MNI US OPEN - China Retaliation Threat Drives Yields Lower

NEWS:

TAIWAN/CHINA/US (MNI): Pelosi To Arrive In Taiwan 2130-2230 Local Time
Some confusion from wires and outlets around potential arrival time for Speaker of the US House of Representatives Nancy Pelosi's plane in Taiwan, given now widespread assumption (but not guarantee) that she is travelling to Taipei.

• Taiwan's SETN is reporting that "According to the flight tracking website Flightradar24, Pelosi took off from Sepang Airport in Malaysia on a Boeing C-40C transport plane (call sign SPAR19) and is expected to arrive at Songshan Airport at 21:30 in the evening [0930ET/1430BST]."
• Liberty Times reports that Pelosi is expected to arrive around 2220-2230 local time [1020ET/1520BST].
• At present, over 230k people are following the progress of what is believed to be the plan Pelosi is flying on on Flightradar:https://www.flightradar24.com/SPAR19/2ce4f83f

ECB (MNI): War-Related Fiscal Policy Boost For EZ: ECB Report
Fiscal measures by member sates related to the war in Ukraine will have a beneficial impact on the eurozone economy in 2022, a pre-released report in the European Central Bank's monthly bulletin suggests. According to the report, war related spending could increase overall GDP in the single currency area by 0.4% in 2022, while policies to help lower energy price inflation could take 0.4 percentage points off of annual consumer prices, the report notes.

UK (MNI): UK House Prices Rise, Undimmed By Cost-of-Living
UK house prices rose 11.0% year-on-year in July, despite consumer confidence sitting at an all time low, according to the latest Nationwide House Price Index. Although facing headwinds including a string of rate rises from the Bank of England in recent months and consumer inflation sitting just shy of 10%, prices continue to rise, Nationwide chief economist Robert Gardner said Tuesday. However, with buyer activity slowing and mortgage applications dropping, prices are likely to cool in coming months.

RBA (MNI): Rate Rises Not "Pre-Set" As RBA Hikes 50bps
The Reserve Bank of Australia says that it is "not on a pre-set path" of interest rate rises and sees inflation returning to target in 2024 after peaking at 7.75% this year. The new language around the pace of monetary tightening came as the central bank, as forecast, hiked official interest rates by 50 basis points to 1.85%, the fourth consecutive increase since May. While saying it remains committed to "doing what is necessary" to return inflation to the 2% to 3% target range "over time," the Tuesday, the bank's approach of abandoning forward guidance and being guided by data and its assessment of the outlook for inflation and the labour market.

FOREX: Pelosi Plane Trip Drives Bond Yields Lower

• The JPY trades on the front-foot, extending the recent rally to put USD/JPY at new pullback lows. The pair is narrowing in on the next key support at the 100-dma of 130.24, a level last crossed in September 2021. The JPY continues to rally alongside rate differentials, with the US 10y yield slipping further to near 2.50% - a level last crossed in early April.
• The driver behind the move continues to be a rippling of tensions between the US and China as the House Speaker Pelosi heads toward Taiwan for a rumoured formal visit. Chinese authorities have warned of considerable pushback should the visit take place, even including military options.
• Equity markets are suitably lower to match the risk-off theme in currency and bond markets, with the e-mini S&P back below 4,100 and the 100-dma.
• AUD is the poorest performer so far Tuesday, despite the RBA's rate hike overnight, with the bank pointing toward a slower pace of rate hikes going forward. The hike to 1.85% puts rates at their highest levels since 2016, but the data dependent nature of policy going forward could see the pace of rate rises slow sharply going forward. As such, AUD/USD is targeting Friday's lows of 0.6911, a break below which opens Jul 21's 0.6859 for direction.
• Data are few and far between Tuesday, with just the US JOLTS data on the docket. The speaker slate could take more interest, with comments from Fed's Bullard, Mester and Evans all due.

BOND SUMMARY: Nancy Pelosi and Taiwan at the forefront

• Early price action has been led by the latest China headlines regarding Nancy Pelosi potential trip to Taiwan.EU and US Equities are on the on the back foot, following the latest Chinese headlines.
• "Taiwan faces disastrous consequences of US action", talking about Nancy Pelosi's potential visit to Taiwan.
• EGBs and Bund initially rallied, and the German 10yr Yield broke below the 0.70% level, and printed a 0.680% low today.
• Futures have since reversed the early moves, but are still deep in green territory.
• Although flat so far today, Portugal/Bund spread still trend to its tightest level since 21st April.
• Next support will be seen at 96.04, now trading at 99.5bps.
• Gilt has traded in line with Germany, and the Gilt/Bund spread trades 0.8bp tighter.
• US Treasuries have mostly traded close to Europe, but underperform somewhat.
• US 10yr Yield tested the lowest level since 5th April, but is off the lows inline with Europe.
• Looking ahead, most of the focus is on Nancy's Pelosi potential visit to Taiwan.
• There are no tier 1 data for the session, speakers, include Fed Evans, Mester and Bullard.

EQUITIES: Asian stocks lead the way lower

• Japan's NIKKEI down 398.62 pts or -1.42% at 27594.73 and the TOPIX down 34.62 pts or -1.77% at 1925.49.
• China's SHANGHAI closed down 73.692 pts or -2.26% at 3186.266 and the HANG SENG ended 476.63 pts lower or -2.36% at 19689.21.
• German Dax down 84.69 pts or -0.63% at 13394.85, FTSE 100 up 3.98 pts or +0.05% at 7416.58, CAC 40 down 33.36 pts or -0.52% at 6403.5 and Euro Stoxx 50 down 26.83 pts or -0.72% at 3679.79.
• Dow Jones mini down 149 pts or -0.45% at 32618, S&P 500 mini down 26 pts or -0.63% at 4094.75, NASDAQ mini down 100.5 pts or -0.78% at 12863.25.

COMMODITIES: European natgas continues to push higher

• WTI Crude down $0.59 or -0.63% at $93.29
• Natural Gas (NYM) down $0.14 or -1.67% at $8.144
• Natural Gas (ICE Dutch TTF) up $5.45 or +2.71% at $206.105
• Gold spot up $1.77 or +0.1% at $1774.14
• Copper down $3.5 or -0.99% at $350.75
• Silver down $0.07 or -0.35% at $20.292
• Platinum up $2.55 or +0.28% at $913.22