• Risk-off resumed as US-China trade tensions flared up; stock futures slumped and fixed income surged
• China's Finance Ministry says China will have to take countermeasures on US moves, US actions violate the consensus reached in Osaka’s G20 meeting
• US President Trump tweeted that China is eating tariffs with currency devaluation and that the tariff delay helps China more than US, but will be reciprocated
• Looking ahead, highlights include US Retail Sales, US NY Fed, Initial Jobless Claims, Industrial Production, Manufacturing Output & Business Inventories, Banxico Rate Decision
• Earnings: Walmart, NVIDIA

ASIA-PAC

Asian equity markets conformed to the rout seen on Wall St. where all major indices fell around 3% and the DJIA slumped 800 points in its worst performance YTD after recent weak data from China and Germany, with recession fears also stoked after the US 2s/10s curve inverted for the first time since 2007. ASX 200 (-2.9%) and Nikkei 225 (-1.2%) were lower in which the energy sector led the declines in both indices after similar underperformance stateside following a near-5% drop in crude prices and with Australia mulling over a slew of earnings releases, although gold stocks have bucked the trend as the stock sell-off spurred safe-haven appeal. Hang Seng (+0.7%) and Shanghai Comp. (+0.3%) were heavily pressured at the open but with downside later stemmed after continued PBoC liquidity efforts in which it injected CNY 30bln through reverse repos and CNY 400bln through 1yr MLF, while reports that Hong Kong Airport resumed normal operations and with strength in China Unicom post-earnings helped soften the blow for Hong Kong which briefly turned positive. However, the recovery in the Hang Seng was short-lived due to the broad risk averse tone and with losses in index heavyweight Tencent following mixed earnings and a cautious outlook. Finally, 10yr JGBs printed fresh highs as the global recession fears spurred a safe-haven bid, which saw the 10yr, 20yr and 30yr JGB yields at their lowest in more than 3 years. This coincided with the US 2s/10s yields winding in and out of inversion and the US 30yr yield dropping below 2% for the first time on record, while mild support was also seen following stronger results at the 5yr JGB auction.

PBoC injected CNY 30bln via 7-day reverse repos PBoC and conducted CNY 400bln of 1yr MLF vs. CNY 383bln maturing.

PBoC set CNY mid-point at 7.0268 vs. Exp. 7.0236 (Prev. 7.0312)

Chinese House Prices (Jul) 9.7% (Prev. 10.3%). (Newswires)

US President Trump tweeted that Chinese President Xi is a great leader and that he has zero doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it. President Trump also suggested the idea of a “personal meeting?" and noted that good things were stated during the call with China the other day, while he also said China is eating tariffs with currency devaluation and that the tariff delay helps China more than US, but will be reciprocated. Furthermore, Trump earlier reiterated the US is winning big against China and that companies as well as jobs are fleeing China. (Twitter)

China's Finance Ministry says China will have to take countermeasures on US moves, US actions violate the consensus reached in Osaka’s G20 meeting. (Newswires)

China government advisers stated the unrest in Hong Kong does not yet warrant direct intervention by China and that risks to damaging relations overseas is currently too high. (SCMP)

Chinese UK Ambassador says, regarding the Hong Kong unrest, the central government will not sit on its hands and does have solutions, will quell quickly; says protesters moves show signs of terrorism. (Newswires)

Hong Kong's Financial Secretary expects to cut their 2019 GDP growth forecast to 0-1% from 2-3%, seeing the business environment as becoming pessimistic. (Newswires)

- announced economic support measure of HKD 19.1bln; says the measures are not related to political pressure from protests; expects measures to boost Hong Kong's economy by 0.3%

UK/EU

UK opposition Labour party leader Corbyn reiterated that he will call for a no confidence against the government at the soonest opportunity he can be confident of success. A letter penned by Corbyn in an attempt to build a cross-party coalition to remove PM Johnson from office stated that, if the government loses no confidence vote, Labour will seek to form a strictly time-limited temporary government which aims to call a general election and extend the Brexit date, while Labour would campaign in an election for a 2nd referendum on terms of leaving EU including an option to remain. (Newswires/Telegraph)

