• European equities trade with no firm direction as bourses are dictated by a slew of large cap EU earnings
• DXY is flat while EUR hovers above YTD lows awaiting the ECB (full preview available in the Research Suite)
• Looking ahead, highlights include CBRT and ECB Rate Decisions, 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

ASIA-PAC

Asian equity markets mostly traded with cautious gains after a similar performance on Wall Stwhere 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 (+0.6%) andNikkei 225 (+0.2%) 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 (-0.4%) underperformed after North Korea conducted a short-range missile launch and with earnings also heavily in focus, while Hang Seng (+0.3%) and Shanghai Comp. (+0.5%) 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)

Chinese Commerce Ministry said Chinese firms are willing to buy US agricultural products and have asked for prices from US firms and will sign commercial contract. (Newswires)

Chinese Commerce Ministry confirmed that US and China will meet in Shanghai next week for trade talks. (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)

UK/EU

German Ifo Business Climate New (Jul) 95.7 vs. Exp. 97.1 (Prev. 97.4, Rev. 97.5) (Newswires)German Ifo Current Conditions New (Jul) 99.4 vs. Exp. 100.4 (Prev. 100.8, Rev. 101.1) German Ifo Expectations New (Jul) 92.2 vs. Exp. 94.0 (Prev. 94.2, 94.0) Ifo economist said that the German economy faces a turbulent time ahead. He sees a slightly positive growth rate in H2, although recession is spreading in all important sectors of German industry. Business Climate has deteriorated in key sectors except for the auto industry. (Newswires)

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) 

Spain's far-left Podemos has made a counter-proposal to try and unlock government coalition talks with PSOE (socialists), although the socialists did later reject the offer for coalition talks. (Newswires)

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)

EQUITIES

European equities are directionless with large-cap earnings dictating the state of play of thus far.AEX (-0.1%) lags its peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) is benefitting from its largest weighted stock LVMH (+1.5%) which rose after the Co. posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV. Over in the States, Facebook (+1.2% pre-market) reported last night with miss on top line and a beat on bottom line. The Co. also noted that EPS would have been higher excluding the FTC legal fees of USD 5bln over privacy violations. Meanwhile, Tesla (-10.8% pre-market) missed on top and bottom line. Looking ahead, around 10% of the S&P 500 is reporting today, whilst DJIA component 3M is also on the docket, with a 4.5% weighting in the index.

FX

EUR/TRY - Not the biggest currency movers, but both certainly prone to big reactions and price action depending on Central Bank policy decisions as the ECB and CBRT both deliver verdicts today. Market pricing for the former is extremely tight between no change and -10 bp, even though the ‘consensus’ leans towards a tweak in guidance for easing in September rather than any adjustments this time, with the probability roughly 50-50. However, the latter is unanimously expected to lower its benchmark and the uncertainty rests on how much given a gaping range of forecasts, from -100 bp to -500 bp, while some observers also suggest that a loud -800 bp call exists. In the run up, the single currency and Turkish Lira are on the defensive, with Eur/Usd teetering above ytd lows in a 1.1145-23 range and capped by yet another bleak German survey in the form of Ifo that missed consensus across the board and compounded by a gloomy statement from the institute noting the spread of recession through all key industrial sectors. Meanwhile, Usd/Try is pivoting 5.7100 and also acknowledging a deterioration in manufacturing sentiment and a decline in cap u.

NZD/AUD - Dovish rate vibes are undermining the Kiwi and Aussie as well, with Westpac recalibrating its RBNZ outlook to match the RBA by pencilling in 2 more 25 bp eases from 1 previously. Nzd/Usd has retreated from 0.6700+ in response, but the Aud/Nzd cross remains anchored near 1.0400 as Aud/Usd slips a bit further from 0.7000 to 0.6965 in wake of comments from RBA Governor Lowe indicating further OCR reductions if demand disappoints and acknowledging that inflation will take time to hit target.

JPY/CAD/GBP/CHF - All narrowly mixed vs a solid Greenback, as the DXY continues to test a key Fib retracement level at 97.776 within a tight 97.778-679 band, with the Yen still stuck around 108.00 and embroiled in decent option expiries (1.7bn from 107.75 to 107.80 and 1.5 bn between 107.90-108.00) vs technical resistance at 108.31 (also a Fib). Meanwhile, the Loonie hugs 1.3128-44 ahead of Canadian wage data, Cable retains a recovery tone within 1.2450-1.2500 and the Franc remains underpinned around 0.9850 vs the Buck and over 1.1000 against the Euro, expecting the SNB to match or counteract any ECB moves.

ZAR - The Rand is underperforming after a stark warning from Moody’s that the latest state aid for Eskom will put further strain on the Government’s finances and threaten SA’s rating, with Usd/Zar nudging the top of 13.9750-8600 range.

FIXED INCOME

Barring another buying spree or bullish catalyst, Bunds may well have marked out a top following the Ifo-induced spike to 174.66, while Gilts could not quite reach their 132.45 contract peak in advance of CBI trades that are seen improving appreciably, albeit remain negative in headline terms. However, the ECB is the main focus and bound to provide the next major impulse based on hyped market expectations, with disappointment or surprise in the offing via the policy call and/or President Draghi’s penultimate post-meeting press conference. However, US Treasuries remain firm and the curve flatter awaiting key data and the last auction, with 7 year supply normally well sponsored by indirects, but 2s and 5s not taken down that comfortably ahead of the July FOMC, while month end extensions are not that lengthy either.

COMMODITIES

WTI and Brent futures are marginally firmer, albeit it seems to be more of a consolidation from yesterday’s DoE-induced decline and on the news that Kuwait and Saudi officials discussed resuming production from the neutral zone which had previously provided around 500k bpd of supply. WTI and Brent currently reside around the 56.00/bbl and 63.50/bbl levels with the former eyeing its 50 DMA at 56.87/bbl ahead of its 200 DMA at 57.11/bbl (with the psychological 57/bbl level in-between). News flow for the complex has been light thus far with traders eyeing the ECB’s latest monetary policy decision (full preview available in the Research Suite) for the next possible catalyst. Elsewhere, gold prices are relatively steady above the 1400/oz mark with Central Bank decisions very much in focus. Elsewhere copper is little changed amid the cautious/tentative risk tone whilst Shanghai lead climbed over 1% overnight amid revived supply concerns due to maintenance activity in China.