• European stocks are higher across the board [Eurostoxx 50 +1.0%], material and tech sectors outperform
• DXY inches closer to July highs while GBP awaits the new PM announcement
• Looking ahead, highlights include, US Existing Home Sales, US API Crude Stocks, NZ Trade Balance, Hungarian Rate Decision, BoE’s Haldane, supply from the US
• Earnings: Lockheed Martin, AMD, Biogen, Chubb, Discover Financial, Hasbro, Harley-Davidson, Kimberly Clark, Coca-Cola, Visa, United Technologies

ASIA-PAC

Asian equity markets were mostly higher as the region took its cue from the gains on Wall St, where all major indices closed higher led by the Nasdaq after White House officials agreed to meet blue-chip tech executives regarding Huawei and with energy stocks also underpinned as geopolitical concerns surrounding Iran lifted oil prices. ASX 200 (+0.5%) and Nikkei 225 (+1.0%) both advanced with Australia led by energy and tech as they tracked the outperformance of the sectors stateside, while the Japanese benchmark coat tailed on currency moves. Hang Seng (+0.3%) andShanghai Comp. (+0.5%) were relatively indecisive and only edged marginal gains despite the encouraging trade-related reports in which US trade negotiators are likely to visit China next week for the first face-to-face meeting since the G20 and with China said to consider a plan to boost purchases of US soybeans, while the PBoC skipped open market operations but instead announced to lend CNY 200bln in 1yr MLF and CNY 297.7bln in 1yr targeted MLF loans. Finally, 10yr JGBs held near the prior day’s best levels following recent comments from BoJ Governor Kuroda who stated that that it is not easy to continue powerful measures for a long time but suggested that with zero lower bound for short-term interest rates, it might be better to directly affect long-term rates through large-scale asset purchases. Today’s 40yr JGB auction also failed to spur any significant price moves, as the results were mixed in which the b/c declined from prior but saw higher accepted prices.

PBoC skipped open market operations but later announced to lend CNY 200bln through 1yr medium-term lending facility at 3.30% and CNY 297.7bln in 1yr targeted medium-term lending facility at 3.15%. (Newswires) PBoC set CNY mid-point at 6.8818 (Prev. 6.8759)

PBoC Governor Yi Gang notes that China's current interest rate level is appropriate, China will keep its benchmark deposit rate for a relatively long time, any rate cut will aim to cope with deflation risk. (Newswires)

China Mofcom began anti-dumping investigation on propanol and other related products from US. (Newswires)

US 

US President Trump said the White House and Congress reached deal to extend the debt limit and for a 2-year budget, while reports added the budget deal would raise US discretionary spending to USD 1.37tln in fiscal 2020 from USD 1.32tln this year. Politico suggests that US President Trump has yet to declare support for the budget/debt deal, both GOP and Dems have expected ore forceful endorsement from Trump, several sources said. Politico have asked for clarification, White house did not answer, but sources stated that President Trump is waiting to see how it plays out. (Newswires/Politico)

UK/EU

BoE's Saunders (Hawk) said the BoE is not bound by forecasts implying rate hikes, a no-deal Brexit would push GBP lower, UK economy is weak and clearly not overheating. (Newswires)

Spanish party Podemos is reportedly not supporting Spanish PM Sanchez in the first parliamentary vote, according LNE. (LNE)

GEOPOLITICS 

US President Trump said there was very positive correspondence with North Korea and will meet for nuclear talks when North Korea is ready, while there were separate reports that North Korea Leader Kim inspected a newly built submarine which will be deployed soon. (Yonhap/Twitter/KCNA)

South Korea military fired a warning shot at Russian military plane after it entered South Korean air space. South Korea will take stronger action if airspace violations continue, says the South Korean National Security Adviser. Russian Defence Ministry said South Korean planes crossed the path of Russian strategic bombers over neutral waters and created a threat to Russia, RIA reports

EQUITIES

European stocks are higher across the board [Eurostoxx 50 +1.0%], following on from a positive Asia-Pac handover, as the region is bolstered by a pick-up in large-cap European earnings coupled with expectations for a dovish ECB later this week. Sectors are mostly in the green with underperformance seen in defensive sectors (Healthcare -0.2%, Utilities -0.2%), whilst the material (+1.9%) and IT (+1.4%) sectors outperform. The latter has been supported by US’ performance yesterday, after chip names rallied on the back of reports that White House officials have agreed to meet tech executives in regard to the recent Huawei ban. Further fuel was added to the bullish fire as AMS (+1.0%) reported optimistic numbers and opened higher in excess of 8% amid a revision higher to its Q3 revenue guidance, albeit shares have come off highs. As such fellow chip names have received a tailwind, with the likes of STMicroelectronics (+3.2%), Dialog Semiconductor (+0.7%) and Infineon (+3.3%) all higher in sympathy. Elsewhere, Continental (+4.8%) extended on gains despite its profit warning (which dented US peers) as the group noted that its Q2 results (release on August 7th) should be relatively insulated from the revised guidance, meanwhile trader chatter notes that the profit warning was priced earlier this month after shares hit 6yr lows. Thus, European peers Michelin (+2.2%) and Pirelli (+6.1%) are higher in tandem. Another notable mover include DAX-heavyweight Daimler (+3.9%) which is buoyed amid news that China’s BAIC Investment has acquired a 5% stake in the Co. Finally, this morning saw earnings from UBS (+2.2%) who reported a beat on Q2 net (USD 1.39bln vs. Exp. USD 1.38bln), a 23% Y/Y rise in its investment arm’s adj. pretax operating profit, and the intention to spend up to USD 1bln on stock buyback this year. 

