• European indices are off FOMC-lows, Energy sector is pressured after Shell’s earnings and lower oil prices
• Cable remains lacklustre around 1.2100 ahead of the BoE
• Looking ahead, highlights include US Initial Jobless Claims & ISM Manufacturing PMI, BoE Rate Decision, QIR & Press Conference
• Earnings: Verizon, S&P, General Motors, Marathon Petroleum

ASIA-PAC

Asian stocks traded lacklustre as the region reacted to the FOMC meeting. ASX 200 (-0.3%) and Nikkei 225 (U/C) were lower with notable weakness seen in gold miners after the precious metal slumped post-FOMC, although downside in Australia’s broader market was limited by resilience in its largest weighted financials sector, while the Japanese benchmark briefly turned positive as it found solace from a weaker currency and amid a heavy slate of earnings. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (-0.8%) conformed to the downbeat picture after the PBoC skipped liquidity operations again and participants digested more PMI data in which Chinese Caixin Manufacturing PMI topped estimates but remained below the 50 benchmark level, while there was also increasing concerns regarding the Chinese military intervening in Hong Kong. Conversely, participants had their first opportunity to react to the more constructive tone struck between US and China in trade talks. Finally, 10yr JGBs were lower and tracked the weakness seen in USTs following the less dovish than expected Fed, with further pressure seen after the 10yr auction results which attracted weaker demand.   

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.8938 (Prev. 6.8841)

Chinese Caixin Manufacturing PMI (Jul) 49.9 vs. Exp. 49.6 (Prev. 49.4). (Newswires)

HKMA lowered the base rate by 25bps to 2.50% in lockstep with the Fed. (Newswires)

Hong Kong Chief Executive Lam said China’s Army is ready to protect China's sovereignty, while there were earlier comments from China PLA Commander in Hong Kong said it will not tolerate violence. (Newswires)

US

US President Trump tweeted that what the market wanted to hear was that this was the beginning of a lengthy and aggressive rate-cutting cycle, while he suggested Fed Chair Powell let us down as usual but at least he is ending quantitative tightening. Furthermore, Trump later added that experts stated Fed should not have tightened and waited too long to undo the mistake, while he added that Fed’s Bullard said they waited too long to correct the mistake made in December.

US Secretary of State Pompeo tweets that he had an in-depth exchange of views with Chinese State Councillor Wang Yi on U.S.-China relations and North Korea, among other important topics of mutual concern, when it advances US interests we are ready to cooperate with China. (Newswires)

GEOPOLITICS

Following on from the US implementing sanctions on Iranian Foreign Minister Zarif, he stated that the US sanctioned him because he is Iran's primary spokesperson around the world and that the sanctions have no impact for him or his family as he does not have foreign property or interests. Furthermore, Zarif thanked the US for sanctioning him and considering him a considerable threat to its agenda. (Twitter)

UK/EU

UK Treasury said total no-deal Brexit fund is now GBP 6.3bln which includes GBP 2.1bln to prepare for a no-deal Brexit. (Newswires)

The BoE risks upsetting the economy if it changes interest rates before there is more clarity about Brexit, according to City A.M.’s shadow monetary policy committee. (CityAM)

UK PM Johnson and European Commission Juncker are to meet at the G7, 24th-26th August., Telegraph's Crisp. (Twitter)

- EU Commission spokesman says 'All the measures that we have put into place are unilateral and not negotiable. This is the position of the EU'

EU Markit Manufacturing Final PMI (Jul) 46.5 vs. Exp. 46.4 (Prev. 46.4)

- German Markit/BME Manufacturing PMI (Jul) 43.2 (Prev. 43.1)

- French Markit Manufacturing PMI (Jul) 49.7 vs. Exp. 50 (Prev. 50)

UK Markit/CIPS Manufacturing PMI (Jul) 48.0 vs. Exp. 47.7 (Prev. 48); Output Component 47.0 (Prev. 47.2) - Lowest since July 2012

- Some firms report clients moving supply chains away from the UK ahead of Brexit

EQUITIES

European stocks have nursed the losses seen at the open [Eurostoxx 50 +0.4%] and are somewhat consolidating following the downside seen post-FOMC. Major bourses are mixed with the FTSE 100 (Unch) faring slightly worse as its oil giant Shell (-4.6%) fell to the foot of the Stoxx 600 as the Co’s profits plunged on lower oil prices. This, coupled with an uninspiring energy complex sees the EU energy sector significantly underperforming, whilst other sectors (ex-materials) are broadly in positive territory. Notable movers today are largely on the back of earnings, with Altice (+23.7%), Capita (+21.0%), SocGen (+4.5%) and Standard Chartered (+4.5%) all bolstered by optimistic numbers. On the flip side, Barclays (-3.2%) is hit on a profit miss, while Siemens (-4.3%) narrowed its EBITA forecast and now sees it at the lower end of the previously guided range. Miners also took a hit from the FOMC-triggered downside in the metals complex. Finally, a special dividend announcement from Rio Tinto (-2.4%) did little to support their share price this morning.

