• Asian equity markets were somewhat cautious as the region awaited the latest Chinese trade data and following a mixed performance on Wall St
• Senior US administration officials agreed that China violated sanctions by importing Iranian oil last month and are now mulling secondary sanctions
• The greenback was slightly softer overnight as the momentum from the prior day’s firmer than expected US CPI petered out
• US Gulf of Mexico crude oil production has been cut by 53% (1mln BPD) due to Storm Barry according to the US government
• Looking ahead, highlights include Chinese trade, Riksbank minutes, IEA monthly report, Eurozone IP, US PPI, Baker Hughes Rig Count, BoE’s Vlieghe, Norges Bank’s Nicolaisen, Fed’s Evans

ASIA-PAC

Asian equity markets were somewhat cautious as the region awaited the latest Chinese trade data and following a mixed performance on Wall St. where markets were tentative amid a plethora of Fed speakers, although the DJIA outperformed and rose above the previously uncharted 27K level. ASX 200 (-0.3%) was dragged lower by most mining-related sectors but with downside stemmed by resilience in the largest-weighted financials industry and strength in energy after news Santos is considering a takeover of rival Oil Search, while Nikkei 225 (+0.1%) mirrored an indecisive currency with index giant Fast Retailing the outperformer after it posted 9-month profit growth. Hang Seng (+0.4%) and Shanghai Comp. (+0.5%) were choppy ahead of the Chinese trade figures and after PBoC inaction resulted to a net weekly drain of CNY 220bln, although Chinese press reports continued to suggest potential for lower rates in China and more room for easing. Finally, 10yr JGBs followed suit to the weakness of their counterparts in US where the curve bear steepened in the aftermath of firmer than expected CPI data, while the tentative risk tone and BoJ presence for JPY 940bln of JGBs also failed to provide support for prices.

PBoC skipped open market operations for a net weekly drain of CNY 220bln vs. Prev. drain CNY 340bln last week. (Newswires) PBoC set CNY mid-point at 6.8662 (Prev. 6.8677)

Senior US administration officials agreed that China violated sanctions by importing Iranian oil last month and are now mulling secondary sanctions in a move that would strain US-China trade talks. (Politico)

Singapore GDP (Q2) Q/Q -3.4% vs. Exp. 0.1% (Prev. 3.8%) Singapore GDP (Q2) Y/Y 0.1% vs. Exp. 1.1% (Prev. 1.2%)

UK/EU

Initial interviews for the next Bank of England governor have been carried out, leaving the appointment process in limbo until a new chancellor is named. (Times)

USTR announced initiation of Section 301 investigation into France’s digital services tax. (Newswires)

FX

The greenback was slightly softer overnight as the momentum from the prior day’s firmer than expected US CPI data petered out with the DXY now back below the 97.00 level. This benefitted its major counterparts in which EUR/USD broke out of the lull seen during US hours but with advances also contained by nearby large option expiries for today’s New York cut at 1.1250 and 1.1270, while gains in GBP/USD were also limited by the continued political and Brexit-related overhang. Antipodeans remained steadfast against a weaker USD as they awaited the Chinese trade data. Elsewhere, USD/JPY mildly pulled back as a function of a tepid greenback and cautious risk tone, while SGD briefly wobbled following discouraging GDP figures for Q2 which showed the largest quarterly contraction in around 7 years.

COMMODITIES

Commodities were slightly positive overnight but with upside limited by the cautious risk sentiment. As such, WTI crude futures edged mild gains and remained near the prior day’s highs above the USD 60/bbl level following this week’s bullish inventory data and disruption in the Gulf of Mexico where crude output has been cut by more than half amid Tropical Storm Barry which is expected to develop into a hurricane later today. Gold prices saw a mild rebound from support near USD 1400/oz and amid softness in the greenback, while copper proceeded sideways due to the indecisiveness as participants await the latest Chinese trade data.

US Gulf of Mexico crude oil production has been cut by 53% (1mln BPD) due to Storm Barry according to the US government, while NHC stated that a hurricane warning was issued for parts of the Louisiana coastline and that Tropical Storm Barry could become a hurricane by later today. (Newswires)

GEOPOLITICS

US decided not to impose sanctions on Iran Foreign Minister Zarif for now, according to sources. (Newswires)

US Secretary of State Pompeo said the US condemns Iran's attempt to harass the UK vessel near Strait of Hormuz, while it commends the Royal Navy for ensuring freedom of navigation and will continue working with allies to ensure Iran does not disrupt maritime security and global commerce. (Twitter)

US

The curve bear-steepened after CPI came in above expectations, diminishing arguments for a 50bps rate cut at the Fed’s July 31st policy meeting, while hawkish Fedspeak from Barkin and Bostic added to the downside, with traders largely having discounted the Powell comments, which were pretty much a copy and paste of Wednesday’s testimony. The 30-year auction was poorly received, tailing by a huge 2.6bps on very soft cover, seeing yields edge higher in its wake. At settlement major curve spreads were wider: 2s30s +41bps, 2s5s +3bps, 2s10s +4bps. US T-note futures (U9) settled 14+ ticks lower at 126-31+.

Fed's Williams (Voter, Hawkish) said the economy is in a good place but added the Fed must be ready to adjust policy to sustain the expansion and that inflation is below target which could feed into inflation expectations. Williams further commented that arguments for adding accommodation have strengthened over time in which he noted uncertainties around trade and global growth have not improved, while he added that expectations of rate cuts are showing up in easier financial conditions although he sees rates currently as neutral. (Newswires)

Fed's Brainard (Voter, Dove) said downside risks and soft inflation argue for easing monetary policy, while she added that judgement on appropriate path of rates will depend on evolution of data and risks. Furthermore, Brainard said the economy is expanding solidly and financials markets are supportive of growth, but also noted capital spending is lacklustre and business sentiment is soft. (Newswires)

Fed's Barkin (Non-Voter, Hawkish) said it is "tricky" to try to use low rates to boost inflation and suggested inflation is running low as well as steady and not a concern for businesses or consumers. Barkin also suggested that it is hard to make the case for both stepping on the gas or stepping on the brakes and that small rate moves are unlikely to do much to move businesses' settled pricing routines, while big rate moves risk providing 4% inflation. However, Barkin later commented that research shows if you are going to do something on rates it is better to do something sooner than later and that he can see the case for an insurance rate cut but that case for a rate cut to re-centre inflation doesn't feel strong enough. (Newswires)

Fed's Bostic (Non-Voter, Dove) said he wants to keep an open mind for the July meeting and not front run a rate call, while he added that low readings on inflation are "noisy" and other data suggests the Fed is close to its 2% target not moving away from it. Bostic also commented that the central bank is in a good position right now on jobs and inflation but also noted it is clear risks to the economy have grown compared to the prior year including trade and weak global growth. (Newswires)

Fed's Kashkari (Non-Voter, Dove) reiterated that he supports a rate cut to re-anchor inflation expectations, while he suggested that a 25bps cut would not be enough of a shock and that 50bps cut is needed. (Newswires)

US President Trump said he is dropping efforts to include the citizenship question on the consensus but is not backing down on citizenship data efforts and said it is essential to have a clear breakdown of the number of citizens as well as non-citizens, while he is issuing an executive order to access citizenship records. (Newswires)

US House Speaker Pelosi said she sees the need to act on debt ceiling and budget caps before the August break. (Newswires)