• Global sentiment dented after US President Trump announced a 10% tariff on the remaining USD 300bln of Chinese goods to the US
• In recent talks, Chinese sources stated that China was not backing down or adding back any of the concession language in the agreement
• DXY declined following the tariff announcement and continued to pull back from its highest levels in more than a year
• UK Conservative Party lost the Brecon and Radnorshire by-election. As such, the Conservative Party’s working majority in Parliament stands at just 1 seat
• Looking ahead, highlights include UK Construction PMI, US Jobs Report/Trade Data/Factory Orders & Uni. Michigan Sentiment
• Earnings: Berkshire Hathaway, Exxon, Chevron, Allianz, RBS, BT, IAG

TRADE TARIFFS

US President Trump announced the US will impose a small additional tariff of 10% on the remaining USD 300bln of goods and products coming from China into the US beginning on September 1st. President Trump added that he is taxing China until a deal can be reached and that China President Xi is not moving fast enough although he thinks that Xi wants to make a deal, while he also stated that the latest announced tariffs could be raised to 25%. (Newswires/Twitter)

Chinese Foreign Minister Wang Yi said the new tariffs are not a solution to trade dispute. Elsewhere, China Global Times editor tweeted that the new tariffs will not bring closer a deal that the US wants and will only make it further away, while he thinks China will no longer give priority to controlling trade war scale and will focus on the national strategy under a prolonged trade war. (Twitter)

Chinese sources stated that China was not backing down or adding back any of the concession language in the agreement, while China told the USTR the US will have to trust them for enforcement of IP protection. Chinese sources also stated that the Chinese side walked into meetings in Shanghai not ready to make any moves at all which was said to have frustrated US Trade Representative Lighthizer. (SCMP) 

ASIA-PAC

Asian equity markets traded lower across the board with global risk sentiment spooked after US President Trump upped the pressure on China by announcing a 10% tariff on the remaining USD 300bln of Chinese goods to the US beginning September 1st. ASX 200 (-0.4%) was subdued with hefty losses seen in the energy sector after crude prices dropped over 7% the prior day and with broad weakness across mining names aside from gold stocks after the precious metal was boosted by safe-haven demand, while Nikkei 225 (-2.6%) was dragged lower by a firmer currency, soft earnings and as regional bilateral relations further deteriorated after Japan approved the removal of South Korea from its white list of preferred trading partners. Elsewhere, Hang Seng (-2.5%) and Shanghai Comp. (-1.7%) conformed to the washout across stocks following Trump’s tariff announcement in which he said he is taxing China until a deal can be reached and suggested that tariffs could be raised to 25%. Finally, 10yr JGBs were higher and notched their biggest gain since early January as they tracked the upside in global bonds due to safe-haven demand and with the BoJ present in the market for longer-dated bonds.

PBoC skipped open market operations. (Newswires) PBoC set CNY mid-point at 6.8996 (Prev. 6.8938)

Japan cabinet approved removing South Korea from its export white list and Industry Minister Seko said they ready to talk only after South Korea corrects its statement regarding July meeting. It was also reported that BoK Governor Lee was to hold a meeting with officials and South Korean President Moon to chair a cabinet meeting following Japan's decision to remove South Korea from its white list. (Newswires)

BoJ minutes from June 19th-20th meeting stated it is appropriate to keep easing persistently and that Japan's economy had been on a moderate expanding trend but added exports had shown some weakness and public investment has been more or less flat. Furthermore, the minutes stated that private consumption had been increasing moderately albeit with fluctuations and industrial production has shown some weakness, while some members saw no need to follow BoJ's bond range too strictly and that it is appropriate to control bond yields flexibly.

UK/EU

UK Conservative Party lost the Brecon and Radnorshire by-election to pro-EU Liberal Democrats. (Newswires) As such, the Conservative Party’s working majority in Parliament stands at just 1 seat.

UK Lloyds Business Barometer (Jul) 13 (Prev. 13). (Newswires)

FX

DXY declined following the tariff announcement and continued to pull back from its highest levels in more than a year, although most its major counterparts failed to benefit from the weaker greenback given the wide risk-averse tone and ahead of today’s key NFP data. As such, EUR/USD was relatively steady below the 1.1100 handle ahead of the US jobs numbers and an expected announcement by US President Trump regarding EU trade at 1845BST, while GBP/USD traded lacklustre and slipped below 1.2100 on cross related pressure and after UK PM Johnson’s working majority was cut to 1 seat due to the Conservative Party defeat in the Brecon and Radnorshire by-election to the pro-EU Liberal Democrats. Elsewhere, USD/JPY tested 107.00 to the downside and JPY-crosses also succumbed to safe-haven flows, while antipodeans were dampened by the risk averse tone and weakness in CNY following Trump’s tariff offensive but with losses in AUD/USDstemmed by support at the 0.6800 level and after mostly firmer than expected Retail Sales and PPI data from Australia.

Australian Retail Sales (Jun) M/M 0.4% vs. Exp. 0.3% (Prev. 0.1%). (Newswires)

Australian Retail Trade (Q2) Q/Q 0.2% vs. Exp. 0.3% (Prev. -0.1%) Australian PPI (Q2) Q/Q 0.4% vs. Exp. 0.2% (Prev. 0.4%)

Australian PPI (Q2) Y/Y 2.0% vs. Exp. 1.9% (Prev. 1.9%)

COMMODITIES

Commodities were mixed overnight with a mild recovery seen in WTI crude futures after prices found a base around USD 54.00/bbl, although oil prices still have far to go to recoup the prior day’s 7% drop in which selling was exacerbated as markets were spooked by President Trump’s tariff announcement. Elsewhere, goldwas boosted due to the safe-haven demand although has since pulled-back from its highs after hitting resistance just shy of the USD 1450/oz level with focus now shifting to the upcoming NFP data to top off what was a tumultuous and risk-packed week for the precious metal, while copper suffered alongside Chinese commodity prices due to the escalation of the US-China trade dispute.

Libya's El Sharara oil field is to reopen following the recent force majeure.(Newswires) 

GEOPOLITICS

North Korea conducted further short-range projectile launches early on Friday, which reports stated appeared to be a new type of missile. (Yonhap)

US

The T-plex had an exuberant rally amid new China tariffs and disappointing data raising expectations of another Fed rate cut in September, in addition to risk off flows. The bidding got off strongly as the US session commenced following the US July ISM Manufacturing printing 51.2 (exp. 52.0), pulling back on some of the optimism from the PMI Manufacturing data. Treasuries were already firmly higher on the day, but were soon to be doubled as President Trump took to twitter to announce the new 10% tariffs. At settlement, the curve was steeper generally with the 2s30s widening by around 3.5bps, however the very short end was a little flatter. Analysts note that 10-year and 30-year yields posted their lowest levels in nearly 3 years, and futures contracts printed near new contract highs in all but the TYU9. US T-note futures (U9) settled 1-08+ higher at 128-22.

US Senate passed the debt ceiling suspension bill which will be sent to US President Trump for signing. (Axios)

White House schedule for US President Trump showed that an announcement regarding EU trade is scheduled today at 1845BST, while reports later stated that US President Trump is to formally announce a deal to open up EU to more beef exports, according to sources familiar with the plans. (Newswires)