• Asian equities 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
• 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
• British officials reportedly strongly dispute the EU's interpretation that PM Johnson's actions and demands mean he is now deliberately aiming for a No Deal outcome
• In FX, DXY was relatively flat near the 98.00 level, AUD/USD supported by stronger than expected jobs data
• Looking ahead, highlights include UK & US Retail Sales, US NY Fed, Initial Jobless Claims, Industrial Production, Manufacturing Output & Business Inventories, Norges Bank & Banxico Rate Decisions
• Earnings: Walmart, NVIDIA, Carlsberg & Swisscom

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 YTDafter 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 (-2.7%) andNikkei 225 (-1.6%) 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 (-0.4%) and Shanghai Comp. (-0.6%) 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 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)

China Global Times Editor said China requests that both sides respect the Osaka summit G20 by removing all additional tariffs and not delaying some, while he doubts the Chinese side will currently resume large-scale purchase of US farm products. (Twitter)

UK/EU

British officials reportedly strongly dispute the EU's interpretation that PM Johnson's actions and demands mean he is now deliberately aiming for a No Deal outcome, while they stated that he does want a negotiated agreement but Brussels has to accept that will require movement on its part which particularly means 'any deal must involve the abolition of the backstop'. (The Sun/Twitter)

UK senior Tory MP and Commons foreign affairs committee chair Tugendhat suggested the UK could exit EU by August 25th to avoid attempts to block a no-deal, although Downing Street has denied this was being considered and a legal expert also noted that the withdrawal date could only be changed with approval from Brussels. (Guardian)

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) 

FX

DXY was relatively flat near the 98.00 level as it held on to most the gains seen in the wake of the recent tariff concession and with most its major counterparts subdued including EUR/USD following recent disappointing data. GBP/USD was little changed around 1.2050 after stalling at resistance around 1.2100 which has so far been a relentless barrier for price action this week, while there was also a recent suggestion from a senior Tory MP that the UK could leave the EU by August 24th to avoid attempts by Parliament to block a no-deal although Downing Street have denied this was being considered. USD/JPY was resilient despite the wide risk-averse tone and nursed losses as it eyed a reclaim of the 106.00 handle, while antipodeans were varied with outperformance seen in AUD/USD following stronger than expected jobs data which was mostly fuelled by Full-Time jobs.

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%) 

COMMODITIES

Commodities were mixed with WTI crude futures reeling from a near-5% drop triggered by the recession fears and which coincided with a surprise build in this week’s crude inventory releases. Nonetheless, prices have moved off their lows after having found support at the USD 54.00/bbl level although any meaningful recovery continues to be hampered by the broad risk averse tone and potential easing of geopolitical tensions after reports the Iranian oil tanker Grace 1 is set to be released today. Elsewhere, gold extended its footing above the USD 1500/oz due to the safe-haven flows but with upside also restricted as the greenback retained most its recent gains, while the downbeat risk appetite kept copper prices subdued throughout the session.

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. (The Sun)

China has reportedly restricted gold imports in the last three months, with imports down 300-500 tonnes, worth USD 15-25bln, according to sources. (Newswires)

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)

US

The Treasury curve bull-flattened amid risk-off trade. Much attention was on curve spreads, where the US 2s10s part of the curve inverted in Wednesday pre-market trade, which investors have traditionally associated with an increase in recession risks. BofAML analysts note that 2s10s yield curve inversions have preceded the last seven recessions and nine out of the last 12 recessions. BofAML says that the SPX can take time to peak after a yield curve inversion, noting that sometimes the S&P 500 peaks within two-to-three months of a 2s10s inversion, but it can take one to two years for an S&P 500 peak after an inversion. For the ten inversions back to 1956, the S&P 500 topped out within approximately three months of the inversion six times (1956, 1959, 1965, 1973, 1980, and 2000), BofAML says, the S&P 500 took 11 to 22 months to peak after the other four inversions (1967, 1978, 1989, and 2005). BofAML says the equity market is on borrowed time after the yield curve inverts. Continue reading the full RANsquawk analysis here. US T-note futures settled 22 ticks higher at 130-16+.

US President Trump said the Fed acted far too quickly and now is "very, very" late. In related news, White House officials have reportedly not had any discussions of any stimulus as taxes have already been cut and spending has been boosted, but noted their main tactic is to pressure Powell. (Newswires/Washington Post)