• Asian equity markets mostly traded with cautious gains after a similar performance on Wall St and ahead of upcoming key risk events
• UK PM Johnson launched a huge overhaul of his cabinet yesterday, appointing prominent Brexiteers to key roles
• In FX markets, price action was predominantly uneventful across the major pairs amid a lack of tier-1 data and as the DXY continued its range-bound path
• Looking ahead, highlights include CBRT and ECB Rate Decisions, German Ifo, US Durable Goods and Initial Claims, Canadian Average Weekly Earnings, ECB President Draghi
• Earnings: Amazon, Alphabet, Bristol-Myers Squibb, Hershey, Southwest Airlines, 3M, Raytheon, Starbucks, Comcast, Intel Corp, Nokia, Kering, Saint Gobain, Atos, Scor, BASF, Volkswagen, Orange, Saipem, Vivendi, STMicroelectronics, Ab InBev, Roche, Sika, ABB

ASIA-PAC

Asian equity markets mostly traded with cautious gains after a similar performance on Wall St where strength in financials and tech fuelled the S&P 500 and Nasdaq to all-time record highs, although the DJIA underperformed on disappointing blue-chip earnings. ASX 200 (+0.3%) and Nikkei 225 (+0.4%) were higher but with gains capped by weakness in mining related sectors and with Tokyo trade also contained by an uneventful currency after source reports suggested a lack of consensus within the BoJ regarding additional easing measures at next week’s meeting. Elsewhere, the KOSPI (-0.5%) underperformed after North Korea conducted a short-range missile launch and with earnings also heavily in focus, while Hang Seng (+0.2%) and Shanghai Comp. (+0.3%) were choppy as another substantial liquidity drain by the PBoC was counterbalanced by trade optimism after suggestions that next week's US-China trade meeting is to be held in Shanghai to allow the possibility of President Xi joining in and that the meeting will be followed up by talks in Washington. Finally, 10yr JGBs were relatively flat as they mirrored the rangebound trade in T-notes and with demand also dampened by the indecisive gains in the region, although prices later found mild support after the 2yr auction which attracted a higher b/c and narrower tail in price.

PBoC skipped open market operations for a net daily drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 6.8737 (Prev. 6.8860)

UK/EU

UK PM Johnson appointed Sajid Javid as Chancellor of the Exchequer, Priti Patel as Home Secretary, Dominic Raab as Foreign Secretary and Steven Barclay maintained his position as Brexit Minister, while ERG's Rees-Mogg is appointed UK Leader of the House of Commons. (Newswires)

Spain's Socialists see government coalition talks with the Podemos party as broken down and a deal is seen as unlikely before today’s vote, while a Podemos source also sees coalition talks recommencing in September. (Newswires/El Pais)

Italian Deputy PM Salvini is considering a package of around EUR 10bln in 2020 budget to cut taxes and is working on a second tax amnesty package for businesses, according to a paper. (Newswires)

FX

In FX markets, price action was predominantly uneventful across the major pairs amid a lack of tier-1 data and as the DXY continued its range-bound path. As such, the greenback’s major counterparts also lacked impetus with EUR/USDsubdued ahead of today’s ECB policy meeting and following recent weak Eurozone PMI figures, while GBP/USD consolidated after the prior day’s outperformance was stalled by resistance at the 1.2500 handle. The hesitant risk tone kept USD/JPY little changed near a cluster of option expiries around 108.00 and contained antipodeans near this week’s lows, and although NZD/USD briefly reclaimed the 0.6700 handle, the upside was limited by a lack of fresh catalysts as well as further rate cut expectations with Westpac now forecasting the RBNZ to lower the OCR in August and November vs. Prev. view for a cut in just August. Meanwhile, AUD/USD was slightly pressured by comments from Governor Lowe who suggested a readiness to ease further if required and that it reasonable to expect rates to remain low for an extended period.

RBA Governor Lowe said prepared for further policy easing if demand disappoints and that it is reasonable to expect an extended period of low interest rates. Lowe added that evidence does not support an adjustment to 2%-3% inflation target and that it is certainly possible for demand to be firm enough to lift inflation in a reasonable timeframe but added that it will be sometime before inflation comfortably returns to target range. (Newswires)

COMMODITIES

Commodities were lacklustre with WTI crude relatively flat and just about held on to the USD 56.00/bbl level following the prior day’s declines, in which a much larger than expected drawdown in DoE crude inventories failed to boost prices amid bearish product components and with the downside exacerbated on news Kuwait and Saudi officials discussed resuming production from the neutral zone which had previously provided around 500k bpd of supply. Elsewhere, goldtraded choppy amid a non-committal tone heading into today’s ECB and next week’s FOMC, while copper prices were hampered amid the cautious gains across stocks.

Kuwait and Saudi officials have discussed resuming production from the Saudi/Kuwait neutral zone after settling technical issues. (Newswires)

GEOPOLITICS

North Korea fired 2 projectiles which flew 430km but did not reach Japan’s exclusive economic zone. Following news of the launch, South Korea Defence Ministry spokesperson urged North Korea to stop acts which are not helpful in easing military tensions, while Japanese PM Abe suggested the North Korea missile launch poses no threat. (Newswires)

US

Disappointing European and US Manufacturing PMI data sent EGBs and Treasuries higher through the day. German Manufacturing PMI came in below expectations at 43.1, the lowest since July 2012, which helped set record lows in German yields, and naturally lower yields in Treasuries. The trend continued heading into the US equity open and was supported more by the US Manufacturing PMI print of 50, the lowest since September 2009. However, resistance emerged going into the 5-year auction, which tailed by 1bps and B/C ratio of 2.26x (six-auction average of 2.39x), indirects took the lowest share since December 2015 and dealers took their largest share since December 2018. At settlement the curve had flattened, with the 2s10s narrowing by 1.6bps, the 30-year yield had fallen by just under 4bps points and the 2-year yield by about 1.5bps. US T-note futures finished electronic trade higher by 6 ticks at 127.17+.

US President Trump said Mexico may place more troops at the border with US and suggested the US are looking into severe tariffs for Guatemala. (Newswires)