• European indices [Euro Stoxx 50 +0.4%] were lifted from mildly negative territory by positive US-China comments
• US Treasury Secretary Mnuchin said the US-China deal is 90% complete, though there was some suggestion that these comments were delivered in the past tense
• In FX, the DXY has steadied above 96.0 post-Fed comments while the NZD leads G10 counterparts post-RBNZ
• Looking ahead highlights include, US Durable Goods, Fed’s Daly. Supply from the US.

ASIA-PAC

Asian equity markets were mostly subdued following the headwinds from Wall St where stocks posted their worst performance in nearly a month as Fed speakers tempered rate cut bets. This was after Fed Chair Powell said many on the Fed see a case for more accommodation but also stressed the importance of not overreacting, and Fed’s Bullard who was the lone dovish dissenter at the last meeting, stated that he does not prefer a 50bps rate cut in July. ASX 200 (-0.3%) and Nikkei 225 (-0.5%) weakened with Australia led lower by gold miners after a pullback in the precious metal although resilience in healthcare, materials and industrials limited the downside, while sentiment in Tokyo was also downbeat with Japan Display among the laggards in the spotlight after several other groups withdrew from the Co. bailout. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (-0.2%)were indecisive amid further PBoC liquidity inaction and ongoing uncertainty heading into the Trump-Xi meeting at this week’s G20, with the US said to be unwilling to give concessions on trade at the meeting and that no broad deal is expected, although it was also reported that the US is considering suspending the next round of tariffs on an additional USD 300bln of Chinese imports as the sides prepare to resume trade discussions. Finally, 10yr JGBs tracked the late losses seen in T-notes as market pricing of a 50bps Fed cut in July declined to 25% from around 43% the prior day, although the downside for Japanese bonds was cushioned by the negative risk tone and BoJ Rinban operation for JPY 775bln of JGBs concentrated in 1yr-5yr maturities.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.8701 (Prev. 6.8580)

China Q2 Beige Book stated that the domestic economy showed modest improvement. (Newswires)

US

US Treasury Secretary Mnuchin said that the US-China trade deal is 90% complete; however some suggest Mnuchin said "we were 90% done" (speaking in the past tense). (Newswires)

Fed’s Bullard (Voter, Dove) says he thinks 2 rate cuts by end of the year would ensure a soft landing and shift policy from slightly restrictive to slightly accommodative, while he also stated that he was approached by the Trump administration in recent months about a seat on Fed board, but said he was happy in his current job. (Newswires)

Fed's Barkin (Non-Voter, Hawk) commented that inflation expectations are very anchored, while Barkin added that he doesn't know if a rate cut or cuts are needed this year and that Fed policy is still modestly accommodative. (Newswires)

US administration official said USD would be less strong and the EUR would be less weak if the Fed took back rate hike from last fall, while the official added that there are many opinions in the White House about the President's authority to demote Powell but also stated that the White House has no plans to demote Fed Chair Powell. (Newswires)

US House approved USD 4.5bln in aid to address migrant surge at US-Mexico border. (Newswires)

Former US Special Counsel Mueller agreed to testify in Congress. (Newswires)

GEOPOLITICS

North Korea said US extension of sanctions against North Korea is a direct challenge to Singapore summit agreement and an extreme act of hostility. (KCNA)

Iran's atomic energy organisation spokesman says Iran will speed up the enrichment of uranium as the deadline given to European countries ends tomorrow. (Newswires)

Russia could ramp up safety measures for its workers in Iran, according to Russian press. (Newswires)

Iran's Supreme Leader Khameni says Iran will not retreat in the face of US pressure. (Newswires)

UK/EU

BoE Governor Carney says BoE forecasts does not include the no-deal Brexit risk which is baked into market interest rate forecasts, and no-deal risk has pushed down market path for rates, more likely will provide stimulus than tightening after a no-deal

- BoE will change its forecasts if UK government's Brexit policy change and Monetary Policy has ‘somewhat limited abilities’, to offset the drag from trade tensions

German GfK Consumer Sentiment (Jul) 9.8 vs. Exp. 10.0 (Prev. 10.1). (Newswires)

Italian ISTAT Public Deficit/GDP (Q1) 4.1% (Prev. 2.0%, Rev. 1.7%)

- ISTAT states that the deficit is normally higher in Q1, and lowers later in the year due to tax returns

EQUITIES

European equities rebounded off lows [Eurostoxx 50 +0.4%] after US Treasury Secretary Mnuchin sounded upbeat on US-China trade negotiations heading into this week’s G20.  Mnuchin reiterated that the deal is “90% done”, albeit US officials have previously noted that the last 10% remains the hurdle. Although some suggested that Mnuchin was speaking in the past tense. Nonetheless, this boosted bourses out of the neutral/flat territory they had been in. Sectors are mixed, with energy and material names supported by price action in oil and base metals respectively, while financials outperform as yields nursed some recent losses post-Bullard and Powell, meanwhile the latest bout of Mnuchin-sparked “risk on” also weighed on bonds. Furthermore, chip names are supported amid optimistic earnings from Micron after-market yesterday (STMicroelectronics +2.5%, AMS +4.1%, Infineon +1.2%). In terms of other individual movers, Thyssenkrupp (+7.0%) shares spiked higher at the open amid speculation that Kone (-0.1%) is readying a bid for the Co’s elevator unit. Meanwhile, Brenntag (-4.1%) rest at the foot of the Stoxx 600 amid reports that the Co. sold dual-use chemicals to Syria.

