• Asian equities were supported by reports that USTR Lighthizer will lead a small team of negotiators to China next Monday for trade discussions
• US Commerce Secretary Ross said he will deal with Huawei waiver applications within the next few weeks
• PM-elect Johnson will begin assembling a majority Brexiteer Cabinet today as he aims to get Britain ready to leave the EU by October 31st
• Looking ahead, highlights include EZ and US Flash PMIs, DoEs and US 5yr Note Auction
• Earnings: Boeing, American Airlines, Allergan, Facebook, Ford, AT&T, Align Technology, Alexion Pharmaceuticals, Caterpillar, Celgene, Tesla, LVMH, Deutsche Bank, Akzo Nobel, Iberdrola, Daimler, Deutsche Boerse, Moncler, Peugeot, GlaxoSmithKline

ASIA-PAC

Asian equity markets traded mostly higher with sentiment lifted by US-China trade hopes after reports US Trade Representative Lighthizer will lead a small team of negotiators to China next Monday for trade discussions. This underpinned major indices on Wall St. with outperformance seen in the trade sensitive sectors such as materials and industrials, although futures pared some of the gains after-market on news the DoJ is to open a broad antitrust review on the large tech firms. Nonetheless, ASX 200 (+0.6%) and Nikkei 225 (+0.4%) were higher with broad strength seen in Australia aside from the mining sector, while gains in Tokyo were capped amid a downturn among JPY-crosses. Hang Seng (+0.9%) andShanghai Comp. (+1.0%) outperformed on the trade optimism which was also helped by US Commerce Secretary Ross who said he will deal with Huawei waiver applications within the next few weeks, while China was also said to be looking to make more agricultural purchases as a goodwill gesture. Finally, 10yr JGBs were uneventful with demand sapped following similar uninspiring trade in USTs amid the positive risk tone and with the BoJ also absent from the market today.

PBoC skipped open market operations for a net daily drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 6.8860 (Prev. 6.8818)

US Commerce Secretary Ross said he will deal with Huawei waiver applications within the next few weeks. Elsewhere, NEC Director Kudlow said China is looking to make more agricultural purchases as a goodwill gesture, while US Agricultural Secretary Perdue said US will pay a minimum of USD 15 per acre in aid to farmers impacted by the trade war. (Newswires/WSJ)

China released a white paper in which it accused US of undermining global strategic stability and provoking competition among major nations, while there were separate reports that China International Capital Corporation said around 5mln factory jobs were lost in China amid trade tensions with US. (Newswires)

UK/EU

PM-elect Johnson will begin assembling a majority Brexiteer Cabinet today as he clears out Remainers to end “self-doubt” and get Britain ready for leaving the EU on October 31st. (Telegraph)

UK Foreign Minister Hunt’s future in the cabinet is in doubt after he resisted a demotion from his current post and turned down the offer of becoming the Defence Secretary, according to Sky News. Current Defence Secretary Mordaunt or Treasury Chief Truss could replace Hunt if he leaves his position. (Sky News)

PM-elect Johnson will meet three times with US President Trump in his first 100 days in office as the new PM looks to cement the UK’s relationship with the US. (Telegraph)

FX

DXY held firm after the recent debt ceiling and budget agreement with both US Senate Majority Leader McConnell and House Speaker Pelosi suggesting there are sufficient votes to pass the deal. As such, the greenback’s major counterparts were subdued with EUR/USDbelow 1.1150 as markets await the latest clues from the upcoming ECB policy meeting and with GBP/USD also lacklustre after hardline Brexiteer Boris Johnson claimed victory in the Tory leadership race. Elsewhere, USD/JPY was steady above 108.00 as it remained propped up by a firmer greenback although JPY-crosses suffered from base currency weakness, while antipodeans were lacklustre in which AUD/USD underperformed and broke down support at the 0.7000 level after softer Australian PMI data and with Westpac calling for 2 more rate cuts from the RBA in October and February.

Australian CBA Manufacturing PMI (Jul P) 51.4 (Prev. 52.0). (Newswires) Australian CBA Services PMI (Jul P) 51.9 (Prev. 52.6) Australian CBA Composite PMI (Jul P) 51.8 (Prev. 52.5)

New Zealand Trade Balance (Jun) M/M 365M vs. Exp. 100M (Prev. 264M) New Zealand Exports (Jun) 5.01B vs. Exp. 5.29B (Prev. 5.81B) New Zealand Imports (Jun) 4.65B vs. Exp. 5.20B (Prev. 5.54B) 

COMMODITIES

Commodities were relatively flat overnight as WTI took a breather from the prior day’s gains where the geopolitical risk premium was once again in play after the UK approached EU nations to join a naval mission to secure passage through the Strait of Hormuz and amid reports the US may have downed more than one Iranian drone. In addition, a larger than expected drawdown in headline API crude stockpiles briefly added further fuel to the upside for oil, although the immediate jolt was quickly faded due to bearish components of the release including a surprise build in gasoline inventories. Price action in gold was restricted by the firm greenback and lack of safe-haven demand, while copper traded sideways and failed to benefit from risk appetite as it eyed a test of support at USD 2.70/lb and amid a 3rd consecutive decline in Dalian iron ore futures which slipped over 4% by the break.

API Weekly Crude Inventories (23 July) -10.96mln vs. Exp. -4.0mln (Prev. -1.4mln).(Newswires)

GEOPOLITICS

US may have downed more than one Iranian drone, according to Centcom Commander General Kenneth McKenzie. (Newswires)

UK approached EU nations to join a European-led naval mission for safe shipping through the Strait of Hormuz with France, Denmark, Italy and the Netherlands showing strong support, according to senior EU Diplomats. Furthermore, reports added that Germany, Spain, Sweden and Norway have also expressed interest in playing a role and that the mission could be run by a joint British-French naval command but would not involve the EU, NATO or the US directly. (Newswires)

Iran Deputy Foreign Minister said Iran is to secure the Strait of Hormuz and that it will not allow disturbances in shipping in this sensitive area. In other news, Iran is considering cutting imports from Brazil after an Iranian vessel was banned from refuelling at a Brazilian port. (Newswires)

China Defence Ministry said Taiwan independence separatist forces remain the gravest immediate threat to peace and stability in the Taiwan Strait, while it added that it makes no promise to renounce the use of force in the strait. (Newswires)

US

The T-plex was choppy throughout the Asian and European session before heading lower amid news US trade negotiators will be heading to China on Monday. Treasuries came under pressure going into the US equity open as equity futures pressed higher, with analysts also highlighting the large amount of corporate issuance in the day’s pipeline contributing to the selling. However, bidding was supported shortly after with gratitude to a disappointing US June existing home sales print alongside a multi-year low reading in the Richmond Fed Manufacturing Index. Selling resumed going into the 2-year auction, which recorded its first tail (0.2bps) in 2019 on a B/C ratio of 2.5x (prev. 2.8x); primary dealers also took an increased share of 31.6%, more-or-less in line with its 5-auction average. The T-Note fell to fresh lows later as it was announced USTR Lighthizer would be heading to China on Monday for face-to-face meetings with Chinese officials. At settlement, spreads across the curve were little changed with the 10-year yield up by approximately 2.5bps. US T-note futures (U9) settled 7+ ticks lower at 127-11+.

US Senate Majority Leader McConnell said he is confident we have the votes to get the budget deal passed through and US House Speaker Pelosi later suggested they have the votes to pass the budget deal. (Newswires)

US DoJ is reportedly opening broad antitrust review on large tech firms. (WSJ)