Tory Rebels have replied to UK Opposition Leader Corbyn’s letter, saying they will discuss options to stop a no-deal., Sky’s Cohen. (Twitter)

UK Retail Sales MM Jul 0.2% vs. Exp. -0.2% (Prev. 1.0%, Rev. 0.9%)

- UK Retail Sales Ex-Fuel MM Jul 0.2% vs. Exp. -0.2% (Prev. 0.9%, Rev. 0.8%)

- UK Retail Sales YY Jul 3.3% vs. Exp. 2.6% (Prev. 3.8%)

- ONS notes that department store sales in July rose for the 1st time in 2019 whilst promotions drove growth in online sales 

EQUITIES

Major European indices were initially firmer at the open but following negative updates on the US-China trade front, a further bout of risk off swept through markets [Euro Stoxx 50 -1.5%], on reports that China’s Finance Ministry say China will have to take countermeasures on US moves and their actions violate the consensus achieved at the Osaka G20 meeting. No notable over/under performers amongst indices which are all firmly in negative territory following the aforementioned US-China update, but as a reminder Italy’s equity markets are closed due to Assumption Day. Sectors are posting a slightly mixed performance but have also dropped firmly into negative territory, Energy names are lagging as oil prices remain under pressure with the added factor of Iran’s Grace 1 tanker reportedly to be released today; though the US Department of Justice are trying to seize the tanker. Also factoring on the complex is underperformance from Vestas Wind Systems (-3.5%), who represent 3.5% of the Stoxx 600 Oil & Gas index, after missing on Q2 metrics and narrowing revenue guidance. Elsewhere, RBS (-10.0%) are at the bottom of the Stoxx 600 weighed on by a downgrade at HSBC; note, the Co. are trading ex-dividend today. Returning to earnings, and at the other end of the Stoxx spectrum, are both GVC (+2.3%) and Carlsberg (+3.5%) after stating that FY outlook is ahead of expectations and confirming FY guidance with organic beer volume higher by 1.4% YY respectively.

FX

AUD/GBP - Upbeat jobs data has helped the Aussie withstand another bout of risk aversion prompted by an official blast from China on the trade front and reiteration that Beijing will retaliate with countermeasures against the additional Usd300 bn tariffs that contravene the G20 truce agreement. Aud/Usd is holding firmly above 0.6750, albeit off 0.6790 overnight highs spurred by a significant beat in the payroll count vs expectations, and mainly due to full time workers. Similarly, Sterling got an unexpected lift from UK retail sales data confounding consensus for some payback after previous excesses, but Cable continues to meet resistance around 1.2100.

JPY - The Yen is back to roughly flat vs the Dollar and most other currency counterparts after a sudden slide in early EU trade that is still baffling market participants and pundits given no clear catalyst for the move. For the record, factors ranging from in incorrect order to official intervention have been touted, and clearly the speed of the sell-off did trigger stops and chart-based transactions, while a more macro or fundamental motive could have been a back-up in US Treasury yields and curve dis-inversion. However, risk aversion has resurfaced amidst the latest Chinese sabre-rattling and Usd/Jpy is back below 106.00 from circa 106.80 at one stage.

NOK - The Norwegian Crown has also been volatile within 10.0470-9.9720 parameters against the Euro, as the Norges Bank removed specific reference to next month when maintaining guidance for further policy normalisation this year due to heightened external risks and uncertainty. Nevertheless, it remains on track for more divergence in terms of benchmark rates compared to G10 and many if not all other global Central Bank peers, bar the Riksbank.

EUR/CAD/CHF/NZD - All relatively rangebound vs the Greenback even though overall sentiment has taken another turn for the worse after tentative signs of stability. The single currency is stuck between 1.1155-35, the Loonie is pivoting 1.3300, while the Franc has tracked its safe-haven Yen peer to a degree from around 0.9755 to 0.9725, and the Kiwi is straddling 0.6450, albeit largely on the downside towards 0.6425.

