• European equities extend gains as Stoxx600 hits 5-week highs
• DXY is off best levels as the index consolidates within a 94.535-865 range
• Looking ahead, highlights include US PMIs, Hungarian rate decision, US APIs, supply from the US 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 (+0.5%) 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 (+1.4%) 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)

China State Planner said China's 2018 CPI growth to be around 1.8%, PPI growth to be around 3.5%, adding CPI and PPI growth are to ease in H2 2018. Steady trend in prices during H2 will leave room for monetary policy fine-tuning

CENTRAL BANKS

Turkish CBT Weekly Repo Rate* Jul 17.75% vs. Exp. 18.75% (Prev. 17.75%)

- CBT says further monetary tightening will be delivered if needed, tight monetary policy stance will be necessary to maintain for an extended period

- Tight monpol stance will be maintained until inflation displays significant movement

- CBT will continue to use all available instruments in pursuit of price stability objective

- CBT says cost factors and volatility in food prices has been the main driver of inflation upside

In an immediate reaction, USDTRY rose from 4.75 to 4.91, as the CBT stood pat, against expectations of a hike. Analysts were concerned that after President Erdogan appointed his son-in-law to the Finance and Treasury, while taking more control over the central bank, his influence has succeeded in avoiding higher rates, in line with President Erdogan's election campaign position

UK/EU

EU Markit Manufacturing Flash PMI (Jul) 55.1 vs. Exp. 54.6 (Prev. 54.9) (Newswires)

EU Markit Services Flash PMI (Jul) 54.4 vs. Exp. 55.0 (Prev. 55.2)

EU Markit Composite Flash PMI (Jul) 54.3 vs. Exp. 54.8 (Prev. 54.9)

US

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)

GEOPOLITICAL

Iranian Revolutionary Guards Commander says US should not threaten Iran as they will receive a "strong unimaginable and regrettable" response

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

EQUITIES

European equities extend gains (Stoxx600 +0.8%; at 5-week highs) seen at the cash open following an upbeat Asia-Pac session and slew of large-cap earnings.  Peugeot (+10.4%) sits at the top of the CAC post-earnings, in sympathy this has helped support auto names across the continent with the German carmakers helping the DAX (+1.3%) outperform its peers. Sentiment for the sector has also been bolstered by US President Trump stating he wishes to work something out with the EU regarding trade and that he is ready to do something regarding auto imports from the EU. Sector wise, Material names outperform on the base-metal rebound while Financials are boosted by UBS’ (+3.6%) strong post-earnings performance, lifting fellow financial names such as Commerzbank (+3.5%) and Credit Suisse (+2.2%).

FIXED INCOME

As usual, the writing was on the wall ahead of the flash Eurozone release, so the manufacturing beat or services miss did not come as a surprise, but the sub-forecast composite reading could have encouraged some short covering/profit taking in core bonds. Whatever the rationale/catalyst, Bunds and Gilts are back on big figure handles after declining to fresh lows for the day at 161.82 and 122.94 respectively (-28 and -35 ticks), with the former also setting a fresh July base in the process. In fact, the 10 year UK debt future rebounding to a new Liffe peak at 123.24 in wake of a solid 2024 DMO auction and its EZ counterpart rebounded in sympathy initially before marginally outperforming and climbing into positive territory at 162.17. Back to Liffe, CBI Trends Survey is due shortly. Meanwhile, USTs remain largely side-lined, but a tad firmer and still in corrective mode following Monday’s pronounced bear-steepening.

FX

DXY - Firm, but off best levels as the index consolidates within a 94.535-865 range after another rise in tandem with higher US Treasury yields and ongoing Yuan depreciation. Note, the PBoC fixed the Usd/Cny mid point considerably higher today, resulting in the on-shore unit closing at its weakest level (6.8100) since the end of June last year, while the Cnh has fallen below 6.8400. However, rebounds in other currencies on several more specific/independent factors have nudged the Greenback down from its overnight peaks.

GBP/JPY/NZD - All now marginally firmer vs the Usd, with Cable crossing 1.3100 again ahead of the latest CBI industrial trends survey, the Jpy nestling midway between 111.05-50 parameters after reports of exporter offers for month end (plus persistent hawkish BoJ spec) and the Kiwi retesting psychological resistance around 0.6800 before NZ trade data later tonight.

CAD/AUD/EUR/CHF - The Loonie is holding in a 1.3165-90 band, Aud around 0.7375 and still tracking Yuan moves, but the single currency has bounced off 1.1655 lows on the back of Eurozone flash PMIs showing outperformance in the manufacturing sector vs somewhat less upbeat services activity. Note also, a 50% Fib resides at 1.1663 and there is decent option expiry interest at 1.1665 and from 1.1690-1.1710 (1 bn each), with the latter capping the upside, just. Meanwhile, the Franc is still sitting tight within a 0.9920-55 band, though has pared relative gains vs the Eur on the aforementioned prelim PMIs – cross firming up after a brief dip below 1.1600.

EM - Try and Huf in focus given CB policy meetings today, and the Lira looking for further tightening from the CBRT to keep its recovery momentum going (Usd/Try pivoting 4.7500 at present), but the Forint not anticipating action from the NBH or any tweak to its neutral sycne (Eur/Huf circa 326.75 currently).

COMMODITIES

Commodities trade fairly mixed with WTI and Brent off overnight lows as they breach USD 68.00/bbl and USD 73.00/bbl to the upside respectively in an attempt to nurse yesterday’s losses. Earlier today, Iran said it will respond with equal countermeasures if the US attempts to block its oil exports. This week, analysts are forecasting US crude stocks to print a draw of 3.5mln barrels, for distillates a build 0.2mln barrels and for gasoline a draw of 0.8mln barrels.

Elsewhere, gold is trading flat following the pullback from the dollar. In base metals, London copper rebounds on supply concerns following a deadlock at the world’s largest copper mine in Chile where Unions stated negotiations with management have broken down while an agreement before next week does not seem likely.

Iranian Foreign Ministry says Iran will respond with equal countermeasures if the US attempts to block its oil exports. (Newswires)

Phillips 66 reported a process unit upset at its Wood River, Illinois refinery. (Newswires)

Unite union confirms the 24-hour strike at the North Sea oil platforms have ended. (Newswires)