I. Yesterday’s News
International News

1.German Chancellor Angela Merkel said on Thursday she would back lowering European Union tariffs on U.S. car imports, responding to an offer from Washington to abandon threatened levies on European cars in return for concessions. However, she added EU tariff negotiations required a "common European position and we are still working on it." An industry source told Reuters that the U.S. ambassador to Germany, Richard Grenell, had mentioned to German auto executives that U.S. President Donald Trump could abandon threatened tariffs on imported European cars if in return the European Union scrapped duties on U.S. Cars. A spokesman for the embassy said no formal offer on tariffs had been made. Automotive stocks rose nonetheless on Thursday, on hopes that U.S. tariffs may not come after all.

2. The International Monetary Fund (IMF) on Thursday cut its 2018 forecast for German GDP growth to 2.2 percent, saying rising protectionism and the threat of a hard Brexit had exposed Europe's biggest economy to significant short-term risks. The Washington-based lender, whose previous prediction from April was 2.5 percent, edged its 2019 forecast up to 2.1 percent from 2.0 percent.

3. Australia's central bank is carefully watching weakness in home prices in Sydney and Melbourne given the impact that could have on household wealth, a top official said on Thursday. The Reserve Bank of Australia's (RBA) Head of Economics Analysis, Alex Heath, emphasised that recent economic data had been generally positive and the bank was more confident about the outlook for investment outside the mining sector. However, she noted housing construction had plateaued, albeit at high levels, and was unlikely to contribute much to economic growth over the next couple of years.

4. US central bankers discussed whether recession lurked around the corner and expressed concerns global trade tensions could hit an economy that by most measures looked strong, minutes of the Federal Reserve's last policy meeting on June 12-13 released on Thursday showed. The minutes also suggested policymakers might soon signal that the Fed's rate-hiking cycle was advanced enough that policy was no longer boosting or constraining the economy. The minutes overall gave the impression of a central bank impressed by the US economy's strength and confident in its plans to continue raising rates, but also concerned with what could push the economy off its upward course. US stock prices pared earlier gains, the US dollar extended losses against a basket of currencies.

5. President Donald Trump said on Thursday the United States may ultimately impose tariffs on more than a half-trillion dollars' worth of Chinese goods as the world's two largest economies hurtled toward the start of a trade war. Trump confirmed that the United States would begin collecting tariffs on $34 billion in Chinese goods at 0401 GMT on Friday and warned that subsequent rounds could see tariffs on more than $500 billion of goods, or roughly the total amount that the United States imported from China last year. Trump's comments appeared to increase the stakes for potential retaliation by China. U.S. Customs and Border Protection said in a notice it would begin collecting the 25 percent duties on 818 product lines identified in June by the U.S. Trade Representative's Office. Beijing has vowed to immediately respond with an equal amount of tariffs of its own against U.S. autos, agricultural and other products, but it was unclear how swiftly the actions could escalate into an all-out trade war. There was no evidence of any last-minute negotiations between U.S. and Chinese officials, business sources in Washington and Beijing said.

Domestic News

6. China is capable of maintaining mid- and high-speed economic growth in the second quarter of this year despite complicated situations in the global economy, as the resilience and potential in China’s economy will keep it running sound and stable in a reasonable range, Ning Jizhe, head of the National Bureau of Statistics (NBS) said. The complicated situation necessitates economic regulation, proactive fiscal policy and prudent monetary policy, Ning said. The NBS head acknowledged that China finds itself in complex circumstances but the economy remains stable.

7. "China will never fire the first shot," said ministry spokesman Gao Feng as the world's two largest economies hurtled toward the start of a trade war. China noticed that the United States' threat of imposing additional tariffs, he said, quoting that China will vehemently oppose unilateralism and advocate multilateralism.

II. Market Overview
FX
1. Global Market

The dollar fell to three-week lows on Thursday as strong German industrial orders boosted the euro while U.S. data showed private sector jobs rose less than expected in June, weighing on the greenback along with nagging trade concerns. In afternoon trading, the dollar index was down 0.2 percent at 94.467. Earlier, it had dropped to a three-week low. The euro rallied to a three-weak peak and last changed hands at $1.1681, up 0.4 percent.

2. Home Market

The yuan remained range-bound trading in the morning session, while the yuan's midpoint was set 400 bps higher, reversing previous weak momentum. Cautious sentiment is rising as the world's two largest economies hurtled toward the start of a trade war, traders said. But yuan is expected to see correction in the near term due to ample forex purchasing demand. Investors shall closely watch U.S.’ act afterwards.

Precious Metals

Gold was little changed on Thursday, as the U.S. dollar stayed weak for the day and minutes of the Federal Reserve's June policy meeting were within market expectations for the pace of further interest rate hikes this year. Spot gold closed at $1,257.33 per ounce. U.S. gold futures for August delivery settled up $5.30, or 0.4 percent, at $1,258.80 per ounce.

Commodities
Crude Oil

Oil fell on Thursday after U.S. government data showed an unexpected build in crude oil stockpiles. U.S. crude futures fell $1.20 to settle at $72.94 a barrel, retreating from Tuesday's 3-1/2-year high of over $75. Brent crude futures lost 85 cents to settle at $77.39 a barrel.

Chinese bonds

Ample liquidity in China’s interbank bond market as RRR cut took effect buoyed buying for cash bonds, sending the yields of 10-year CDB active bonds 2-3 bps lower. A bull market was taking shape. But investors shall keep an eye on the uncertainties, including Sino-U.S. trade friction and yuan’s next moves.

Stock Market
1. U.S. Equities

Wall Street's major indexes rose on Thursday as reports that the United States and the European Union may agree to withdraw auto tariffs fostered optimism on international trade relations among investors. The Dow Jones Industrial Average rose 181.92 points, or 0.75 percent, to 24,356.74, the S&P 500 gained 23.39 points, or 0.86 percent, to 2,736.61 and the Nasdaq Composite added 83.75 points, or 1.12 percent, to 7,586.43.

2.Hong Kong Equities

The Hang Seng index closed down 0.2 percent at 28,182.09

3. China Equities

Chinese stocks fell to a 28-month low on Thursday as the threat of a full-scale trade war between China and the United States offset the ample liquidity brought by RRR cut. Individual stocks, except insurance and bank sector, slid across the board amid widespread caution among investors, while the turnover remaining subdued.