• Asian equity markets gained across the board following the mostly positive performance of their Wall Street counterparts
• In FX markets, the Greenback held onto yesterday’s gains. PBOC set the weakest CNY fix since 11th July 2017
• Looking ahead, highlights include Eurozone & US PMIs, Turkish and Hungarian rate decisions, US APIs, supply from the US & UK and a slew of large cap earnings

ASIA

Asian equity markets gained across the board following the mostly positive performance of their Wall Street counterparts whereby financials outperformed amid rising yields and Nasdaq 100 futures were boosted after-hours following earnings from Alphabet. ASX 200 (+0.6%) and Nikkei 225 (+0.6%) were higher with strength seen in financials especially in Japan amid ongoing speculation the BoJ could tweak its policy settings next week, considering that the central bank’s current prolonged ultra-easy policy is viewed as a dampener on Japanese bank profits. Hang Seng (+1.5%) and Shanghai Comp. (+1.6%) led the gains in the region with sentiment underpinned after China announced further measures on Monday to support demand including a tax reduction targeting research spending, bonds for infrastructure investment and a more proactive fiscal policy. Finally, 10yr JGBs were initally marginally higher on short-covering following recent declines, although the rebound in prices was later reversed amid softer 40yr auction results and prospects of a BoJ policy tweak.

PBoC skipped open market operations for a net daily drain of CNY 70bln. (Newswires)

PBoC set CNY mid-point at 6.7891 (Prev. 6.7593); weakest fix since 11th July 2017.

China Foreign Ministry spokesperson said China has no desire to bolster its exports through competitive devaluation and that its currency is being supported due to sound economic fundamentals. (Newswires)

China state researcher said China has room to cut the RRR rate in H2 2018. (Newswires)

UK

BoE’s Broadbent (Neutral) said the first response will be to cut interest rates if inflation pressures weaken after the BoE starts to reverse QE and that unwinding QE may make dis-inflationary pressures in itself. Furthermore, Broadbent stated that estimates of the impact of QE on the economy are less precise than for interest rates. (Newswires)

UK PM May has been criticized for willingness to hand the EU a ‘blank cheque’ as ministers prepare to publish the Withdrawal Agreement and Implementation Bill on Tuesday which reportedly states the EU will inform the UK of the required payment amounts during the transition process. (Telegraph)

UK Business Secretary Greg Clark is set to eye powers to block foreign takeovers. (Sky News)

FX

FX markets were relatively quiet amid a sparse overnight economic calendar and as the greenback held onto yesterday’s recovery spurred by higher US yields and further traction in USD/CNH. This kept its major counterparts near the prior day’s lows with EUR/USD below 1.1700 and GBP/USD slipping below the 1.3100 handle, while USD/JPY was indecisive after its rebound stalled at 111.50. Elsewhere, antipodeans were also subdued by recent softness in commodities and further CNH depreciation which declined to levels last seen in April 2017 after the PBoC set the weakest reference rate in over a year.

COMMODITIES

Commodities were mostly subdued overnight in which oil languished following the prior day’s decline below the USD 68.00/bbl in WTI crude futures and with Brent under USD 73.00/bbl, while some desks previously noted that term structures were moving in a bearish direction with the Brent contango widening, which hinted at a lack of concern regarding tight markets. Elsewhere, gold prices remained weak as the greenback held on to its gains and amid the positive risk tone in the region, while copper outperformed on China strength following the announcement of further measures to support its economy.

GEOPOLITICAL

Iran’s Foreign minister Zarif said Iran is not impressed with the comments from US President Trump. (Newswires)

Satellite imagery showed North Korea has begun dismantling its key facilities at the Sohae satellite launch facility, according to 38 North. (Newswires)

US

The yield curve bear-steepened with yields rising to their highest levels in over 5 weeks; at settlement, longer-dated yields were higher by c.7bps whilst 2yr yields were higher by c.3bps. The move was helped by developments over in Japan as the BoJ announced its first fixed-rate buying operation since February to purchase an unlimited amount of 10yr JGBs at 0.11% (though didn’t have to actually use the operation). The announcement followed a sharp fall in JGBs after sources on Friday reported that the central bank may scale back stimulus and tweak its targets. US Treasury 2s10s and 2s30s widened by more than 3bps, 5s10s and 5s30s by c.2ps. Ahead of the US GDP release on Friday, US President Trump said to expect GDP growth to come in at 4.8%. US 10yr T-notes futures (U8) settled 16 ticks lower at 119-15+.

US President Trump said we will see if we can work something out with the EU regarding trade and that he is ready to do something regarding auto imports from the EU. President Trump also stated he talked to the Mexican President at length and thinks they can work out a deal on NAFTA, while he added that the US and Mexico are working together on something dramatic for trade. (Newswires)

The US administration is said to be touting almost 5% GDP growth for Q2. (Twitter)