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The risk sentiment remained tepid in Thursday’s Asian trading, amid fresh geopolitical tensions between the US and China. The Chinese People’s Liberation Army warned the US to immediately cease such provocative actions to avoid “unexpected events” after guided-missile destroyer USS Wayne E. Meyer reportedly entered South China Waters without China’s permission.

A fresh risk-aversion wave gripped the markets on the above reports that added to the ongoing US-China trade woes. As a result, the Wall Street futures and Treasury yields dropped and knocked-off the USD/JPY pair back below the 106 handle. The Asian equities also traded mostly lower. The safe-haven gold also picked-up fresh bids above the 1540 level, in the wake of flight to safety. Meanwhile, both crude benchmarks traded flat to lower, with WTI around 55.50 region.

Among, the higher-yielding currencies – the Antipodeans, the Kiwi suffered the most on poor New Zealand Business Confidence data and risk-aversion. The Kiwi fell to the weakest levels since Sept 2015 just ahead of the 0.63 handle. The poor run of macro news from New Zealand continues to bolster the case for further Reserve Bank of New Zealand (RBNZ) rate cuts. Meanwhile, the Aussie also fell to a fresh three-day low near 0.6725 following an unexpected drop in the Australian Private Capex data.

Heading into Europe, the EUR/USD pair trades muted below the 1.11 handle while the Cable consolidates around the 1.22 handle, with the risks skewed to the downside amid growing Hard Brexit risks.

Main Topics in Asia

US Treasury Sec. Mnuchin: The Trump administration has weighed countering the strength of the Dollar

Fed’s Kaplan: I am confident policymakers are not swayed by politics

S. Korea FinMin sets 2020 budget at 513.5 tn Won; up 8% from 2019

Oil prices are a rabbit in the headlights ($50.50/$60.50)

Silver prices on a tear, and look to a 127.2% extension

Peter Navarro: We need the Fed to do its job and cut rates

China to cut interest rates from September – Reuters

PBOC sets Yuan reference rate at 7.0858

Gold: Fresh risk-off renews buying interest around $1,540

NZ: Business confidence deteriorated further in August – Westpac

Australia CAPEX: -0.5% vs +0.5% expected (AUD/USD lower)

BOJ’s Suzuki: Keeping rates very low could have unusual effects, side-effects on economy

Trade wars morphing towards ‘unexpected events’ – GT

China’s Amabassador to US: China launched a nationwide campaign to crack down on online sales of Fentanyl

Fed’s Daly: We see domestic economy that is really solid

Asian stocks drop on trade concerns and tensions in South China Sea

Japanese Officials: Japan considering strengthening monitoring of Chinese investment – Reuters

Key Focus Ahead

The second half of this week appear quite eventful, in terms of the macro economic events, with Thursday’s EUR docket sees relevant releases from both Germany and Eurozone. Germany’s jobs data, due at 0755 GMT, will be the first watched, followed by a string of Eurozone August Confidence and Sentiment indicators that will drop in at 0900 GMT.

The German Preliminary Harmonized Index of Consumer Prices (HCPI) for August will hog the limelight in the European session. The HCPI is seen a tad firmer on an annualized basis and is due at 1200 GMT. In absence of any data from the UK, the Brexit/ political developments will continue to drive the sentiment around the pound.

The NA session also offers a fresh batch of key US economic data, with Preliminary Q2 GDP, Good Trade Balance and Personal Consumption Expenditure Prices, all releasing at 1230 GMT alongside the Canadian Q2 Current Account release. Later, at 1400 GMT, the US Pending Home Sales data will be also eyed amid any fresh US-China trade headlines, the US President Trump’s comments.

EUR/USD registers three-day losing streak ahead of German jobs and inflation data

EUR/USD is on the defensive, having dropped for the third straight day on Wednesday. German recession fears are priced  to a greater extent. So, the EUR may rise sharply on upbeat data. Softer German CPI could yield a break below key support at 1.1052

GBP/USD slips below 21-day EMA as proroguing of UK parliament triggers political outrage

GBP/USD stays on the back foot amid increasing odds of no-deal Brexit after the UK PM got the Queen’s approval to prorogue the Parliaments. Focus on Brexit-related headlines and US GDP for fresh impetus.

Brexit: The Show That Never Ends

he Irish border backstop remains too contentious for the deal in its current form to be approved by U.K. Parliament, but the question is whether the E.U. will be willing to grant concessions on the backstop.

US second quarter GDP 1st revision preview: Consumers are sufficient for 2%

Annualized GDP expected to slip 0.1% to 2.0%. Consumer spending remains healthy. Business investment and sentiment low, dragged down by the China trade dispute.