• European equities are lower across the board as yesterday’s risk on sentiment fizzles out a Chinese data disappoints, and Germany prints a Q/Q GDP contraction
• China is to keep its plan for September trade talks in Washington with the US following the US tariff delay, according to sources
• The US 2yr/10yr yield curve has inverted for the first time since 2007 with Bunds printing fresh contract highs above the 178.0 mark
• Looking ahead, highlights include US Import/Export prices
• Earnings: Cisco Systems, Agilent Technologies

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 (+0.4%) 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 (+0.1%) and Shanghai Comp. (+0.4%) 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" (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 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)

German GDP Flash QQ SA Q2 -0.1% vs. Exp. -0.1% (Prev. 0.4%)

- German GDP Flash YY NSA Q2 0.0% vs. Exp. -0.3% (Prev. 0.6%)

EU GDP Flash Estimate YY Q2 1.1% vs. Exp. 1.1% (Prev. 1.1%)

- EU GDP Flash Estimate QQ Q2 0.2% vs. Exp. 0.2% (Prev. 0.2%)

- EU Industrial Production YY Jun -2.6% vs. Exp. -1.2% (Prev. -0.5%, Rev. -0.8%)

- EU Industrial Production MM Jun -1.6% vs. Exp. -1.4% (Prev. 0.9%, Rev. 0.8%)

UK CPI YY Jul 2.1% vs. Exp. 1.9% (Prev. 2.0%)

- UK Core CPI YY Jul 1.9% vs. Exp. 1.8% (Prev. 1.8%)

- UK CPI MM Jul 0.0% vs. Exp. -0.1%

- On the release ONS note that they have not seen any evidence of softer GBP lifting prices in July

EQUITIES

European equities are lower across the board [Eurostoxx 50 -1.3%] as the global risk appetite seen yesterday and overnight waned in earlier European trade. Major bourses are posting broad-based losses although Italy’s FTSE MIB (-1.9%) is underperforming, as the ongoing political angst sees almost all Italian stocks in the red. Meanwhile, DAX 30 (-1.4%) breached the key 11,600 support level on which the index turned-around during the May rout. Sectors are all in negative territory, although defensive sectors are somewhat more resilient, i.e. utilities, consumer staples and healthcare. In terms of individual movers, Commerzbank (-4.0%) fell to a new record low of EUR 5/shr as the German banking rout deepens following a Germany GDP Q/Q contraction and as the bank tracks German yields. Meanwhile, Balfour Beatty (+9.0%) and RWE (+1.9%) rose to the top of the Stoxx 600 after earnings, with the latter raising its interim dividend.

Tencent Holdings (700 HK) (CNH) reports Q2 Profits 24.14bln (exp. 21.10bln), Revenues 88.821bln (exp. 93.41bln); combined MAU of Weixin & WeChat 1.132bln (vs 1.057bln Y/Y), Smartphone Gaming Revenues 22.2bln (up 26% Y/Y)

FX

JPY/CHF - The traditional safe-haven currencies and their commodity compatriot Gold have regained some composure after yesterday’s sharp/abrupt fall from grace on the resumption of US-China trade talks and decision to defer/waiver certain items from the list of Chinese imports that were due for 10% tariffs on September 1. Subsequent comments from President Trump indicate that the concessions are not in response to any progress in negotiations or reciprocity from Beijing, but an effort to avoid US consumers feeling the pinch over the festive period. Meanwhile, latest Chinese data has also dampened spirits with ip and retail sales both falling short of expectations, though the PBoC has stalled the measured Yuan depreciation and Usd/Cny ended on-shore trade below the official fix. Usd/Jpy back down around 106.00 and Usd/Chf is pivoting 0.9730 as Xau/Usd returns to justy above 1500/oz mark amidst faltering risk sentiment.

EUR/GBP/SEK/NOK - The single currency and Sterling are both firmer vs the Dollar even though the DXY is holding the bulk of its post-US CPI gains within a 97.847-660 range, and data has helped to an extent given Eurozone Q2 GDP matching or slightly surpassing forecasts, while headline UK inflation was firmer than consensus along with the core. However, Eur/Usd and Cable remain top-heavy ahead of 1.1200 and 1.2100, with the former still unable to breach Fib resistance at 1.1220 convincingly or on a closing basis, and also faced with decent option expiry interest today at 1.1215 (1.3 bn). Similarly, the Swedish Krona only got a fleeting boost from CPIF beats vs market medians and the Riksbank’s own projection, as inflated food prices were partly if not largely to blame, while another retreat in crude prices is weighing on its Norwegian peer, as Eur/Sek and Eur/Nok hover closer to the tops of 10.7145-6455 and 9.9715-9085 bands respectively.

AUD/NZD/CAD - The aforementioned tempered exuberance surrounding US-China relations and disappointing data have taken their toll of the Aussie in particular, with Aud/Usd recoiling from 0.6800+ recovery peaks towards 0.6750 again, Nzd/Usd back under 0.6450 and Usd/Cad rebounding from sub-1.3200 to just shy of 1.3250. Ahead, Australian jobs data will be crucial for the RBA, and at the current juncture it appears that a hefty 0.6790 expiry in 1.2 bn won’t have a bearing on direction.

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%)

Swedish CPIF YY Jul 1.5% vs. Exp. 1.3% (Prev. 1.7%)

- Swedish CPIF MM Jul 0.4% vs. Exp. 0.2% (Prev. -0.1%)

Notable FX Option Expiries:

- EUR/USD: 1.1100 (706M), 1.1215 (1.3B), 1.1300 (566M), 1.1325 (812M)

- AUD/USD: 0.6790 (1.2B)

FIXED INCOME

The debt rally has resumed in full force with multi-year and/or uncharted territory in futures and cash yields trading extensively, while key segments of the curve have now crossed the zero divide. For the record, Bunds have been up to 178.14, Gilts as high as 134.63, but still some way shy of the 135.01 contract high and 10 year Treasuries 130-085 at best. Ahead, more price data via US import and export readings, but it’s all about sentiment and whether Wall Street picks up where it left off yesterday or takes fright given latest bond market moves and the heightened risk of recession implied by the rate depression and spread compression.

COMMODITIES

WTI and Brent prices have held onto the bulk of their trade-driven gains in which the benchmarks soared around USD 3/bbl after the USTR decided to delay tariffs on some Chinese goods until December 15th. Sentiment drove yesterday’s gains, although ultimately, the demand outlook remains unchanged unless material progress can be made in dialogue, i.e. if the nations overcome sticking points which broke down talks last time. The relief rally had begun to peter out in Asia-Pac and European trade, with some aid from a surprise build in API stockpiles (+3.7mln vs. Exp. -2.8mln). WTI residing around its 50 DMAs at 56.08/bbl whilst its Brent counterpart remains around 60.50/bbl. PVM notes that if Brent fails to hold its 13 DMA (60.55/bbl), then it’ll likely cause a 5-day gap narrowing dip to around the 5 DMA at 59.29/bbl. Traders will now be looking ahead to the weekly DoE data for confirmation of the API numbers. ING notes that last week’s release saw a surprise build driven mainly by a fall in crude oil exports. “The relative strength in WTI vs. Brent, means we could see another week of poor exports”, analysts say. Elsewhere, gold has made some gains above the 1500/oz mark after finding a base at 1480/oz yesterday from the trade-driven unwind of safe-haven positions. Meanwhile, copper prices are on the backfoot as yesterday’s optimism wanes in EU trade and disappointing Chinese IP prints exacerbated the downside, with some additional pressure after exports of the red metal from Peruvian port of Matarani have now resumed following a three-week suspension due to protests.