• European indices are firmly in negative territory [Euro Stoxx 50 -1.4%] as the US-China trade narrative ramps up and USD/CNH went through the 7.00 handle
• China has asked state run firms to halt US agriculture purchases, however the State Planner later rebuffed the US’ accusation that China has not purchased farm products
• Fixed remains firmer, though of off session highs while the DXY continues to falter below the 98.00 mark
• Looking ahead, highlights include, US Services and Composite PMI; US ISM-Non-Manufacturing PMI; New Zealand Unemployment

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 (-1.7%) was pressured by a firmer currency and several disappointing earnings including Kobe Steel and Yahoo Japan. Hang Seng (-2.8%) and Shanghai Comp. (-1.6%) 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)

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)

Subsequently, China State Planner says US' accusations that China has not bought US farm products are false, reported via State Media: 2mln tonnes of US soybeans heading to China will be loaded this month, Chinese firms have applied for tariff exemptions on various US agricultural products purchased since July and the US and China agreed that China will buy 14mln tonnes of soybeans from the US. (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)

Hong Kong Police says there is no chance of deploying People's Liberation Army (PLA) officers in protests. (Newswires) Most recently, reported that Beijing are to announce 'something new' regarding Hong Kong on Tuesday, an official has stated that Beijing's position is largely unchanged., SCMP citing a source

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.

US

US President Trump is to address the nation on Monday (10:00 ET) 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)

GEOPOLITICS

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)

Pakistan says they will exercise all possible options after India have revoked special status for the Kashmir region. (Newswires)

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) 

EU Markit Services Final PMI (Jul) 53.2 vs. Exp. 53.3 (Prev. 53.3)

- EU Markit Comp Final PMI (Jul) 51.5 vs. Exp. 51.5 (Prev. 51.5)

- German Markit Services PMI (Jul) 54.5 vs. Exp. 55.4 (Prev. 55.4)

- German Markit Comp Final PMI (Jul) 50.9 vs. Exp. 51.4 (Prev. 51.4)

UK Markit/CIPS Services PMI (Jul) 51.4 vs. Exp. 50.2 (Prev. 50.2)

- UK Composite PMI (Jul) 50.7 (Prev. 49.7)

- PMI data suggests UK economy stagnated at the start of Q3

EQUITIES

Major European bourses have begun the week firmly in negative territory [Euro Stoxx 50 -1.4%] following on from a downbeat Asia-Pac handover after market sentiment took a hit from dwindling trade hopes as China asked state-run purchasers to halt US farm goods imports. Additionally, the collapse of the CNH to 7.0+ status vs. the USD also added further jitters to the trade-sensitive sentiment. Indices are firmly in the red but have crawled off lows in recent trade after China State Planner dismissed President Trump’s accusation that China has not bought US farm goods, adding that US and China agreed to China will purchase 14mln tonnes of soybeans from the US, with 2mln to be loaded in August. Sectors are in the red across the board with some mild resilience in defensive sectors. To the downside, miners fare the worst amid the freefall in base metal prices due to a bleaker demand outlook in the sector as protectionism ramps up. Thus, ArcelorMittal (-4.5%), Antofagasta (-3.3%), Rio Tinto (-2.4%), and Anglo American (-3.5%) have all fallen to the foot of their respective bourses. However, Fresnillo (+4.0%) bucks the miners’ trend as the Co. benefits from the safe-haven surge in gold prices. European luxury names and the auto sectors are also bearing the brunt of the US-China trade spat with LVMH (-2.9%), Kering (-2.1%), Volkswagen (-2.7%), Daimler (-2.5%), BMW (-2.4%) and Peugeot (-3.1%) all lower as a result. In terms of individual movers HSBC (-1.0%) shares opened lower due to the surprise stepping-down of CEO Flint, despite improvements in its metrics and the announcement of a share buyback program. 

FX

AUD - The Aussie has been hit particularly hard by the Yuan’s slide through 7.0000 vs the Greenback on and offshore after the PBoC raised its official mid-point fix to 6.9225 overnight from 6.8996 last Friday. However, the sharp Cny and Cnh depreciation was sparked by reports that China has halted US agricultural produce purchases in retaliation to President Trump’s fresh tariff threat, with a softer than expected Caixin services PMI not helping as the composite PMI hit a 5 month low and Hong Kong’s headline print plunged to 42.8. All this undermining broad risk sentiment and base metals like iron or, with Aud/Usd dipping under 0.6750 at worst in the run up to the RBA policy meeting overnight with options pricing in a 50 pip break even that could expose the early January 0.6715 flash crash low if the Bank firmly flags more easing after a widely anticipated pause this time round – see the headline feed and/or Research Suite for a full preview.