FX

USD - The Greenback is firmer across the board on several factors including progress on a US debt limit extension and 2 year budget accord that would increase discretionary spending and may avert another Government shutdown. Additionally, President Trump has reportedly taken heed of tech sector concerns over Huawei and agreed to make licensing decisions in a timely manner, while Washington and Beijing looks set to resume trade negotiations in person following recent phone conversations and the truce reached at the G20. The DXY has duly extended gains above the 97.000 handle and the index is now eyeing its prior July peak (97.593) having breached 97.5000, with the aid of independent weakness in several basket components.

GBP/EUR/NZD - The Pound continues to underperform on UK political and Brexit risk ahead of Conservative leadership vote results that are expected to confirm victory for Boris Johnson, but the latest downturn also coincided with dovish/downbeat comments from BoE’s Saunders (subsequently backed up by a dire CBI trends survey). Cable has now crossed last Thursday’s 1.2429 low and found some underlying bids ahead of 1.2400 where around 700 mn option expiries reside, while Eur/Gbp popped just above 0.9000 before the single currency retreated a bit further through 1.1200 vs the Buck. Eur/Usd has now slipped below support at 1.1188 and 1.1181 (June troughs) to test a key Fib retracement at 1.1178 in the run up to tomorrow’s Eurozone preliminary PMIs and Thursday’s ECB meeting when a 10 bp rate cut is seen as a 2 in 5 prospect compared to nearer evens yesterday. Elsewhere, the Kiwi has been undermined by overnight comments from the RBNZ asserting that research into unconventional policy measures has started, with Nzd/Usd not far off the 200 DMA (0.6720) vs 0.6750 at one stage and close to 0.6800 of late.

JPY/CHF - Both succumbing to a recovery in risk appetite (albeit selective), with the Yen sub-108.00 again and pulling away from decent expiry interest at 107.95-108.00 (1 bn), but still some distance from offers touted between 108.40-60 and technical resistance in close proximity (50 and 55 DMAs at 108.50 and 108.61 respectively). Similarly, the Franc continues to respect 0.9800, but Eur/Chf is still hovering near 1.1000 amidst the aforementioned Euro weakness that is being exacerbated by Italian and Spanish political uncertainty.

AUD/CAD - Holding up a bit better than their G10 peers, but still posting losses against the Usd as the Aussie drifts back towards 0.7000 and is arguably only resisting a deeper reversal due to a sharp rebound in the Aud/Nzd cross to almost 1.0450 from sub-1.0400. Note, remarks from RBA Assistant Governor Kent have hardly impacted as he merely noted that the Aud would have been stronger without recent OCR cuts and global easing is constructive for Australia. Meanwhile, the Loonie has stemmed post-Canadian data losses circa 1.3140 and a few pips away from multi-tech levels including earlier monthly highs and a June low spanning 1.3144-51.

EM - Some volatile trade for the Rand and Lira (once again), with Usd/Zar choppy between a 13.8570-9480 band on further confirmation that extra cash for Eskom is in the pipeline vs a warning from SA’s Finance Minister that initial pointers suggest that tax revenue may be considerably short of target for the 2019/20 fy. Conversely, Usd/Try has pared back within 5.7015-6700 parameters amidst a deterioration in Turkish consumer sentiment, and awaiting the US decision on sanctions before the CBRT delivers its verdict on rates on Thursday.

FIXED INCOME

Not much more movement in Bunds or Gilts apart from the former edging up to a fresh Eurex intraday high bang in line with Monday’s 173.79 session peak, but still lagging a bit behind the latter after a solid 10 year DMO sale and significantly weaker than forecast CBI trends survey. However, widening differentials are much more apparent and pronounced at the Eurozone margins where Italian BTPs are outperforming Spanish Bonos or vice-versa pending the PM Sanchez confirmation vote that opposition party Podemos is expected to oppose. Meanwhile, US Treasuries remain slightly underwater and the curve is incrementally steeper ahead housing data, the Richmond Fed survey, APIs and the first of this week’s auctions.

COMMODITIES

Little to report on the energy front with WTI/Brent prices contained within a narrow intraday band above the 56/bbl and 63/bbl levels respectively. Revisiting fundamentals, analysts at UBS reaffirm that prices continue to be supported by geopolitical tensions after US sanctioned a state-sponsored Chinese oil trader due a deal involving Iranian oil. Elsewhere on the geopolitical landscape, tensions between Russia and South Korea emerged after the latter fired warning shots at a Russian military plane after it reportedly entered South Korean airspace. Russia has rebuffed these claims, stating that South Korean planes the path of Russian strategic bombers over neutral waters and posed a threat to Russia. Although direct implications may not be felt in the energy market, it’s worth keeping in mind that the addition of further geopolitical tensions could wobble investor sentiment in complex. Another factor to monitor is Venezuela, following its nationwide power outage yesterday which is likely to hit Venezuelan oil production. Meanwhile, gold prices have steadied following its overnight decline as the USD gained further ground above 97.50 in Asia-Pac hours, with some also noting profit taking in the yellow metal. Copper is little changed and tentative heading into key risk events later this week, whilst Dalian iron ore edged lower as the demand outlook for the base metal was dampened by anti-smog curbs in Tangshan, China’s largest steel-making city.