• European indices are firmly in the red as sentiment remains under fire from US President Trump announcing further China tariffs
• Fixed income has been underpinned on the risk sentiment with the German 30yr yield dropping below 0% for the first time and the 10yr below -50bps
• Chinese Commerce Ministry responded saying if the US is intent on implementing further tariffs China will have to take countermeasures
• Looking ahead, highlights include, US Jobs Report/Trade Data/Factory Orders & Uni. Michigan Sentiment
• Earnings: Berkshire Hathaway, Exxon, Chevron

TRADE TARIFFS

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)

Chinese Commerce Ministry says that if the US is intent on implementing further tariffs on Chinese goods, China will have to take countermeasures; urges the US to abandon its illusions, shoulder some responsibility and get back on track in resolving the trade dispute, says the door for trade talks remains open but will never give in the blackmail and intimidation. Scheduled dialogue for August will still commence, though the US must show sincerity. (Newswires)

Chinese Global Times Editor tweets, President Trump is in a rush to reach a deal and is too arrogant; influenced by wrong intelligence he misjudges China in multiple fields. May make a big mistake on China, as far as I know, China has recently sped up buying US farm products, public opinion is helping make the adjustment. (Twitter)

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 (-0.3%) 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 (-2.1%) 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 (-2.4%) and Shanghai Comp. (-1.4%) 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. Subsequently, South Korea have stated they will remove Japan from their White List as well. (Newswires)

South Korea’s Deputy National Security Advisor states that Japan has generated obstacles in the way of achieving peace on the Korean peninsula, will review whether to maintain agreement on military intelligence sharing. (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.

US

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)

GEOPOLITICS

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

UK/EU

BoE Governor Carney says there is a significant probability that a Brexit deal will not be struck; in general a no-deal will be inflationary. (Newswires) Largely echoing comments from yesterdays post-rate decision presser.

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 Markit/CIPS Construction PMI (Jul) 45.3 vs. Exp. 46 (Prev. 43.1)

- Construction activity falls for the third month in a row

- Sharp drop in new work and purchasing activity during July

- Business optimism slides to its lowest since November 2012

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

EU Retail Sales YY Jun 2.6% vs. Exp. 1.3% (Prev. 1.3%, Rev. 1.0%)

- EU Retail Sales MM Jun 1.1% vs. Exp. 0.2% (Prev. -0.3%, Rev. -0.6%)

Greek Central Bank is conducting an impact assessment on lifting capital controls, according to a senior official. (Newswires)

EQUITIES

European equities are submerged in a sea of red [Eurostoxx 50 -2.5%] and have extended on opening losses as the region succumbs the global risk sentiment following US President Trump’s latest tariff threat, which would see USD 300bln worth of Chinese goods taxed at 10% from September 1st. Major EU bourses are currently lower in excess of 2% with France’s CAC (-2.7%) one of the worst hit due to its broader exposure to trade-sensitive stocks, i.e. autos, chip names, materials and luxury goods. Sectors are firmly in negative territory with material names lagging as the sector bears the brunt of plummeting base metal prices, whilst IT and consumer discretionary follow closely. Defensive sectors fare slightly better as investors flock to the “safer” stocks , i.e. healthcare, utilities and consumer staples. Some notable trade-related movers include Infineon (-6.9%), STMicroelectronics (-6.0%), Arcelormittal (-5.0%), Hugo Boss (-6.0%), LVMH (-3.5%) and Fiat Chrysler (-3.5%). Elsewhere, RBS (-6.2%) is hit post-earnings after the bank stated that it is unlikely to meet its 2020 ROTE goal, whilst Pirelli (-5.1%) became the second EU tire name to slash guidance this quarter.

