• Asian equity markets were lower across the board as the stock rout resumed from last week’s tariff announcement by US President Trump
• China has asked state-run purchasers to halt US agriculture imports, while a collapse in the CNH through the 7.00 handle also exacerbated the risk-averse tone
• DXY slightly softened and dipped below 98.00, whilst safe-haven flows pressured USD/JPY below 106.00 for the first time since the flash crash at the beginning of the year
• Looking ahead, highlights include EZ, UK & US Services and Composite PMI; US ISM-Non-Manufacturing PMI; New Zealand Unemployment
• Earnings: Linde, Pirelli & HSBC

ASIA-PAC

Asian equity markets were lower across the board as the stock rout resumed from last week’s tariff announcement by US President Trump and with retaliation from China in which it asked state-run purchasers to halt US agriculture imports, while a collapse in the CNH through the 7.00 handle also exacerbated the risk averse tone. ASX 200 (-1.7%) weakened with the trade sensitive sectors such as tech and materials front-running the declines, although gold names bucked the trend on the precious metal’s safe-haven status, while Nikkei 225 (-2.2%) was pressured by a firmer currency and several disappointing earnings including Kobe Steel and Yahoo Japan. Hang Seng (-2.8%) andShanghai Comp. (-0.8%) also slipped amid the escalation of trade tensions with underperformance in Hong Kong as protests continued and with a 500k-strong city-wide strike said to be planned which disrupted public transport and saw more than 130 flights cancelled, while the latest Hong Kong PMI data printed at a decade low due to the impact from the ongoing disorder and trade dispute. Furthermore, a miss in Chinese Caixin Services PMI added to the glum, with the selling exacerbated after the PBoC weakened the reference rate which pressured CNH to a record low against the greenback past the 7.0000 level seen by some to be a sticking-point for China and in turn, raised concerns of China weaponizing its currency. Finally, 10yr JGBs were underpinned as the widespread risk averse tone spurred safe-haven buying which saw 10yr JGB futures post a record high and the 10yr yield drop to its lowest in 3 years at around -0.2%, while T-notes also found support overnight and the BoJ were present in the market today under its massive bond buying program.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.9225 (Prev. 6.8996)

PBoC said it can keep CNY basically stable and that depreciation of the currency is due to trade protectionism as well as tariffs on Chinese goods, while the PBoC added the FX market can find balance on its own and that China will crack down on short-term speculation of the CNY. (Newswires)

US President Trump said US has to have a better deal, not an even deal with China and that China has a lot to do to turn things around, while he also stated that he can always raise tariffs and China's currency is "going to hell". (Newswires/Twitter)

China is said to ask state buyers to halt their US agriculture imports. China’s US Ambassador said on Friday that if the US wants to talk about trade, then so will China, and if the US want to fight, so will China, while he added that new tariffs are an irrational and irresponsible act which Beijing will take new adequate countermeasures against. The Ambassador also commented on Hong Kong protests which he said are turning out to be violent as well as chaotic and should no longer be allowed to continue. (Newswires)

Protests continued in Hong Kong in which police fired tear gas into protesters over the weekend, while Hong Kong authorities expect flight cancellations and other transport disruptions as 500k protesters plan a city-wide strike. Hong Kong Chief Executive Lam said protests have brought Hong Kong to the edge and protesters are pushing it to an extremely dangerous situation, while she added she will remain in her job to try and restore order. (Newswires)

Chinese Caixin Services PMI (Jul) 51.6 vs. Exp. 52.0 (Prev. 52.0); 5-month low Chinese Caixin Composite PMI (Jul) 50.9 (Prev. 50.6) Hong Kong PMI (Jul) 42.8 (Prev. 46.9); lowest since 2009.

