• European stocks initially slipped as tech names succumbed to SAP’s decline, SMI buoyed by heavyweight pharma names
• In FX markets, DXY weakens towards 97.00, GBP is bolstered by retail sales and AUD feels support from labour market data, EUR declined on ECB sources
• Looking ahead, highlights include, SARB Rate Decision, Fed’s Williams & Bostic
• Earnings: Microsoft, Union Pacific, Morgan Stanley, Phillip Morris

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 (-2.0%) 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. (-1.0%) 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.  

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%)

US

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

UK/EU

ECB staff are looking into a potential revamp of the inflation goal, which could be akin to price level targeting. (Newswires)

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

UK House Speaker Bercow has selected the amendment seeking to stop UK PM front-runner Johnson from suspending Parliament to force Brexit, according PoliticsHome's Schofield. Meanwhile, sources stated that the amendment stands a chance at today’s Parliamentary vote, according to Sky reporter. (Twitter)

UK Retail Sales MM Jun 1.0% vs. Exp. -0.3% (Prev. -0.5%, Rev. -0.6%) (Newswires)

EQUITIES

Major European bourses are now mixed after the region pared opening losses [Eurostoxx 50 -0.2%] amid reports ECB staff are looking at a revision to the inflation target.. Sectors are mixed with heavy underperformance in the IT sector (-1.4%) as EU’s largest tech stock SAP (-6.0%) posted disappointing earnings in which all major metrics, including cloud revenue, fell short of estimates. Furthermore, the IT sector could also be feeling some pressure amid comments from TSMC post-earnings as the chip-giant expects a global semiconductor contraction this year. On the flip side, healthcare names (+1.5%) outperform as pharma heavyweight Novartis (+5.0%) rose to the top of the Stoxx 600 amid guidance upgrades in which FY 19 operating guidance was raised to “double digits to mid-teens” from “high single digits” and net sales guidance is now expected to be in the “mid to high single digits” compared to a prior view of “mid-single digits”.  Subsequently, shares in Roche (+1.3%) moved higher in tandem and thus Switzerland’s SMI (+0.9%) outperforms vs. its EU peers. In terms of individual movers, Germany’s Hochtief (-9.8%) fell to the foot of the pan-European index as its Asia-Pac division reported a decline in revenues, whilst easyJet (+4.8%) and Ubisoft shares are supported on the back of earnings. Looking ahead, British American Tobacco (+3.9%) and Imperial Brands (+1.2%) are awaiting numbers from US competitor Philip Morris.

UnitedHealth Group Inc (UNH) reported Q2 19 (USD): Adj EPS 3.60 (exp. 3.45), Revenue 60.6bln (exp. 60.58bln); raises EPS guidance. (Newswires) shares +0.2% pre-market.

FX

GBP - The Pound had already extended its rebound from midweek lows (and a fresh sub-1.2400 ytd trough vs the Usd) on a combination of positive sounding EU remarks about the Irish backstop, technical buying and short covering, but got an additional boost via UK retail sales data that confounded expectations for a 3rd consecutive monthly decline in consumption. For the record, the ONS reported a 1% rise in sales vs consensus for a 0.3% fall on the back of non-food items and 2nd hand goods, and Cable climbed towards 1.2500 in response, while Eur/Gbp retreated further from circa 0.9050 at one stage on Wednesday to 0.9000 before Sterling momentum waned somewhat ahead of a vote in Parliament on a bill to prevent its suspension and force through no Brexit deal.

AUD/NZD - The Aussie is the current G10 outperformer, and also partly due to bullish macro news, albeit not quite so apparent from the headline Aussie payrolls tally released overnight. However, internals were encouraging as permanent placements rose 21.1k (vs +10k forecast for full and part-time jobs combined) and underemployment eased. Aud/Usd subsequently reclaimed the 0.7000 handle and is back above the 100 DMA (0.7018) eyeing this week’s prior high just shy of 0.7050, but still below 1.0450 against the Kiwi that is benefiting from ongoing Greenback weakness. Indeed, Nzd/Usd is holding firm within a 0.6730-46 range as the DXY only just keeps its head above 97.000 following yesterday’s US housing data misses.

JPY/CHF/EUR - The Yen and Franc are back in demand on safe-haven grounds as US-China trade angst intensifies after the latest stall in negotiations on Huawei concessions, with Usd/Jpy down through 108.00 and seemingly capped ahead of more decent option expiries at or above the big figure (1.5 bn up to 108.15 and 1 bn from 108.30 to 108.50). Similarly, Usd/Chf has pulled back from around 0.9900 and Eur/Chf is under 1.1100 even though the single currency remains heavy on attempts to clear 1.1250 vs the Dollar and embroiled in tightly stacked expiries. Indeed, some 7 bn roll off between 1.1190 and 1.1275, as Eur/Usd breaks below a tight range to retest 1.1200 amidst reports that the ECB staff are looking at a revision to the inflation target.

EM - The Rand is also in a bind vs the Buck, with Usd/Zar straddling 14.0000 ahead of the SARB policy verdict that is expected to deliver a 25 bp cut in line with BoK and BI moves in the run up.

Notable Option Expiries - EUR/USD: 1.1190-1.1200 (1.1BLN), 1.1215-30 (2BLN), 1.1235 (2BLN), 1.1245-50 (1BLN), 1.1260 -75 (1BLN), 1.1310 (501M)

- USD/JPY: 108.00-15 (1.4BLN), 108.30-50 (1BLN)

FIXED INCOME

It’s becoming a recurring theme and pattern as the debt market recovery rally continues, with buyers pausing for breath ahead of the US open, but also acknowledging fundamental and technical impulses, like the unexpected UK retail excesses. However, Gilts only slipped to a slender Liffe session low at 131.25 in a token gesture and Bunds were only marginally down in sympathy before latest geopolitical headline broke and both EU benchmarks picked up the bit again. Indeed, the 10 German bond just posted a fresh Eurex peak at 173.54 (through 173.46) amidst wire reports that the ECB may be mulling a change to its price mandate) and its UK peer has rebounded to 131.52 in kind. Nevertheless, US Treasuries remain muted and the curve steady vs more pronounced bull-flattening at one stage overnight into weekly claims, Philly Fed, LEI and 10 year TIPS supply, with Fed’s Bostic and Williams also on tap.

COMMODITIES

WTI and Brent futures are marginally firmer following yesterday’s decline in the complex with prices currently above 57/bbl and 64/bbl respectively. Comments from Iranian Revolutionary Guard aided the benchmarks climb over the round figures, which stated they have stopped a foreign oil tanker in Lark Island in the Gulf. On the OPEC+ front, Russia’s Energy Minister acknowledged that Russian production will be increased to levels agreed in the accord. Meanwhile, gold prices are marginally softer and little influenced by the declining Buck as investors lock in profits following the yellow metal’s recent surge. Elsewhere, copper prices are little changed above the 2.7/lb whilst Dalian iron ore continued to decline as market participants reassess the base metal’s outlook given the rising shipments to China from Australia coupled with the Dalian Commodity Exchange’s higher transaction fees in all iron ore futures contracts.

Iran Revolutionary Guard say they have stopped a foreign oil tanker in Lark Island in the Gulf, according to local TV. (Newswires)

Russian Energy Minister Novak says oil production will be higher in the last two weeks of July than the first; says production has increased to the OPEC+ agreed levels. (Newswires)

GEOPOLITICS

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)

North Korea's deputy U.N. ambassador's trips to Pyongyang raises speculation of working-level talks with the United States. (Newswires)