FX

JPY/CHF - The clear outperformers amidst a sharp deterioration in risk sentiment on another flare up in US-China trade tensions, as President Trump follows through on additional tariff threats with a date set for at least 10% to be levied against the remaining Usd300 bn goods. Unsurprisingly, Beijing has responded in kind with the ‘promise’ of countermeasures and the Yen has extended gains vs the Dollar through 107.00 and beyond 1 bn expiry options at the round number, while the Franc is back above 0.9900 and testing 1.0950 against the Euro following weaker than forecast Swiss CPI and manufacturing PMI prints that could well arouse SNB interest. However, the Buck is forging gains elsewhere and just enough on balance to keep the DXY afloat between 97.147-45 parameters awaiting US jobs data.

EUR - The single currency is also benefiting from its semi or partial safe-haven status as Eur/Usd rebounds further from yesterday’s new ytd low around 1.1027 and briefly back over 1.1100. However, a decent spread of expiries either side of the big figure could contain the headline pair ahead of NFP, if not the NY cut, with 4 bn in total running off from 1.1075 to 1.1130. Note, little reaction to mixed Eurozone data in the form of retail sales and PPI as the former beat consensus and latter missed.

NZD/AUD/CAD - Predictably, the biggest victims of the aforementioned US-China trade fallout with the Kiwi down to 0.6525 vs its US counterpart, Aussie pivoting 0.6800 and Loonie under 1.3200 within a 1.3210-30 range. Some solace for the Aud and Cad via firmer than expected Aussie retail sales and PPI overnight and a modest recovery in oil respectively, but scant consolation if global trade wars escalate even further.

EM - No shock to see Usd/Cny rally from PBoC midpoint levels and Usd/Cnh even more given the latest tit-for-tat between Washington and Beijing, as the off-shore Yuan heads back down towards 7.0000 and clustered chart resistance just shy of the perceived line in the sand circa 6.9805-40-95. However, Usd/Try continues to trend lower and the Lira outpace regional peers in the absence of US sanctions (as yet), weaker crude prices that are weighing on the likes of the Rouble and residual support from the CBRT’s softer inflation projections. Nevertheless, the winning streak could end or stall if S&P delivers a negative Turkish ratings review post-Friday’s close and/or CPI data next Monday rebounds in line with expectations.

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%)

South Korean authorities are suspected of selling dollars in order to stem the KRW's fall., according to dealers. (Newswires)

FIXED INCOME

It looks like debt bulls are mustering a bit more momentum with the aid of early US birds as Bunds inch up to 176.08 in a belated response to a deeper slump across EU bourses and China ramping up its retaliatory rhetoric in the face of a circa one month deadline to concede ground and reach a trade accord or accede to more tariffs. However, Gilts and US Treasuries are lagging a bit behind and off best levels, albeit still firm and several factors may have curtailed the latest advance besides pure fatigue and a loss of momentum, such as technical resistance and a degree of reticence to advance much further before NFP and the Wall Street open to see if US stocks recover from Thursday’s late slide or pick-up the negative baton and extend their declines.

COMMODITIES

The oil complex is posting a mild recovery following the prior day’s 7% sell-off in which a bout of risk aversion and global growth concerns resurfaced following President Trump’s announcement of fresh China tariffs and a potential levy hike. WTI futures found a base at 54/bbl while its Brent counterpart tested support at 60.00/bbl with both benchmarks currently just above 55/bbl and 62/bbl. Elsewhere, gold has eased off highs following its Trump-induced rally which saw the safe haven print a peak of around 1449/oz before stabilising sub-1440/oz. Meanwhile, copper plunged to a 3-week low to below 2.6/lb on the tariff threats as the red metal followed suit with the global risk sentiment and the prospect of lower demand. Finally, Dalian iron ore futures slid over 4% and is on course to notch its second consecutive weekly loss amid demand woes (from US-China trade developments) and oversupply concerns after Brazil announced a rebound in exports in July.

Libya's El Sharara oil field is to reopen following the recent force majeure; although, there were some subsequent unconfirmed reports that the filed is to close once more. (Newswires) 

Russian July oil production at 11.15mln BPD, unchanged M/M. (Newswires)

China's H1 gold output -5.05% Y/Y to 180.68 tonnes, consumption -3.27% Y/Y to 523.54 tonnes, according to the Gold Association. (Newswires)