UK/EU

UK PM Johnson pledged GBP 1.8bln to upgrade 20 hospitals as part of meeting his Brexit pledges. In related news, PM Johnson’s most senior aide Dominic Cummings told ministers and officials Johnson will honour his October 31st pledge even if Jeremy Corbyn and pro-Remain Conservatives succeed in forcing a general election. (Newswires/Telegraph) Subsequently, MP Dominic Grieve a Tory rebel states there are a number of things the House of Commons could do, including bringing down the government and setting up a new one in its place; though this would rely on UK PM Johnson resigning after losing a no-confidence vote. (BBC)

Companies have switched a near-record amount of GBP deposits into foreign currency as part of contingency plans before a no-deal Brexit as it emerged that the government has built up a war chest to protect the pound, according to BoE figures. (Times)

US President Trump’s administration are reportedly warning the UK that it will not receive a free trade deal unless a digital services tax is dropped before it is scheduled to become law in the autumn budget; to be effective as of April 2020. (Sky/Telegraph)

US President Trump confirmed he will sign a beef agreement with EU which will make it easier for US firms to export to the EU and result in a 46% increase in US exports of beef to the EU. In other news, US President Trump said EU auto tariffs are never off the table and that if he doesn't get what he wants, he'll have no choice but to put on auto tariffs. (Newswires)

Fitch affirmed Greece at 'BB-'; Outlook Stable. (Newswires) 

FX

The greenback slightly softened and dipped below 98.00, although its major transatlantic counterparts failed to take advantage amid the widespread risk averse tone with EUR/USD and GBP/USD choppy at the 1.1100 and 1.2100 handles respectively. Conversely, JPY strengthened on safe-haven flows which pressured USD/JPY to below 106.00 for the first time since the flash crash at the beginning of the year, while USD/CNY surged above the psychological key 7.0000 level for the first time since the GFC and USD/CNH printed a record high at the 7.1100 handle after a softer reference rate setting by the PBoC which further spooked investor sentiment due to concerns of China weaponizing its currency in the trade war with the US. However, the PBoC later attributed the depreciation of the currency to trade protectionism, as well as tariffs on Chinese goods, and stated it will crack down on short-term speculation of the CNY. Antipodeans were weighed due to their high-beta properties and heavy China exposure, with participants weary ahead of the heavy slate of central bank activity this week including policy decisions from the RBA and RBNZ. 

COMMODITIES

Commodities were mixed with oil prices subdued as markets were spooked by the escalation in the US-China trade war and depreciation of the CNY. This saw oil WTI decline more than 1% although the downside has been stemmed by support at the USD 55.00/bbl level, with Saudi Energy Minister Al Falih also reiterating to comply with output cuts to Q1 next year during a discussion with Russia Energy Minister Novak. Elsewhere, gold prices were boosted above USD 1450/oz as the precious metal benefitted from its safe-haven status as well as a weaker greenback, while copper was dragged amid the sell-off in stocks and with pressure seen in Chinese commodity prices in which iron prices tumbled around 3% shortly after the open of Shanghai metals trade. 

Baker Hughes Oil rigs -6 at 770, nat gas rigs +2 at 171, total rigs -4 at 942.(Newswires)

Saudi Energy Minister Al-Falih spoke to Russia Energy Minister Novak about oil markets and stressed the kingdom would continue to comply with output cuts until the end of Q1 2020. (Twitter)

GEOPOLITICS

Satellite imagery reportedly showed minimal activity around North Korea's Yongbyon nuclear complex with some evidence of probable continued operations of the Uranium Enrichment Plant, while there were also reports that North Korea said it has never agreed on limiting missile distance. (Newswires)

Iran reportedly seized an Iraq oil tanker that was allegedly smuggling fuel in the Gulf, although the Iraq Oil Minister denied any links to the tanker. (Newswires)

Turkey plans to carry out an operation east of the Euphrates in Syria, while US and Russia have been notified. (Newswires) 

US

The yield curve flattened, taking its cue from escalating trade escalations, shrugging-off a generally upbeat payrolls report. Markets have now fully priced a September rate cut, and have 100bps of easing priced through the end of 2020 (note, in wake of the payrolls report, it was roughly 70bps priced, which suggests that traders have added to their easing expectations in wake of the trade escalation. At settlement, major curve spreads were narrower. US T-note (U9) futures settled 5+ ticks higher at 128-27+.

US President Trump is to address the nation on Monday and suggested that more gun control may be needed following a mass shooting incident in El Paso, Texas in which 20 were killed, while there was also a mass shooting in Dayton, Ohio. (Newswires)

Fed's George (Voter, hawk) explained her dissent at Wednesday's FOMC in which she stated the moderation in the economy was in line with her outlook at the start of the year, while she added there are risks to her outlook and will be data dependent in shaping her outlook. (Newswires)