• Asian equity markets traded higher across the board with global risk appetite spurred by a de-escalation in the US-China trade war
• Continued PBoC liquidity efforts and a firmer CNY fix added to the optimism before weaker than expected Chinese data saw stocks give back some of their gains
• Italian Senate rejected League's call for a no confidence vote in parliament on Wednesday and are to debate the no confidence motion in parliament on August 20th
• Looking ahead, highlights include German Q2 GDP (Flash), Swedish & UK CPI, EZ Employment & GDP (Flash), US Import/Export prices, RBA’s Debelle
• Earnings: Cisco Systems, Agilent Technologies, Coloplast, RWE, Prudential

ASIA-PAC

Asian equity markets traded higher across the board with global risk appetite spurred by a de-escalation in the US-China trade war after the US announced to delay the 10% tariffs on some items from China until December 15th, although stocks are off the day’s best levels on disappointing Chinese data in which Industrial Production grew at the slowest pace in 17 years. ASX 200 (+0.1%) and Nikkei 225 (+1.0%) gained from the open but with upside in Australia capped by weakness in financials after NAB reported tepid profit growth for Q3 and as gold miners suffered from a pullback in the precious metal, while Tokyo sentiment was boosted by encouraging data after Machinery Orders showed the largest M/M increase on record. Hang Seng (+0.4%) and Shanghai Comp. (+0.8%) were buoyed at the open after the tariff delay announcement which President Trump noted was for the Christmas season in case it had an impact on shopping and suggested that he had a very productive call with China, while a continued PBoC liquidity effort and firmer CNY fix added to the optimism before weaker than expected Industrial Production and Retail Sales data from China saw stocks give back some of the gains. 10yr JGBs are lower after the US tariff delay triggered safe haven outflows and amid a continued lack of BoJ buying with the central bank only in the market today for Treasury Bills.

PBoC injected CNY 100bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0312 vs. Exp. 7.0502 (Prev. 7.0326)

Chinese Industrial Production (Jul) Y/Y 4.8% vs. Exp. 6.0% (Prev. 6.3%); weakest reading since February 2002. Chinese Retail Sales (Jul) Y/Y 7.6% vs. Exp. 8.6% (Prev. 9.8%)

China is to keep its plan for September trade talks in Washington with the US following the US tariff delay, according to sources. (Newswires)

Hong Kong Airport operations have returned to normal and the airport received an interim injunction to prevent protesters from unlawfully obstructing airport operations. China's Mission to the UN rejected the UN's statement on Hong Kong and criticized it as interfering in China's domestic affairs which sends the wrong signal to violent criminal offenders. China also alleged that protesters are "showing a tendency of resorting to terrorism", while there were separate reports that China denied request for 2 US Navy ships to make port in Hong Kong. (Newswires/Twitter)

Japanese Machinery Orders (Jun) M/M 13.9% vs. Exp. -1.3% (Prev. -7.8%); largest increase on record. (Newswires) Japanese Machinery Orders (Jun) Y/Y 12.5% vs. Exp. -0.6% (Prev. -3.7%) 

UK/EU

UK Speaker of the HoC Bercow said he will refuse to let PM Johnson take Britain out of the EU by suspending Parliament and will fight any attempt to prorogue Parliament, he also dismissed reports he will stand down in the short term. (Telegraph)

Former UK Chancellor Hammond accused PM Johnson of ruining any chance of achieving a new Brexit deal with EU and said No. 10 risks betrayal of the UK with a no-deal Brexit and demands PM Johnson commit to inking a withdrawal agreement with EU. (Times/Sun)

US & Britain are discussing a partial trade agreement which could take effect on November 1st, according to a senior Trump Official, while an official also stated that US National Security Advisor Bolton and UK Trade Secretary Truss talked about the potential for signing a road map declaration towards a trade deal at the G7. (Newswires)

US President Trump's administration is prepared to lift UK steel, aluminium and auto import tariffs if the UK lifts tariffs on whisky and Harley Davidson. (Times)

Italian Senate rejected League's call for a no confidence vote in parliament on Wednesday and are to debate the no confidence motion in parliament on August 20th, while it was also reported that Deputy PM Salvini proposed accepting 5SM's demand to reduce the number of politicians quickly but added that Italy must then hold elections. (Newswires)

FX

DXY was steady and held on to most the prior day’s gains following the recent firmer than expected US CPI data and encouraging US-China trade developments, while its major transatlantic counterparts traded lacklustre with EUR/USD and GBP/USD little changed at the 1.1100 and 1.2000 handles respectively amid ongoing uncertainty related to Italian politics and the Brexit. USD/JPY and JPY-crosses slightly pulled-back overnight on profit taking after having surged nearly 2 points in reaction to the US tariff delay, while antipodeans were relatively flat with AUD/USD contained by resistance at the 0.6800 level and after firmer than expected Australian Wage Price Index is counterbalanced by the Chinese Industrial Production and Retail Sales data miss.

Australian Wage Price Index (Q2) Q/Q 0.6% vs. Exp. 0.5% (Prev. 0.5%). (Newswires) Australian Wage Price Index (Q2) Y/Y 2.3% vs. Exp. 2.3% (Prev. 2.3%)

COMMODITIES

Commodities were lacklustre overnight in which WTI crude futures gave back some of the prior day’s near-4% rally that was spurred by the announcement of the US tariff delay. Nonetheless, prices remain considerably firmer in the wake of the announcement although have retreated back below the USD 57.00/bbl level with a surprise build in API crude inventories another factor behind the mild overnight pullback. Gold prices traded sideways with the precious metal magnetized to the key USD 1500/oz level, while copper also pared some of its recent gains after broad risk appetite was slightly tempered by weak data from its largest purchaser China.

API Crude Inventories +3.7mln vs. Exp. -2.8mln (Prev. -3.4mln). (Newswires)

US

The Treasury curve bear-flattened in Tuesday trade. There was much attention on the 2s10s part of the Treasury curve, which came to within 1 bps of inversion, before US/China news allowed a bounce. However, at settlement, the gap is around 2bps, keeping the threat of inversion alive. The 3m/10-year part of the curve was also in focus, but is already inverted, of course; the gap here went as deep as -40bps in overnight trade, but has pared back to around -33bps amid more constructive risk sentiment. The long-end of the curve continues to gain attention, with yields down to fresh 37-month lows. This has also been a focus of equity traders; with regards to the 10s sector, Goldman Sachs noted that the S&P 500 currently offers a trailing 12-month dividend yield of 2.0% – higher than the 10-year US Treasury yield for the first time since October 2016. At settlement, major US curve spreads had tightened, with 2s30 narrowing by around 6bps. US T-note futures (U9) settled 17+ lower at 129-26+.