• European stocks are marginally lower, FTSE 100 lags as miners slide
• EUR pressured and Bunds spiked amid downbeat EZ flash PMIs, DXY extends gains above 97.500
• US DoJ is reportedly opening broad antitrust review on large tech firms
• Looking ahead, highlights include US Flash PMIs, DoEs and US 5yr Note Auction
• Earnings: Boeing, American Airlines, Allergan, Facebook, Ford, AT&T, Align Technology, Alexion Pharmaceuticals, Caterpillar, 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 (+0.8%) 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 (+0.3%) and Shanghai Comp. (+0.8%)showed a strong performance 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)

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)

US 

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

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)

EU Markit Manufacturing Flash PMI (Jul) 46.4 vs. Exp. 47.6 (Prev. 47.6) (Newswires)EU Markit Services Flash PMI (Jul) 53.3 vs. Exp. 53.3 (Prev. 53.6) EU Markit Comp Flash PMI (Jul) 51.5 vs. Exp. 52.1 (Prev. 52.2)

EQUITIES

Major European bourses are marginally lower [Eurostoxx 50 -0.2%] following on from a relatively flat open as overall downbeat flash PMIs from Europe weighted on the region. UK’s FTSE 100 (-1.0%) lags its peers amid unfavourable currency action coupled with underperformance in heavyweight mining names following a barrage of broker downgrades. As such, Rio Tinto (-4.0%), BHP (-3.4%) and Anglo American (-3.1%) all rest at the foot of the index. Sectors are mixed with defensive sectors supported due to the current cautious risk tone. In terms of individual movers, ASM (+7.3%), ITV (+6.1%) and Akzo Nobel (+4.1%) shares are all fuelled by earnings and trade at the top of the Stoxx 600. On the flip side, Deutsche Bank (-3.7%) shares plumbed the depths post-earning after the German lender reported a larger than expected net loss and cut its FY 19 revenue guidance. 

FX

USD - Buck bulls have gleaned even more encouragement from unfolding US-China trade developments given that face-to-face talks look set to resume early next week, and Beijing offers to buy more agricultural goods as a good will gesture in response. Moreover, the Dollar continues to proffer from the demise of others and increasingly constructive technical impulses with the DXY eclipsing a Fib retracement level and inching closer towards the psychological 98.000 mark.

AUD/NZD - The Aussie has given up 0.7000+ status and is now threatening to slide below 0.6975 in wake of slowdowns in all CBA PMI readings overnight and yet another dovish RBA policy call looking for 2 further cuts in the OCR (Westpac this time eyeing moves in October and February 2020). All this ahead of comments from RBA Lowe in the early hours on Thursday and in contrast to the Kiwi that is keeping in contact with 0.6700 after a wider than forecast NZ trade balance, albeit due to a bigger miss on the import side vs exports.

EUR/CHF/CAD - The single currency has also been undermined by PMI surveys, and in particular the manufacturing prints showing France on the 50 threshold and Germany sinking deeper into contraction. With Eurozone M3 also softer than expected, rate cut odds have now tipped in favour of 10 bp for tomorrow’s ECB meeting and Eur/Usd is losing sight of decent option expiry interest at 1.1150 (1 bn) as a result, but holding above the ytd base and 1.1100 where big barriers lie. Meanwhile, the Franc has retreated further vs the Buck within a 0.9850-75 band, but remains above 1.1000 against the Euro pending Thursday’s ECB policy pronouncements and the SNB’s response, but the Loonie has clawed back some lost ground vs its US counterpart to meander between 1.3129-47 compared to 1.3164 or so at one stage on Tuesday.

GBP/JPY - Relative outperformers and bucking the overall trend, as the Pound maintains its recovery momentum following confirmation that Boris Johnson will take over the reins from Theresa May as Tory Party head. Cable has extended its rebound from near 1.2400 to 1.2480+ awaiting the official unveiling of the new PM and his Cabinet line up, with Eur/Gbp down towards 0.8925 and early July mtd lows. Similarly, the Yen is still displaying resilience in the face of overall Usd strength and upbeat risk sentiment despite ongoing geopolitical tensions, with a reluctance to stray too far from 108.00 where massive expiries roll off (4.3 bn) and technical resistance capping the upside (108.31 Fib).

EM - The Rand remains in the spotlight amidst comments from SARB Governor Kganyago underlining post-rate cut guidance for limited additional monetary stimulus and CPI data that was slightly firmer than anticipated in m/m terms. Usd/Zar is hovering just below 13.9500 as the Central Bank head highlights the fact that neutral rates have risen due to risk premia of late and this makes it tougher for further easing.

FIXED INCOME

Bunds have hit a bit of a brick wall it seems, and several charts are flagging resistance around the new 174.51 contract high, while Gilts have not been able to breach the nearest upside technical area protecting their Sep19 pinnacle (132.45) and 10 year USTreasuries remain capped around 127-20+ with the corresponding yield holding on approaches to 2%. Hence, even though the macro impetus remains bullish for core bonds, and especially Eurozone debt, some caution may be warranted and prudent in the run up to the ECB on the premise that Draghi and co could disappoint hyped up dovish market expectations. More immediately, US Markit PMIs loom before more housing data after weak releases yesterday, and the 2nd T-note auction follows a rather lacklustre 2 year sale as FOMC bets favour -25 bp rather than -1/2 point.

COMMODITIES

WTI and Brent futures are taking a breather from last night’s geopolitical-induced gains in which the benchmarks reclaimed USD 57/bbl and USD 64/bbl to the upside on reports that UK approached EU nations to join a European-led mission for safe shipping via the Strait of Hormuz. Furthermore, reports of a US delegation heading to China on Monday exacerbated upside in the complex on sentiment. Meanwhile, the mammoth drawdown in API crude stocks (-10.96mln vs. Exp. -4.0mln) 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, it’s worth noting that this week’s inventory data also captures the late effects of Storm Barry. Elsewhere, spot gold in is crawling higher as the yellow metal consolidates following its recent decline from 6yr highs. Copper prices are marginally lower amid the cautious risk tone, albeit remain above USD 2.70/lb, while Dalian Iron ore extended losses amid slowing demand in the wake of output restrictions on steel producers in China’s top steel-making city Tangshan.

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

GEOPOLITICS 

Russia denied that it has apologies to South Korea over the alleged incident during the joint air exercise with China, reported via IFAX. (Newswires)

Iranian President Rouhani says the reduction of commitments under the Nuclear Deal can be reversed if other parties uphold their commitments, a third step reduction in commitments will follow if remaining signatories do not reach a deal. (Newswires)

Germany says it is too early to discuss German participation in European naval mission to secure Strait of Hormuz. (Newswires)

Iranian President Rouhani stated that the nation is ready to negotiate but not if it means surrender. (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)