• Asian markets reacted to speculation the BoJ could discuss tweaking policy and renewed tariff threats from US President Trump
• UK Brexit Secretary Raab has accused the EU of acting irresponsibly and stated the UK could refuse to pay its GBP 39bln “divorce bill” unless the EU agrees to a binding framework for a future trade deal
• Looking ahead, highlights include comments from BoE’s Broadbent

ASIA

Asian stocks traded mixed with the regional bourses initially dampened across the board amid speculation the BoJ could discuss tweaking policy and after last week’s renewed tariff threats from US President Trump who stated that the US is ready to impose tariffs on all USD 505bln of imported goods from China. ASX 200 (-0.9%) and Nikkei 225 (-1.5%) were lower with Japan the underperformer amid a firmer JPY and slump in bonds after source reports suggested the BoJ may discuss potential policy changes at its meeting including the yield curve target to allow for a long-term natural increase. This was despite a denial by Governor Kuroda of having any knowledge of the basis for the reports and who stated that remarks would be inappropriate given the proximity of the bank’s monetary policy meeting. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.4%) also began subdued amid ongoing trade concerns, although later found some support from PBoC efforts in which the central bank injected CNY 502bln through its 1yr Medium-term Lending Facility. Finally, 10yr JGBs were lower by around 50 ticks shortly after the open on policy tightening fears which saw 10yr yields higher by around 6 bps. This later prompted the BoJ to announce its first fixed-rate buying operation since February to purchase an unlimited amount of 10yr JGBs at 0.110%, which effectively placed a floor on JGBs and helped them nurse part of day’s losses.

PBoC skipped reverse repos but later announced to inject CNY 502bln through its Medium-term Lending Facility. (Newswires)

PBoC set CNY mid-point at 6.7593 (Prev. 6.7671)

WORLD

G20 officials reaffirmed FX commitments made in March and will subsequently pledge to not engage in competitive devaluations. (Newswires)

UK

Brussels rejected the UK proposal regarding how to govern its financial services access post-Brexit, with EU chief Brexit negotiator Barnier stating the enhanced equivalence plan would result in EU losing its decision-making autonomy. (FT)

EU officials and diplomats stated a fundamental change in UK politics would be needed for there to be any value for the EU in an extension of the UK’s membership. (Guardian)

UK PM May has said it is time to "get on with" reaching a Brexit deal as she and other cabinet ministers try to sell their plan for it in Europe. (BBC)

UK Brexit Secretary Raab has accused the EU of acting irresponsibly by warning of the risks posed to its citizens in the UK under a no-deal exit. Raab was also reported to say the UK could refuse to pay its GBP 39bln “divorce bill” unless the EU agrees to a binding framework for a future trade deal, while he also noted the government must be ready in the event of a no-deal Brexit. (Sunday Times/Newswires)

According to a YouGov poll, UK PM May is facing an unprecedented political crisis as voters are implacably opposed to her Brexit plan and are prepared to turn to UKIP or parties of the far right. (Sunday Times)

EU

French President Macron is planning a reshuffle of the cabinet and other functions after his security officer was charged with assault on protestors, according to sources. (Newswires)

French Finance Minister Le Maire stated that a trade war has already begun and that the EU will have no option but to retaliate if the US imposes more tariffs. (Newswires)

S&P affirmed Greece at B+; Outlook revised to Positive from Stable, affirmed Czech Republic at AA-; Outlook Stable and affirmed Russia at BBB-; Outlook Stable. (Newswires) Fitch affirmed France at AA; Outlook Stable, affirmed Austria at AA+; Outlook revised to Positive from Stable and affirmed Canada at AAA; Outlook Stable. (Newswires)

FX

In FX markets, the DXY remained softer after last week’s Trump tirade against USD strength and higher rates. The softness in the greenback helped its counterparts across the pond marginally extend on Friday’s gains with EUR/USD at a firmer footing above 1.1700 and with GBP/USD near the 1.3150 level. Elsewhere, speculation of a BoJ policy tweak and current risk averse tone in Tokyo saw safe-haven JPY outperform its G10 currency peers with USD/JPY falling below the 111.00 handle.

COMMODITIES

Commodities were range-bound overnight with WTI crude futures subdued but with the USD 68.00/bbl acting as a floor on prices. There was a lack moving newsflow for oil during the session, although geopolitical tensions between US and Iran turned up a notch after Iranian President Rouhani reiterated US cannot stop its oil exports and warned Trump not to play with the lion’s tail or he will regret it, while Trump responded aggressively in which he warned Rouhani to never threaten the US again or they will suffer consequences the likes of which few throughout history have ever suffered before. Elsewhere, gold was flat after meeting resistance at USD 1235/oz and with prices taking a breather from last Friday’s advances which were on the back of the Trump-induced USD weakness, while copper was also little changed amid the uneventful tone across commodities and mixed risk tone in the region.

US Baker Hughes Rig Count (20/Jul) total rigs fell by 8 to 1046. (Newswires)

China started an anti-dumping investigation on stainless steel billet and hot-rolled stainless-steel plates imported from EU, Japan, South Korea and Indonesia. (Newswires)

GEOPOLITICAL

US President Trump warned Iranian President Rouhani to never threaten the US again or they will suffer consequences the likes of which few throughout history have ever suffered before. Trump added that US will no longer stand for Iran’s demented words of violence & death, while he warned the Iranian President to be cautious. This was after comments from Rouhani that the US cannot prevent Iran from exporting oil and who warned a confrontation would be the 'mother of all wars'. (Twitter/Al Jazeera)

US President Trump is said to be asking for daily updates on how North Korean negotiations are proceeding and is said to have shown frustration regarding the pace despite tweeting about how well it is going. (Newswires)

US

The yield curve bear-steepened on Friday There was further selling in the complex on reports that Trump was concerned that the Fed would hike twice more in 2018. 30yr yields ending the session higher by c.6bps, whilst the 2yr only higher by c.1bps. Volume was decent across the complex. Yield spreads were wider 2s30s by c.7bps, 2s10s by c.5bps and 5s30s by c.4bps. US 10YR T-notes futures (U8) settled 10 ticks lower at 119-31+.

A White House official on Friday stated that US President Trump worries the Fed will raise rates twice more this year, while aides are said to have been advising the President that the Fed is doing this correctly. (CNBC)

US Treasury Secretary Mnuchin downplayed recent comments by President Trump by stating that Trump was not trying to intervene in FX markets and respects the independence of the Fed. However, Mnuchin went on to add that he will be watching the CNY for any signs of devaluation. (Newswires)