• Asian equity markets resumed the global sell-off after the S&P 500 posted a 6th consecutive day of losses and the DJIA dropped over 900 points intraday
• The US labelled China a currency manipulator whilst China confirmed purchases of US agricultural products have been suspended
• Markets found some comfort after the PBoC announced they are to to sell CNY 30bln of bills in Hong Kong and set the CNY reference rate within bounds of the perceived 7.00 line in the sand
• European diplomats have been informed that UK PM Johnson has no intention to renegotiate the Brexit agreement and a no-deal is the "central scenario"
• Looking ahead, highlights include US JOLTS, EIA Short Term Energy Outlook, Fed’s Bullard & Harker, UK 2025 Gilt and US 3yr Auction
• Earnings: Walt Disney, Microchip, Emerson Electric, Deutsche Post

ASIA-PAC

Asian equity markets resumed the sell-off following Wall St’s worse performance YTD where the S&P 500 posted a 6th consecutive day of losses and the DJIA dropped over 900 points intraday due to the US-China trade tensions and CNY slump, while the US designation of China as a currency manipulator added to the jitters and initially pressured US futures after-hours. ASX 200 (-2.2%) and Nikkei 225 (-1.0%) traded with hefty losses and broad weakness across sectors although gold names remained the exception in Australia, while the Japanese benchmark staged a significant recovery as better than expected Household Spending data and a rebound in USD/JPY softened the blow, with earnings releases also a driver for price action. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (-2.4%) were pressured by the trade tensions after the US labelled China a currency manipulator whilst China confirmed purchases of US agriculture products have been suspended, although markets found some comfort after the PBoC announced to sell CNY 30bln of bills in Hong Kong and set the reference rate within bounds of the perceived 7.00 line in the sand. Finally, 10yr JGBs were choppy with early upside seen due to the wide risk averse tone which boosted prices to a fresh record high and dragged the 10yr yields to below -0.2% which was seen to be the bottom end of BoJ’s target. However, prices have since eased back with 10yr JGBs now lower as stocks recovered from lows and after a mixed 30yr auction, while T-notes have also retreated to below the 130.00 level amid a pullback from the recent surge triggered by the trade tensions which also saw the 3m/10yr yield inversion at its most prominent since the GFC.

PBoC skipped open market operations but announced to sell CNY 30bln of bills in Hong Kong. (Newswires) PBoC set CNY mid-point at 6.9683 (Prev. 6.9225)

US Treasury Department designated China as a currency manipulator, while Treasury Secretary Mnuchin said they will engage with IMF to eliminate unfair competitive advantage by China's actions. (Newswires)

US President Trump tweeted that based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the tariffs and that China is paying. Trump also stated that China has always used currency manipulation and is intent on continuing to receive the hundreds of billions of dollars they have been taking from the US with unfair trade practices and currency manipulation. (Twitter)

China MOFCOM confirmed purchases of US agriculture products have been suspended and does not rule out placing tariffs on US agri products imported after August 3rd. (Newswires)

China Global Times Editor tweets "Since the US has imposed tariffs on Chinese goods, the label of currency manipulator is seriously devalued in its impact. The trade war has been protracted to now, US has put the biggest card on table, China is relieved. (Twitter) 

UK/EU

UK PM Johnson would refuse to resign even if he loses a confidence vote so he can push through a no-deal Brexit on October 31st, under plans being considered by Downing Street. (The Times)

European diplomats have been informed that UK PM Johnson has no intention to renegotiate the Brexit agreement and a no-deal is the "central scenario", while reports added that UK’s new chief Europe adviser David Frost is said to have sought discussions on how negotiations could be renewed after the UK crashes out. (The Guardian) The Telegraph also reports that Brussels now believes that Britain will leave the EU without a deal after accepting that Boris Johnson "isn’t bluffing". (Telegraph)

As many as 30 UK opposition Labour party MPs are prepared to vote for a Brexit deal if PM Johnson gets fresh concessions from the EU. (Telegraph) UK Barclaycard Consumer Spending (Jul) Y/Y 1.7% (Prev. 0.9%), while 23% of consumers report worries about job security which is the highest in over 2 years. (Newswires)

UK BRC Retail Sales (Jul) Y/Y 0.1% (Prev. -1.6%). (Newswires)

FX

DXY weakened and CNH posted a fresh record low just shy of the 7.1400 handle against the USD after a further escalation of tensions due to the currency manipulator announcement on China. This initially benefitted most the greenback’s major counterparts in which EUR/USD extended above 1.1200 as some suggested the single currency is seen as the most viable option for China to park its money in the unlikely event that the trade situation worsens to the point that China triggers the nuclear option of dumping its US debt holdings, while GBP/USD also gained but with price action contained near the 1.2150 level and after reports that Downing Street is considering plans for UK PM Johnson to refuse resigning even if he loses a confidence vote so he can push through a no-deal Brexit. Elsewhere, USD/JPY and JPY-crosses nursed the prior day’s losses despite the risk-averse tone as markets found relief from the PBoC reference rate which was weakened from the prior day but not as drastic as expected and within the 7.0000 level sticking point. Antipodeans were also underpinned post-fix with NZD/USD boosted after stellar employment and wage figures for New Zealand before wobbling on softer Inflation Expectations, and although the jobs data did little to alter forecasts for the upcoming central bank announcement with a 25bps cut by the RBNZ fully priced in for tomorrow, it did cast some doubts on the uber-dovish calls on the RBNZ such as from the likes of ANZ which sees 3 back-to-back rate cuts to 0.75% by November. AUD/USD benefitted from a wider than expected trade surplus and in a knee-jerk reaction to the RBA decision to keep rates unchanged at the record low 1.00% following the previous back-to-back cuts, as the central bank’s tone lacked urgency for further easing despite keeping the door open for future adjustment. However, AUD/USD then returned to pre-announcement levels as participants digested more of the statement which noted a longer time to reach 2% inflation and subdued wage growth.

