Traders were unfazed by Friday the 13th, and instead Asian and European stock markets burst higher out of the gate, riding on the Thursday US market gains which came as the U.S. and China signaled they were open to restarting talks over trade after days of exchanging threats, although Treasury Secretary Mnuchin said Beijing must commit to deeper economic reforms.

However, US S&P futures promptly faded all gains and were traded unchanged, just below 2800, following the latest economic data from China, which showed posted a modest slowdown as reported earlier, but most importantly, showed that China’s trade surplus with America hit a new all-time high...

...serving as a stark reminder that trade tensions aren’t going away, even as investors’ focus shifted to second-quarter earnings. The result was a roundtrip in the E-mini which was hugging the unchanged line.

Earlier, the Stoxx Europe 600 Index edged higher, amid subdued volume as commodity producers underperformed on Chinese fears. Meanwhile, stocks in Asia were set for a first weekly advance in five as benchmarks in Japan, Hong Kong, and South Korea gained.

The latest Chinese credit creation data did not help sentiment, with Total Social Financing once again badly missing consensus amid a broad crackdown on shadow lending, which in turn pushed China's M2 to a new all-time low.

A report that China’s $941 billion sovereign wealth fund may move money home weighed on the gauges.

While Chinese stocks trod water...

The Chinese news catalyzed a sharp reversal in the offshore Yuan, which slumped from 6.67 back to 6.72 and back below the 6.7000 levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

As a result of the Yuan weakness, the Bloomberg Dollar Spot Index rises 0.3%, extending its advance this week to 1% even as volumes in major currencies are relatively muted ahead of the start of earnings season.

In other FX news, the pound slipped as much as 0.8% to 1.3103, set for its biggest weekly drop since May, weakening after Trump said Theresa May’s soft Brexit plans may kill off a trade deal with the U.S.

Meanwhile, the yen is headed for its worst week since September as a rally in equities supported risk-taking even amid U.S.-China trade tensions.

In rates, the US 10Y yield is unchanged, while European bonds edge higher across the curve with core markets leading gains.

Investors will feel some relief as earnings season gets underway in earnest, allowing attention to pivot away from trade relations. The latter seemed to ease somewhat, with officials in Beijing appearing to moderate their responses to Trump’s tariff threats amid a slowing economy, falling stock market and weakening currency. Still, China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared, underlining the cause of the escalating trade war.

For those who missed the big overnight news, late on Thursday President Trump warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US as they would be dealing with the EU instead of the UK. This also comes amid reports that UK PM May could suffer the defeat of a crucial Brexit bill as early as Monday after Eurosceptics reacted angrily to the white paper she published yesterday. 

Oil is currently trading in the red, with Brent -1.0% and WTI -0.3% as we approach the weekend, and is set for its second consecutive weekly fall. Both measures are finding support at moving average levels, however, with WTI still supported by its 50DMA (USD 69.43/BBL), and Brent finding support at its 100DMA (USD 73.07/BBL) level. Russian Energy Minister Novak said he is not ruling out an output adjustment depending on other countries or a quick move on >1mln BPD from OPEC+ if needed. He also said he sees Russia's output boost by the end of July at 200k BPD.

Gold prices are sliding as the DXY is extending its rally past the 95.000 level. Shanghai steel has hit a 10 month high on the back of low inventories and source reports suggesting the closure of steel mills in China’s largest steel-making city, Tangshan, for 5 days amid pollution concerns. Copper is down 0.5% and set for the 5th consecutive weekly fall as US-China trade concerns are weighing on the construction material.

Today's data include University of Michigan Consumer Sentiment Index. Citigroup and JPMorgan are among companies reporting earnings.

Market Snapshot

• S&P 500 futures little changed at 2,800.75
• STOXX Europe 600 up 0.4% to 385.76
• MXAP up 0.5% to 165.20
• MXAPJ up 0.3% to 539.05
• Nikkei up 1.9% to 22,597.35
• Topix up 1.2% to 1,730.07
• Hang Seng Index up 0.2% to 28,525.44
• Shanghai Composite down 0.2% to 2,831.18
• Sensex up 0.2% to 36,607.85
• Australia S&P/ASX 200 unchanged at 6,268.39
• Kospi up 1.1% to 2,310.90
• German 10Y yield fell 1.9 bps to 0.338%
• Euro down 0.5% to $1.1620
• Italian 10Y yield fell 6.5 bps to 2.358%
• Spanish 10Y yield fell 1.4 bps to 1.272%
• Brent futures down 1% to $73.73/bbl
• Gold spot down 0.5% to $1,240.89/oz
• U.S. Dollar Index up 0.4% to 95.20

Top Overnight News

• President Donald Trump dealt a double blow to U.K. Prime Minister Theresa May, saying her plans for a soft Brexit would likely end hopes of a trade deal with the U.S. and that Boris Johnson, who quit her cabinet this week, would be a “great” leader
• China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared, underlining the cause of an escalating trade war between the world’s two largest economies
• European Union is set to throw embattled British Prime Minister May a lifeline in Brexit talks because of concern the biggest risk to getting a deal done is now whether she can cling to power
• Britain’s financial industry slammed Prime Minister May’s latest proposal for Brexit, with some calling it the worst outcome possible
• U.S. and China signaled they were open to restarting talks over trade after days of exchanging threats, though Treasury Secretary Mnuchin said Beijing must commit to deeper economic reforms
• China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also jumped, underlining the cause of an escalating trade war between the world’s two largest economies.
• Bonds in Indonesia, India and Australia are witnessing a flattening of yield curves that’s showcasing the challenges these formerly-favored markets face as dollar liquidity tightens
• North Korea has breached the cap on fuel imports imposed by the United Nations Security Council, likely using illicit transfers between tankers at sea, according to the U.S. government.
• With the Fed still raising rates and President Trump still increasing tariff threats, the selloff in markets may only get worse, market players say
• BNP Paribas SA, Credit Agricole SA and four other French lenders won a European Union court fight against the European Central Bank’s refusal to change the way it calculates the leverage ratio