FX

USD - The Dollar is broadly firmer in wake of the FOMC and relatively hawkish guidance to accompany the 25 bp ease. The decision to cut rates was not unanimous and Fed Chair Powell stressed that the move was different to previous policy loosening heralding the start of a lengthy cycle by framing the reduction as a mid-cycle adjustment, albeit adding that it is not necessarily a case of ‘one and done’. Nevertheless, the markets were hoping for more and the index rallied to a new 2019 peak at 98.941 before losing momentum ahead of Friday’s NFP that may be pivotal for the rest of the year in terms of policy action.

AUD/NZD/NOK/SEK - Relative outperformers or at least recovering some lost ground, as the Aussie found support near early Feb 2016 lows around 0.6827 vs its US counterpart and has subsequently bounced to 0.6850+, while the Kiwi rebounded from 0.6535 to reclaim 0.6560+ status. Elsewhere, the Scandi Crowns are both benefiting from technical retracements against the Euro and seemingly independent of contrasting manufacturing PMIs given a bad Norwegian miss and sub-50 print vs firmer than forecast Swedish headline that was only partly offset by less upbeat components. Indeed, Eur/Nok is back down below 9.8000 and Eur/Sek under 10.7000.

GBP/EUR/JPY/CAD/CHF - The Pound has also largely shrugged off a better than expected UK manufacturing PMI amidst ongoing and increasing no deal Brexit risk as output hit circa 7 year lows and attention shifts to BoE super Thursday and the prospect of a more dovish/downbeat tone to the MPC minutes, QIR and Governor Carney presser. Indeed, Cable has now lost grip of the 1.2100 handle and Eur/Gbp is eyeing 0.9130 ahead of high noon and the 12.30BST news conference – full preview available via the Research Suite and Headline Feed. Mixed Eurozone manufacturing surveys have not really impacted the single currency either as Eur/Usd hovers towards the base of a 1.1080-33 range, while the Yen has regrouped from 109.30 lows to probe resistance at 109.00 and hefty option expiry interest from the big figure to 109.10 in 2 bn. Elsewhere, the Loonie has handed back all and more of its post-Canadian GDP data gains and is looking at offers said to be stacked between 1.3230-40, with the Franc pivoting 0.9950 and 1.1000 against the Euro.

EM - Amidst pronounced depreciation vs the Greenback, Turkey’s Lira has bucked the trend on further positive follow through from the latest CBRT inflation report and outlook, with Usd/Try remaining south of 5.6000 and hardly reacting to a more contractionary manufacturing PMI. However, the Real may underperform after a bigger than anticipated 50 bp BCB rate cut from a 3.8130 close post-FOMC.

FX Option Expiries:

- EUR/USD: 1.1050 (358M), 1.1100 (1BLN), 1.1125-30 (700M)

- USD/JPY: 107.90-108.00 (1.5BLN), 108.10-20 (900M), 108.50-65 (1BLN), 108.70-75 (450M), 109.00-10 (2BLN), 109.30 (825M)

FIXED INCOME

Gilts have rebounds strongly from fresh post-UK PMI Liffe intraday lows and just notched a new, albeit marginal contract high at 133.08 (+1/4 point on the day vs -16 ticks at one stage) as Sterling continues its slide and the clock ticks down to the BoE. Similarly, Short Sterling futures have bounced a bit further from worst levels to stand 2.5 ticks ahead at best in contrast to core counterparts that remain relatively capped in wake of the ‘hawkish’ Fed. Back to bonds, Bunds are flirting with parity at 175.09, but off yesterday’s 175.28 best and the US Treasury curve is still softer/steeper albeit less pronounced ahead of claims, manufacturing PMI and ISM.

COMMODITIES

The energy complex remains subdued in the after-math of the disappointing FOMC forward guidance issued yesterday. WTI and Brent futures have since traded sideways below 58.00/bbl and 64.50/bbl respectively with little by way of fresh catalysts. Looking at technical levels to the upside, WTI sees the psychological 58/bbl mark ahead of its 200 DMA at 58.09/bbl, meanwhile its Brent counterpart sees clean air (ex-psych levels) between 63.50-65.00/bbl. In terms of geopolitics, US announced sanctions on Iranian Foreign Minister Zarif during the back-end of the US session, albeit the news did little to sway oil prices. Elsewhere, the metal market remains under pressure from the FOMC fallout in which gold plummeted over 20/oz since the release. The yellow metal remains under pressure (albeit above the 1400/oz level) as the Dollar index hovers near YTD highs. Meanwhile, copper remains lacklustre and firmly below the 2.7/lb as the red metal holds onto the Powell-induced losses.

Yemen's Houthis have launched a long-range missile on a military site in Saudi Arabia's Damman, according to Masirah TV. (Newswires)