• Asian equity indices shrugged off the lacklustre lead from global peers and traded marginally higher across the board
• BoJ maintained current monetary policy settings and disappointed outside calls for a dovish tweak to forward guidance
• GBP remains under pressure with UK PM Johnson refusing to meet with any EU leaders until they agree to remove backstop
• Looking ahead, highlights include German GFk & CPI (Prelim), US PCE and Consumer Confidence, US & China Trade Negotiators meeting in China, supply from Italy & Germany
• Earnings: Apple, P&G, Mastercard, T-Mobile, Amgen, Eli Lilly, Altria, Orange, L’Oreal Bayer, BP

ASIA-PAC

Asian equity indices shrugged off the lacklustre lead from their global peers and traded higher across the board, but with gains mostly modest as there was not much in terms of fresh catalysts and as markets look ahead to the looming risk events. ASX 200 (+0.3%) gained from the open with continued strength in telecoms leading the index to unprecedented highs, while the Nikkei 225 (+0.4%) ignored disappointing Industrial Production data and what has so far been a predominantly softer earnings season, with early outperformance fuelled by recent currency weakness although BoJ disappointment later saw some of the gains pared. Elsewhere, Hang Seng (+0.3%) andShanghai Comp. (+0.7%) conformed to the mild optimism despite further liquidity inaction by the PBoC as focus turned to the resumption of US-China trade talks in Shanghai today. Finally, 10yr JGBs traded sideways with price action indecisive heading into today’s BoJ policy conclusion where the central bank kept policy settings unchanged as expected but also maintained its forward guidance which disappointed some outside calls for a potential dovish tweak.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.8862 (Prev. 6.8821)

Chinese President Xi reportedly faces increasing pressure to make significant progress in US-China trade talks ahead of the annual leadership gathering next month. (Nikkei)

BoJ kept all monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0% with the decision made by vote of 7-2 in which Kataoka and Harada dissented again. BoJ also maintained its forward guidance on keeping rates at extremely low rates at least through to Spring 2020 and added that it will ease without hesitation if momentum to reaching the price goal is lost, while it reduced FY19/20 Real GDP forecast to 0.7% from 0.8% and cut FY19/20 Core CPI forecast to 1.0% from 1.1%. (Newswires)

Japanese Industrial Production (Jun P) M/M -3.6% vs. Exp. -2.0% (Prev. 2.0%). (Newswires) Japanese Industrial Production (Jun P) Y/Y -4.1% vs. Exp. -2.0% (Prev. -2.1%)

US Trade Representative Lighthizer said US businesses face unfair trade barriers in Vietnam and that Vietnam must take action to reduce unsustainable trade deficit. (Newswires)

UK/EU

UK PM Johnson will not meet with any EU leaders until they agree to remove backstop, while an official spokesman said PM Johnson does want to meet EU leaders and negotiate, he will not want to "sit down and be told that the EU cannot possibly reopen the Withdrawal Agreement". (Telegraph)

Scottish First Minister Sturgeon said she believes PM Johnson is looking for a no deal, regardless of what he says in public. (Newswires)

FX

DXY was slightly firmer as it continued to prod above the recently reclaimed 98.00 level ahead of an anticipated less aggressive move by the Fed at tomorrow’s FOMC and amid a mostly subdued tone in its major counterparts in which EUR/USD pulled back from resistance at 1.1150. GBP/USD also continued on its underperformance with the selling exacerbated on a break below the 1.2200 level for the first time since March 2017 with analysts touting that sellers will now have their sights next on the March 2017 low at 1.2110, while the latest Brexit headlines didn’t seem to bode well for the currency with UK PM Johnson refusing to meet with EU leaders until they agree to remove the backstop. Elsewhere, USD/JPY initially extended on this week’s upside but was then stalled by resistance ahead of the 109.00 handle and later pressured after the BoJ disappointed outside calls for a dovish tweak to forward guidance, while antipodeans were uneventful amid a firmer greenback in which AUD/USD barely held on to the 0.6900 level, not helped by a larger than expected contraction in Building Approvals.

Australian Building Approvals (Jun) M/M -1.2% vs. Exp. -1.0% (Prev. 0.7%, Rev. 0.3%). (Newswires) Australian Building Approvals (Jun) Y/Y -25.6% vs. Exp. -24.3% (Prev. -19.6%)

COMMODITIES

Commodities traded quietly overnight with mild gains seen in WTI crude futures after it recently reclaimed the USD 57.00/bbl level and as geopolitical concerns surrounding Iran lingered with UK refusing to consider a tanker swap with Iran and the later planning joint naval exercises with Russia, while participants now look ahead to the latest inventory numbers beginning with the API report after-hours in US. Elsewhere, gold was contained by a firmer greenback and with participants tentative ahead of tomorrow’s FOMC, while copper only marginally benefitted from the risk appetite as it took a breather following the prior day’s advances in which it broke through near-term resistance at the USD 2.70/lb level.

GEOPOLITICS

Iran Navy Commander Khanzadi said they will expand military ties with Russia and announced an agreement for joint naval exercise in the Indian Ocean, Arabian Sea, the Strait of Hormuz and the Persian Gulf. (Newswires) 

US

Treasuries moved higher to start the week, taking their cues from falling global yields and in anticipation of a Fed rate cut on Wednesday, in addition to the uncertainty from US-China trade talks in the next few days. No-deal Brexit fears surged as UK PM Johnson doubled down on the threat of a no-deal, just another global risk adding credence to central bank easing. US investors are also likely to be concerned by the evident slowdown in global manufacturing, which seeped into Friday’s US Q2 GDP data, despite the consumer segment remaining robust. At settlement the curve had flattened modestly (2s10s approximately 1bps narrower), with yields down between 1.5bps and 2.5bps. Elsewhere, US treasury said it borrowed (USD) 40bln in Q2 and that it expects to issue 433bln worth of debt in Q3 (higher than the prior 160bln estimate) and 381bln in Q4 of this year. US T-note futures (U9) settled 7+ ticks higher at 127-14+.

US Treasury Secretary Mnuchin reportedly told colleagues House Speaker Pelosi assured him she will bring up USMCA for a vote by October, although Pelosi's office was said to have denied she gave any assurances on timing for a vote. (Axios)