempt to prevent the next Prime Minister from shutting down Parliament in order to force a no-deal Brexit in which they voted 272 vs. 169 in favour of an amendment to the Northern Ireland Bill which its supporters claim will prevent Parliament being prorogued in the run-up to 31st October, while the report noted that it sets up a major Commons showdown when the legislation is debated again by MPs on Thursday. (Politics Home)

Some UK Cabinet Ministers could step down on Thursday to vote in favour of preventing the next PM from suspending Parliament. (BBC Newsnight)

UK PM Candidate Johnson declined to comment on when he will bring in the Queen's speech into parliament but said he will not dissent from the view that November is a good time for the speech. (Telegraph)

UK Office for Budget Responsibility is expected to say that Britain will slip into a recession next year in the event of a no-deal Brexit and that the economy will shrink 3% with a no-deal. (Times)

FX

The greenback traded subdued overnight as it took a breather from recent gains and amid declines in US yields, which its major counterparts only marginally benefitted from as EUR/USDwas contained by a cluster of option expiries at 1.1215-1.1235 and although GBP/USD has recovered from the prior day’s brief slip to below the 1.2400 handle, ongoing Brexit uncertainty has limited the upside. Elsewhere, KRW was only briefly pressured by the surprise rate cut by the BoK, USD/JPY was subdued by the downbeat risk tone and antipodeans were mixed with outperformance in AUD/USD which benefitted from a surge in Full-Time jobs despite headline Employment Change missing estimates and the Unemployment Rate remaining at 5.2%.

Australian Employment (Jun) 0.5k vs. Exp. 10.0k (Prev. 42.3k). (Newswires)

Australian Unemployment Rate (Jun) 5.2% vs. Exp. 5.2% (Prev. 5.2%) Australian Full Time Employment (Jun) 21.1k (Prev. 2.4k)

Australian NAB Business Confidence (Q2) 6 (Prev. -1)

COMMODITIES

Commodities were uneventful in which WTI crude futures remained below the 57.00/bbl after following the prior day’s continued downturn post-DoE inventories. The report did little to halt the slide in oil prices which some attributed to stockpiles in total being net bearish as crude and products combined were at a build, while the risk averse tone and more constructive reports regarding Iran added to the tipping factors. Elsewhere, gold was steady with only a mild pullback seen from resistance at USD 1430/oz and copper prices reflected the broad downbeat sentiment overnight.    

GEOPOLITICS

US President Trump is reportedly to allow Senator Paul to open the backchannel with Iran representatives, while there were separate comments Iran’s Foreign Minister Zarif that US travel restrictions on Iranian diplomats in New York are basically inhuman and are not a friendly action. Furthermore, Zarif said Iran could close the Strait of Hormuz but does not want to and that the British seizure of its tanker is "piracy", while he added Iran is not going to build nuclear weapons. (Newswires/Politico)

US is to suspend and begin the process to formally remove Turkey from the F-35 programme according to the Pentagon, while Turkey urged the US to correct mistake of removing it from the F-35 program which it says will irreparably damage relations according to the Turkish Foreign Ministry. (Newswires)

US

The T-Plex traded choppy out of Asia and into the European session before marching higher as US traders came to their desks. Risk sentiment was hampered heading into the US session as equity index futures headed south, while the T-Note was also taking cues from EGBs. Some desks attributed the upside in Treasury in pre-market to comments from ECB’s Coeure, who again said that the bank was ready to act if needed, likely providing some tailwinds; shortly afterwards, US June Housing Starts and Building Permits data missed expectations widely, adding to the Treasury bid. Bank of America’s disappointing on its NIM, just as some other major banks have, further cemented the ominous outlook for financials (which has been a drag on the SPX today), in addition to some disappointing earnings from CSX helped accelerate the risk sell-off. A ho-hum Fed Beige Book failed to move the dial, and at settlement the curve had bull flattened, with 2s10s narrowing by just under 3bps, as the 2-year yield fell by around 2bps, whilst the 10-year yields eased by around 5bps. US T-note futures (U9) settled 14 ticks higher at 127-11+.

Fed Beige Book stated activity is expanding at a ‘moderate pace’ which is little changed from prior period and that the outlook is generally positive over coming months despite trade related uncertainty. The Beige Book added that compensation grew at a modest pace in which some contacts reported significant increases in entry level wages although the rate of price inflation was ‘stable to down slightly’, while some saw delayed business investment and labour markets remained tight with contacts across the country experiencing difficulties filling open positions. (Newswires)

Fed's George (Voter, Hawkish) said downside risks to the economy come from trade uncertainty as well as slowing global growth, and that she is prepared to adjust her view of monetary policy should downside risks materialise. Furthermore, George said the natural rate of unemployment might be lower and the labour market is not generating much pricing pressure, while she added that she is prepared to be flexible but doesn’t yet see the case for a cut in interest rates later this month. (Newswires/WSJ)

US House voted to table the impeachment resolution against President Trump which effectively kills the measure for now. (Newswires)

US House Speaker Pelosi reportedly would like to see a deal by the end of the week if Congress is going to pass a spending a debt limit package before the August recess. (Politico)

Senior US Democratic Lawmaker said the Democrats have made constructive proposals on the USMCA trade deal following the meeting with USTR Lighthizer but are still awaiting response from Lighthizer. (Newswires)