• US Treasury Department designated China as a currency manipulator, Treasury Secretary Mnuchin said they will engage with the IMF to eliminate the unfair competitive advantage
• 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
• Major European indices are firmer thus far as sentiment has made a mild turnaround or not deteriorated further from the Asia-Pac session
• Looking ahead, highlights include, US JOLTS, EIA Short Term Energy Outlook, Fed’s Bullard & Harker, US 3yr Auction
• Earnings: Walt Disney, Microchip, Emerson Electric

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 (-2.4%) andNikkei 225 (-0.7%) 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. (-1.5%) 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)

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)

China state that Hong Kong belongs to China anyone trying to curb China's development will fail, will respond firmly to any action which harms the sovereignty of China., China State media. (Newswires)

US

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)

Fed's Daly (Non-Voter) says she is focused on US and China trade tensions as a factor determining the future path of rates. (WSJ)

- "When we took the cut last week, trade uncertainties looked like they were settling,” said Ms. Daly, “Now they’ve re-emerged, but we’ve been in this position before.”

- says it is hard to predict what additional policy moves might be required in the months ahead because the consumer and the labor market have shown signs of strength, despite a slowdown in business investment and manufacturing activity

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)

North Korea has told the UN Disarmament discussions that joint military exercises between the US and South Korea may drive Pyongyang to 'reconsider the major steps taken thus far'. (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)

South Korea's policymakers are to hold a urgent meeting at 24:00BST Tuesday, to discuss the current financial market situation. (Newswires)

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)

Subsequently, Senior UK Government Source says that Britain does want a deal, and it is sad that the EU does not want to negotiate. (Newswires) 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)

EQUITIES

Major European indices have modestly firmed after a mixed to flat open [Euro Stoxx 50 +0.6%], following on from a lacklustre Asia-Pac handover as Wall St. posted its worst performance for the year thus far. Similarly, sectors are in the green though with gains limited and the energy sector unable to breach into positive territory. In terms of individual movers this morning, Vivendi (+7.0%) are in discussions with Tencent for the sale of a 10% stake in Universal Music, with the deal valuing Vinci’s music business at EUR 30bln; since 2018 the Co. has been exploring a partial Universal Music sale with the deal to include the option for a further 10% stake to be purchased in the future. Moving to earnings this morning saw Deutsche Post (+4.3%) update where they beat on Q2 EBIT and their Germany Post & Parcels division posted positive earnings for the first time since Q4 2017. At the other end of the Stoxx spectrum are InterContinental Hotels (-2.4%) as the Co’s revenue did marginally miss on expectations; finally, with nothing fundamentally new from yesterdays pre-market update Metro AG (-6.7%) remain under pressure after further reiteration of comments that Kretinsky’s investment fund will not be increasing their offer for the Co.

FX

AUD/NZD - No major surprises from the RBA overnight, but an unexpected boost from trade data revealing a wider than expected and record surplus has helped the Aussie mount a strong recovery from yesterday’s lows with additional support via a Yuan rebound (Usd/Cnh circa 7.0700 vs almost 7.1400 at one stage after a measured/capped 6.9683 Usd/Cny mid-point fix). Aud/Usd is back up near 0.6800 and Aud/Nzd has bounced even further from sub-1.0270 lows towards 1.0400, as the Kiwi also benefited from considerably better than forecast NZ jobs and wage metrics, with Nzd/Usd not far from 0.6600 compared to under 0.6500 at worst on Monday. However, the RBNZ is still seen cutting the OCR by another 25 bp tomorrow and the pair has subsequently eased drifted down to around 0.6550, while Aud/Jpy may lose momentum given mega expiry options at the 72.00 strike (4 bn).

GBP/NOK/SEK - The Pound has also regained composure amidst a broad stabilisation in risk sentiment, with Cable just surpassing yesterday’s best before stalling into the 1.2200 level and Eur/Gbp reversing from 0.9250 to a few pips below 0.9200 even though no deal Brexit risk is arguably rising. Similar story for the Scandi Crowns that are paring losses vs a steady Euro and with the Nok encouraged by a partial revival in oil as well.

JPY/CHF - Conversely, the tentative and formative Tuesday turnaround in financial markets/mood has taken its toll on the Yen especially as Usd/Jpy spikes from near 105.50 lows to just over 107.00 before topping out, while the Franc has retreated against the Dollar and Euro to 0.9750+ and 1.0930 respectively compared to almost 0.9700 and 1.0900.

EUR - In contrast to the Aussie and Kiwi, German factory orders and the construction PMI hardly impacted the single currency even though the former was significantly better than anticipated and the latter lost grip of the 50.0 handle. Instead, Eur/Usd is anchored around 1.1200 and trading more in lock-step with wider Greenback moves as the DXY returns to its 97.500 axis within 97.698-203 parameters, plus the aforementioned Yuan fluctuations on the premise that the Euro may become the default alternative for China if trade wars escalate and US Treasuries are offloaded in response to tariffs and the official declaration that Beijing is a currency manipulator. However, expiries may also be impacting ahead of the NY cut when 1.5 bn roll off between 1.1190-1.1200.

EM - The RBI completes this week’s global Central Bank policy meeting rota, and like the RBNZ is expected to reduce key rates by ¼ point and if confirmed it will be 4 such moves in a row. However, the BoK could make an unscheduled appearance in some shape or form before that as an emergency gathering has been convened in South Korea for 23GMT tonight to ‘discuss’ financial conditions. Usd/Inr currently hovering above 70.7300 and Usd/Krw close to 1215.50.

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%).

FIXED INCOME

Bunds and core Eurozone peers are still underpinned and outperforming bond peers amidst a relatively lacklustre/lethargic Euro and ongoing expectations that the ECB will deliver some monetary stimulus next month. Conversely, Gilts and US Treasuries remain depressed after Monday’s US-China trade related rally, with no sign of relief or recovery in UK debt after a decent 2025 DMO tap and with 3 year T-note supply looming. Note also, Fed’s Daly does not seem to be advocating big follow-up rate cuts ahead of scheduled speeches from another current non-voter, Harker, and dove Bullard who wanted to ease back in June.

COMMODITIES

WTI and Brent are firmer thus far, though have tested the USD 55.0/bbl and USD 60.0/bbl marks to the downside on several occasions thus far. Newsflow for the complex has been very light thus far with the only notable update from Goldman Sachs who maintain their US oil growth outlook at 1.3mln BPD for 2019, but lowers 2020’s to 1.1mln BPD vs. 1.2mln BPD. Looking ahead, we do have the API weekly report where expectations are for a headline draw of 3mln, we also have the EIA’s Short Term Energy Outlook on the day’s schedule. In terms of metals, gold has dipped this morning as risk sentiment has arguably strengthened but perhaps more appropriately not deteriorated further, while the yellow metal is weaker it is still significantly above the USD 1450/oz handle. As such, copper prices are firmer deriving support from the aforementioned market sentiment.

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)

Goldman Sachs maintain their US oil growth outlook at 1.3mln BPD, lowers 2020 YY growth to 1.1mln vs. Prev. 1.2mln BPD. (Newswires)