NZD/CAD/GBP - Also victims of heightened risk aversion amidst rising US-China trade tensions, with the Kiwi down though 0.6500 at one stage vs its US peer, but holding up a bit better than the Aussie ahead of Wednesday’s RBNZ rate decision that is unanimously forecast to result in the OCR being cut by a further 25 bp to 1.25%, mainly due to supportive cross-winds as Aud/Nzd reverses through 1.0400 again. Meanwhile, the Loonie is back below 1.3200 against the backdrop of retreating crude prices and with trading volumes impaired by Canada’s Civic holiday, but the Pound has gleaned some support from another UK PMI beat and by a greater margin in services compared to manufacturing and construction. Indeed, Cable has bounced from close to 1.2100 and Eur/Gbp stopped just shy of 0.9200, though remains elevated on persistent no deal Brexit concerns.

CHF/JPY/EUR - In stark contrast to the above, and to the overall detriment of the US Dollar (DXY losing more post-NFP momentum and sub-98.000) the Franc, Yen and Euro are all outperforming on safe-haven grounds, with Usd/Jpy probing through 106.00 and beneath a key Fib (106.06) that could be crucial on a closing basis. Usd/Chf is under 0.9750 and Eur/Usd has rebounded firmly to 1.1150 from 1.1105 even though Eur/Chf has fallen further below 1.0900 towards 1.0850 amidst mixed Eurozone services PMIs and a bleak Sentix survey.

EM - Regional currencies are generally weaker vs the Buck on the aforementioned risk-off environment, but once again the Try is holding up better than rivals within a 5.5490-6175 range as the Lira responds favourably to Turkish inflation data that was not as strong as expected, plus the CBRT’s RRR moves that will culminate in a net Usd2.1 bn liquidity drain.

CBRT says RRR for FX deposits/participation fund have been increased by 100bps for all maturity brackets, remuneration rate for USD-denominated RR,Reserve options and Free Reserves held at the CBRT had been decreased by 100bps. (Newswires)

FIXED INCOME

Fixed remains firm. but off best levels after a rather mixed am data slate, with the surprise services PMI prints largely arising from Germany where both the Composite and Services readings were revised down, to 50.9 and 54.4 (Prev. 51.4 and 55.4); although these had little to no impact on Bunds given the overriding geopolitical, trade and Central Bank narrative at present. The core EZ bond is still underpinned on the aforementioned factors, but has slipped somewhat from session/contract highs at 176.62 (176.30 last), with perhaps some technical resistance halting further advances for now at least given 176.73 & 85 levels flagged on certain charts. Elsewhere in the EZ, the PMIs for Italy and France were encouraging though the EZ wide release was dented somewhat by Germany and a Spanish miss vs consensus. Meanwhile, the UK survey saw services continue the run of better than forecast headline readings, but IHS/Markit suggests that the UK economy stagnated at the start of Q3, ahead of this Friday’s official ONS data for Q2 and the month of June. However, Gilts were largely unaffected, and actually continued to grind higher to 134.31 at best (+82 ticks), as USTs lead bond drive, albeit down from overnight peaks and the curve not quite as flat ahead of the Services PMI (Final) and ISM Non-Manufacturing metrics.

COMMODITIES

WTI and Brent futures are on the backfoot due to the prospect of lower global demand amid the seemingly widening gap between US and China in trade, in turn souring sentiment. WTI now straddles north of the USD 55/bbl mark while its Brent counterpart has just reclaimed USD 61/bbl after finding a base below the round figure. Looking ahead, tomorrow sees the release of the EIA Short-Term Energy Outlook, followed by the IEA Monthly Oil Report on Friday. Elsewhere, metals markets were rattled by the latest developments in the US-China saga with spot gold jumping over 1% to a peak of 1459/oz, the highest level in six years. Meanwhile, copper prices slumped to a 2-year low, but have since crawled off lows, with the red metal increasingly threatening USD 2.5/lb to the downside. Finally, Dalian Iron ore futures hit limit down after crumbling over 6% after declining below USD 100/tonne amid demand woes from the aforementioned US-China fallout, which was exacerbated by rising stockpiles of the raw material.

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)

UAE's ADNOC sets July Murban crude official selling price at USD 66.15/bbl, +USD 1.35/bbl from June. (Newswires)