Asian equity markets were mostly higher as the region took impetus from the upside in Wall St where all majors extended on gains after China’s lack of retaliation and in which tech outperformance pushed the Nasdaq to a fresh record high. This led to a positive open for ASX 200 (-0.1%) and Nikkei 225 (+1.9%) although the Australia index then floundered amid weakness in its top-weighted financials sector, while the Japanese benchmark sustained its outperformance as exporters cheered a weaker currency and with a surge in Fast Retailing on strong earnings. Elsewhere, Hang Seng (+0.2%) conformed to the predominantly positive risk tone in the region, while Shanghai Comp. (-0.2%) was negative after the PBoC refrained from reverse repo operations and with some jitters ahead of Chinese Trade Data, although the mainland index has since moved off its lows after the PBoC later announced an MLF operation and after data printed mixed with a larger than expected surplus, which eased some of the data-related fears. Finally, 10yr JGBs were flat with demand sapped amid outperformance of riskier assets in Japan, although downside was also stemmed by the BoJ’s presence for JPY 670bln of JGBs in the belly to super-long end. PBoC refrained from reverse repos, but later announced to lend CNY 188.5bln via 1yr Medium-term Lending Facility. PBoC set CNY mid-point at 6.6727

Top Asian News

• Hedge Funds Favor Tiny Stocks Instead of China’s Tech Giants
• Ex- PM Sharif Heads to Pakistan to Face Jail Before Elections
• Viva Closes Lower After Biggest Australian IPO in 4 Years

European equities are largely in the green, with the Euro Stoxx 50 (+0.2%) breaking through its 50DMA in late European trade yesterday and finding support at this level (3,452) this morning. Tech stocks are leading the gains (Infineon +1.7%, Micro Focus +4.3%) and all sectors positive as the positive sentiment from the US continues into European trade. The IBEX (-0.3%) is once again the only index in the red, and fallen through its 50DMA, with bank stocks extending the  losses seen in yesterday’s trade (BBVA -1.2%, Santander -1.1%). The FTSE 100 is outperforming as the GBP is softer. ThyssenKrupp (-0.6%) have named Guido Kerkhoff as their new CEO

Top European News

• Danske Bank Has Criminal Complaint Brought Against It by Browder
• French Banks Win EU Court Fight Over ECB Leverage Ratio
• Gilts Bid Forces Stops in Bund as Trump Comment Weighs on Cable
• EU Backs Bulgaria’s Bid to Join Euro Waiting Room in a Year

In FX, the DXY index is back above 95.000 and seemingly heading for strong close to the week, with momentum to challenge the current ytd high (95.531 from June 28) given blanket gains vs G10 peers. GBP/NZD - An unfortunate, if not unlucky Friday 13th for the Pound and Kiwi thus far, with Cable hit by more negative White Paper headlines amidst reports that US President Trump has delivered a damning verdict via a warning to UK PM May about the ‘soft’ proposal killing prospects of a trade deal between the 2 nations. Market contacts noted stops on a break of 1.3175 after the loss of 1.3200 and there is little in the way of support before the next psychological level at 1.3100 vs a circa 1.3105 low, and ahead of a speech from BoE’s Cunliffe due at 12.30BST. Meanwhile, Nzd/Usd has retreated through 0.6750 following a disappointing NZ manufacturing PMI overnight. EUR - The single currency also a victim of overall Dollar strength, or vice-versa, and looking vulnerable for a deeper pull-back from recent peaks having breached some key chart supports (like the 20 DMA at 1.1654 and a 50% Fib at 1.649 from the 1.1508-1.1790 rally from 2018 low to nearly July peak), with 1.1600 next in sight. CNH - The off-shore Yuan is back below 6.7000 vs the Usd and levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

In commodities, oil is currently in the red, with Brent -1.0% and WTI -0.3% as we approach the weeks end, and is set for its second consecutive weekly fall. Both measures are finding support at moving average levels, however, with WTI still supported by its 50DMA (USD 69.43/BBL), and Brent finding support at its 100DMA (USD 73.07/BBL) level. Russian Energy Minister Novak said he is not ruling out an output adjustment depending on other countries or a quick move on >1mln BPD from OPEC+ if needed. He also said he sees Russia's output boost by the end of July at 200k BPD Gold prices are sliding as the DXY is extending its rally past the 95.000 level. Shanghai steel has hit a 10 month high on  the back of low inventories and source reports suggesting the closure of steel mills in China’s largest steel making city, Tangshan, for 5 days amid pollution concerns. Copper is down 0.5% and set for the 5th consecutive weekly fall as US-China trade concerns  are weighing on the construction material.

US Event Calendar

• 8:30am: Import Price Index MoM, est. 0.1%, prior 0.6%; Import Price Index YoY, est. 4.6%, prior 4.3%
  • Export Price Index MoM, est. 0.2%, prior 0.6%; Export Price Index YoY, prior 4.9%
• 10am: U. of Mich. Sentiment, est. 98, prior 98.2; Current Conditions, prior 116.5; Expectations, prior 86.3
• 11am: Fed Releases Monetary Policy Report to Congress
• 12:30pm: Fed’s Bostic Holds Town Hall Chat in Northern Virginia