• Asian equity markets traded negatively as the region conformed to the downbeat global risk tone post-ECB and large-cap earnings
• Outgoing EC President Juncker told UK PM Johnson that the current Withdrawal Agreement is the best and only possible agreement
• ECB sources suggest a rate cut is coming in Sept, as well as possible bond purchases and guidance tweaks; case still needs to be made for tiering
• Looking ahead, highlights include US Q2 GDP, CBR Rate Decision and Baker Hughes Rig Count
• Earnings - McDonald’s, Phillips 66, AbbVie, Aon, Colgate-Palmolive, Twitter, Renault, EDF, ENI, Banco de Sabadell, Pearson, Nestle

ASIA-PAC

Asian equity markets traded negatively as the region conformed to the downbeat global risk tone post-ECB, while disappointing earnings also added to the glum. ASX 200 (-0.2%) and Nikkei 225 (-0.6%) were lower with tech and financials leading the declines in Australia, while sentiment in Tokyo was dampened by disappointing results including Nissan. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.2%) were subdued after further PBoC inaction resulted to a net weekly liquidity drain of CNY 410bln with underperformance in Hong Kong after poor trade data for June in which Exports slipped 9.0% Y/Y and as protesters planned to take their rally to the Hong Kong International Airport. Finally, 10yr JGBs were subdued as they mirrored the lacklustre tone in USTs and European counterparts after a less dovish than hoped ECB, although downside was also stemmed amid weakness in stocks and the BoJ’s presence in the market today.

PBoC skipped open market operations for a net weekly drain of CNY 410bln vs. Prev. CNY 460bln net injection W/W. (Newswires) PBoC set CNY mid-point at 6.8796 (Prev. 6.8737)

Tokyo CPI (Jul) Y/Y 0.9% vs. Exp. 1.0% (Prev. 1.1%). (Newswires) Tokyo CPI Ex. Fresh Food (Jul) Y/Y 0.9% vs. Exp. 0.8% (Prev. 0.9%) Tokyo CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.8%)

UK/EU

Outgoing EC President Juncker told UK PM Johnson that the current Withdrawal Agreement is the best and only possible agreement, while they will analyse any ideas put forward by the UK provided they are compatible with the WA. (Newswires)

The EU is working on a strategy to avert a “Brexit cold war” amid fears that relations between Brussels and London could break down completely after a no-deal Brexit. (Times)

ECB sources stated they see the deposit rate cut as almost certain in September, while the sources added that more government bond buys and guidance change is also likely although policy makers still need to be convinced about the tiering system. Sources also noted that that purchases of stocks and bank bonds are seen as a non-starter. (Newswires)

FX

DXY consolidated ahead of today’s US GDP data and following the prior day’s rebound amid expectations of a less aggressive move by the Fed next week. EUR/USD was also uneventful overnight which was a sharp contrast to the prior day’s post-ECB tumultuous trade. Elsewhere, GBP/USD was stuck near 1.2450 and USD/JPY held on to most its post-ECB gains with a muted reaction seen after mixed Tokyo CPI data, while antipodeans were lacklustre amid the risk averse tone and with participants looking ahead to upcoming risk events for want of a better catalyst.

COMMODITIES

Commodities traded relatively rangebound with marginal gains seen in WTIcrude futures after the selling heading into yesterday’s settlement was halted by support at the USD 56.00/bbl level, but with the rebound limited amid a lack of fresh developments to spur the geopolitical risk premium aside from confirmation Iran recently conducted a mid-range ballistic missile test. Elsewhere, gold was lacklustre and remained near this week’s lows following yesterday’s declines which were in tandem with the ECB disappointment and an intraday rebound in the greenback, while the risk averse tone kept copper subdued with prices eyeing a test of support at the USD 2.70/lb level.

GEOPOLITICS

North Korea confirmed it tested a new type of short-range ballistic missile yesterday and its leader Kim stated South Korea has been bringing in weapons for attack, while he added that North Korea must keep developing weapons to eliminate national security threats and that the missile firing was a warning to South Korea's warmongers. (KCNA)

Initial reports suggested that Germany is ready to take part in the Strait of Hormuz Naval mission, although a German Foreign Minister spokesman later clarified that the Foreign Minister did not say Germany wants to be at the Strait of Hormuz and that it is too early to discuss involvement. (Newswires)

Officials confirmed Iran tested a medium-range ballistic missile yesterday. (Newswires) US Secretary of State Pompeo warned Turkey not to deploy Russian S-400 systems or face more sanctions. (RT)

US

T-Notes ended the day lower, alongside EGBs, after the ECB held rates and opened the door for accommodation, but not as immediate as some had expected. Prior to the ECB, Treasuries were taking their cues from the disappointing German July IFO survey, where Business Climate, Current Conditions, and Expectations all missed expectations. The T-plex spiked higher on the initial release of the ECB statement, before reversing course as participants seemingly read the lack of details on the upcoming APP and rate tiering system as less dovish then what some had expected. The selling was exacerbated by a strong US June Durable Goods report (2% vs. exp. 0.7%) and block selling, with some analysts attributing the sell-off in stocks and rates to risk parity funds. The trend failed to stop at the 7-year auction which tailed by a chunky 1.4bps, B/C at a multi-year low of 2.27x, and dealers taking a larger share than average. At settlement spreads were little changed with yields firmer across the entire curve between 3bps-4bps. US T-note futures (U9) settled 7+ lower at 127-09.

US House approved 2-year budget and debt limit deal as expected through 284 vs. 149 votes. (Newswires)