EM - Amidst widespread deviation for global/general and more specific or unique reasons, perhaps the rebound in Usd/Cnh from circa 7.0305 lows to 7.0630 is telling/ominous after 7.0268 Usd/Cny fix. Note also, Hong Kong has slashed its 2019 GDP projection to exacerbate global growth concerns, though the Government has injected Hkd 19.1bn via economic measures to try and ward off recession.

Norwegian Key Policy Rate* N/A 1.25% vs. Exp. 1.25% (Prev. 1.25%); Policy rate would most likely be increased further in the course of 2019 - No mention of September. (Newswires)

Australian Employment Change (Jul) 41.1k vs. Exp. 14.0k (Prev. 0.5k). (Newswires) Australian Full Time Employment (Jul) 34.5k (Prev. 21.1k) Australian Unemployment Rate (Jul) 5.2% vs. Exp. 5.2% (Prev. 5.2%) Australian Participation Rate (Jul) 66.1% vs. Exp. 66.0% (Prev. 66.0%)

GEOPOLITICS

US National Security Adviser Bolton said the recent North Korean short-range missile launches violate UN resolution and threatens allies. In related news, South Korea President Moon said North Korea and US are exploring working level talks ahead of a 3rd summit, while he added he will strive to achieve 'One Korea' by 2045. (Newswires)

IMF Senior Resident Representative in South Africa says the country's debt levels are "quite concerning". (Newswires)

FIXED

To the untrained eye or for anyone that has been on an extended break, the early pull-back in bonds could easily have been seen as a more concerted retracement bearing in mind that it was rather swift and steep. However, the latest retaliatory rhetoric from Beijing has enticed bulls back in, and with a vengeance, as Bunds extend to 178.79, Gilts finally breach their previous contract peak to reach 135.19 and the 10 year T-note approaches 131-00. It goes without saying that benchmark yields are plunging deeper and curves are becoming even more inverse and the fear or anticipation of recession is getting more self-propelling.

COMMODITIES

Brent and WTI prices are firmly in negative territory, post the US-China updates, and have dipped below the USD 59.00/bbl and USD 55.00/bbl levels respectively which had been somewhat of a base for the benchmarks overnight after yesterdays significant downside for the complex, which saw Brent settle lower by around 3% on the day. On the supply/geopolitical front reports indicate that it is likely Iranian tanker Grace 1 will be permitted to leave Gibraltar as Chief Minister Picardo will not renew the vessels detention order which expires on Saturday; after which a court is to decide on the next steps. However, reports indicate that the US Department of Justice has applied to seize the tanker, which casts some doubt over the likelihood of the vessels near-term release. As a reminder prior to the vessel’s seizure reports indicated that it had loaded a 2mln/bbl cargo in Iranian waters around mid-April. Elsewhere, tomorrow sees the delayed release of OPEC’s monthly oil market report, focus will be on whether it takes a similar stance to the IEA and EIA reports in cutting 2019 world oil demand growth forecast. Turning to metals, where spot gold (+0.4%) remains above the USD 1500/oz mark as the market has settled somewhat from yesterday’s significant risk-off moves, but didn’t benefit much from the aforementioned trade headlines; the data slate ahead includes a number of notable US data points, which may spark further bouts of global growth worry if the prints are weak. Separately, copper prices are similarly little changed in-line with the largely tentative market sentiment thus far.

Gibraltar confirms that the US Department of Justice has applied to seize the Iranian supertanker on a number of allegations which are now being considered. Prior to this, the Iranian oil tanker Grace 1 is to be released on Thursday as Gibraltar Chief Minister Picardo will not apply to renew order to detain the vessel and Gibraltar sources notes that it is likely Grace 1 will be permitted to leave. (Newswires)

Crude oil loadings from the Black Sea port of Novorossiisk have resumed following suspension due to a storm, according to IFAX citing Transneft. (Newswires)