FX

USD - The DXY has forged a firmer base above 96.000, and thanks in large part to a recalibration of July FOMC easing prospects prompted by Powell and Bullard that have both cautioned against reacting too aggressively to downside growth and inflation risks. Hence, market pricing has shifted further towards 25 bp from 50 bp and the Greenback is clawing back some losses, especially against safer-havens amidst pre-G20 comments from US Treasury Security Mnuchin reiterating that 90% of the trade accord with China has been completed. The index is holding within 96.145-322 parameters, and for now at least not succumbing to bearish spot month end rebalancing requirements according to 3 if not more bank models.

NZD/AUD/CAD - The Kiwi is extending its winning run in wake of the RBNZ’s latest policy meeting and accompanying statement that reinforced guidance for lower rates, but was tempered somewhat by a balanced assessment of the economic outlook due to softer property prices vs more expansive fiscal policy. Moreover, the aforementioned latest US-China reports have sparked a broad rise in risk appetite with Nzd/Usd just topping out around 0.6680 and Aud/Usd retesting offers/resistance ahead of 0.7000. Meanwhile, the Loonie is consolidating gains made on the back of yesterday’s upbeat Canadian wholesale trade data with the aid of rebounding oil prices, with Usd/Cad hovering close to the bottom of a 1.3193-42 range and not visibly reacting to China extending its import ban to include all meat from Canada.

NOK - Another marked G10 outperformer and also fuelled by the post-API crude comeback, but deriving additional momentum from much better than forecast Norwegian jobs data, as Eur/Nok nestles around 9.6600 vs 9.7125 at one stage.

JPY/CHF - As noted above, the Yen and Franc have been undermined by less dovish Fed perceptions and revived US-China trade aspirations even though the Mnuchin ‘revelation’ is likely a statement about how things stood before talks ended in accusations of blame for reneging on pledges by both sides. Nevertheless, Usd/Jpy has nudged up over 107.50 from sub-107.00 on Tuesday and into the upper echelons of option expiries extending to 108.00-10 in decent size – see our 7.11BST post on the headline feed for full details. Similarly, Usd/Chf has rebounded to 0.9780 or thereabouts and Eur/Chf is back above 1.1100.

GBP/EUR - Sterling and the single currency are both relatively rangebound as Cable flits between 1.2705-2664 amidst BoE testimony to the TSC ostensibly on the now dated May QIR that merely underlined ongoing Brexit dependent policy guidance and Eur/Gbp pivots 0.8950. Eur/Usd has pulled back further from its modest 1.1400+ advance, but finding support ahead of 1.1350 and decent technical levels a fraction below, such as the 200 DMA and WMA. Note also, large expiry interest from 1.1370-80 (3.2 bn) and 1.1385-90 (1.8 bn) are likely to cap the headline pair.

RBNZ kept the OCR unchanged as expected and stated that a lower OCR may be needed over time, while it noted downside risks to employment as well as inflation but also sees inflation rising to 2%. RBNZ stated that the committee discussed the merits of lowering OCR at this meeting and noted risk of ongoing subdued domestic growth, while it added that risks to achieving CPI and sustainable employment objectives are tilted to the downside relative to the May statement. However, the members also noted 2 largely offsetting developments affecting the outlook for domestic growth which were softer house price inflation and additional fiscal stimulus. (Newswires)

FIXED INCOME

Core bonds have succumbed to another bout of selling, with the latest downside pressure coming after US Treasury Secretary Mnuchin reiterated that the US-China deal is 90% complete. Even though the comment did not contain any fresh news or developments, and the remaining 10% is the crux of the recent breakdown in communications, his remark has lifted hopes for the Trump-Xi G20 meet. Hence, Bunds hit fresh session lows of 172.38 (-42 ticks from highs) and USTs to 127-24 vs 128-06 at best and 128-08+ at one stage yesterday. On the periphery, and largely unresponsive to the US-China comments, BTPs dropped below the 133.0 figure on ISTAT’s Q1 deficit/GDP measure coming in at 4.1% vs. Prev. 2.0%; printing a session low of 132.97, albeit briefly as the excess was qualified by seasonal factors. Elsewhere, the delayed BoE QIR testimony has not revealed anything too fresh in terms of policy, though this isn’t unexpected given June's MPC gathering occurring last week. Looking ahead, and of note for US Treasuries comments from Fed Non-Voter Daly alongside Durables data and the second of this week’s short end supply in the form of a 41bln 5yr sale.

COMMODITIES

WTI and Brent futures have held onto most of their API-inspired gains (crude stocks -7.7mln vs. Exp. -2.5mln) with the former hovering close to the USD 59/bbl mark (having briefly breached the level to the upside) whilst the latter eyes USD 66/bbl. News-flow for the complex has been light thus far, albeit prices are also underpinned by supply-side disruptions after Exxon’s Beaumont Texas refinery (366K bpd) suffered multiple upsets due to a power loss, while Philadelphia Energy Solutions, the largest refinery in the US East coast (335K BPD), is expected to be closed down after a recent fire. Elsewhere, gold remains just above the USD 1400/oz after retreating form 6yr highs as the USD recoiled after Fed’s Bullard and Powell tempered expectations of a 50bps cut. Meanwhile, copper prices extend gains above USD 2.7/lb, now eyeing 2.75/lb as strikes in the world’s largest open-pit mine (Codelco’s Chuquicamata mine) continue, with the workers reportedly blocking roads leading to other mines. 

In other news, Philadelphia Energy Solutions is expected to close its oil refinery following the recent fire, while the refinery is the largest in the east coast of the US with a capacity of 335k bpd. (Newswires)

Barclays expects oil prices at USD 73/bbl in H2 2019, expects OPEC+ to roll over current deal and sees main oil producers maintaining close to 100% compliance in H2 2019, unless Iranian and Venezuelan situation deteriorates further. (Newswires)