RBA kept the Cash Rate Target unchanged at 1.00% as expected and stated it is to adjust policy if needed to support the economy and will monitor developments in labour markets closely. Furthermore, the RBA said outlook for the global economy remains reasonable and that there are signs house prices are stabilizing in Sydney and Melbourne, but also noted it will take longer than expected to reach 2% inflation and that wage growth remains subdued with little upward pressure at the moment. (Newswires)

Australian Trade Balance (AUD)(Jun) 8036M vs. Exp. 6000.0M (Prev. 5745.0M, Rev. 6173.0M) Australian Exports (Jun) M/M 1% (Prev. 4%)

Australian Imports (Jun) M/M -4% (Prev. 1%)

New Zealand Employment Change (Q2) Q/Q 0.8% vs. Exp. 0.4% (Prev. -0.2%). New Zealand Employment Change (Q2) Y/Y 1.7% vs. Exp. 1.2% (Prev. 1.5%) New Zealand Unemployment Rate (Q2) 3.9% vs. Exp. 4.3% (Prev. 4.2%) New Zealand Average Hourly Earnings (Q2) Q/Q 1.1% vs. Exp. 0.5% (Prev. 1.1%)

New Zealand Labour Cost Index (Q2) Q/Q 0.8% vs. Exp. 0.7% (Prev. 0.3%) New Zealand 2yr Inflation Expectations (Q3) 1.9% (Prev. 2.0%).

COMMODITIES

Commodities were mixed with a rebound seen in oil prices in which WTI rose back above the USD 55.00/bbl level as stocks recouped some of the heavy losses with the turnaround in sentiment spurred by China’s restraint on its currency, while focus for the energy complex now shifts to the upcoming stockpile reports beginning with the API inventories later today. Elsewhere, gold was choppy as the initial safe-haven bids alongside a slump in stocks at the open, later faded as the market panic somewhat moderated which also helped lift copper overnight.  

CME raised palladium futures NYMEX maintenance margins by 8.5% to USD 12750/contract and raised platinum futures maintenance margins by 11.8% to USD 1900/contract. (Newswires)

GEOPOLITICS

North Korea conducted projectile launches again and separately commented that US and South Korea joint military drills violate agreement, while it added it is committed to dialogue but could take a new path. The launch prompted South Korea’s Blue House to convene an emergency meeting of security-related ministers, although there were also comments from the Japanese Defense Ministry that it does not see any imminent threat to Japan's security from North Korea's latest projectile launch. (Newswires)

Confidential UN Report stated that North Korea stole approximately USD 2bln from banks and cryptocurrency exchanges via cyberattacks to fund WMD programmes, while it alleged that North Korea continued to develop its nuclear/missile programme despite diplomatic efforts. (Newswires)

China Foreign Ministry officials said China will not sit idly by and will be forced to take counter measures if US deploys intermediate range missiles in Asia. (Newswires)

US President Trump issued an executive order and widened Venezuela sanctions into an embargo. (WSJ)

US

The Treasury curve bull steepened, with price action driven by risk-off flows, pushing Treasury yields down by between 10bps and 14bps across the curve. There was further buying in afternoon trade, after China had confirmed that state firms had stopped buys of US agriculture, and did not rule out sanctions on US ags in the future. Fed pricing has moved dovishly, with traders now seeing 111 worth of easing through the end of next year, from around 100bps of easing on Friday. A 25bps rate cut at the September meeting is priced with certainty, and there is now around 40% chance of the ‘double’ rate cut of 50bps at that meeting. Fed officials that have spoken have been quite circumspect, and hawkish George and dovish Brainard both indicated that they were monitoring the market. There are a host of other Fed officials on the slate for the week, and the desk will be paying particular attention to the dovish Bullard, who is due to speak on Tuesday; Bullard made the case ahead of the July Fed meeting that a 50bps cut was a bit too excessive. US T-note futures (U9) settled 31+ ticks higher at 129-27.

Fed Senior Loan Officer Survey stated bank lending standards and demand for commercial and industrial loans from large firms were unchanged but eased for smaller ones in Q2, while banks tightened their standards on credit card loans but auto and housing loans standards were unchanged. (Newswires)

Fed's George (voter, hawk) said the best we can do is monitor market developments and watch how they unfold. (Newswires)

Former Fed Chairs Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker have written a letter in the WSJ calling for the Fed’s independence to be protected and free from short-term political pressure. (WSJ)