I. Yesterday’s News
International News

1. The U.S. Treasury Department is drafting curbs that would block firms with at least 25 percent Chinese ownership from buying U.S. companies with "industrially significant technology," a government official briefed on the matter said on Sunday. The official, whose comments matched a report by the Wall Street Journal, emphasized that the Chinese ownership threshold may change before the restrictions are announced on Friday. The Treasury investment restrictions are expected to target key sectors, including several China is trying to develop as part of its "Made in China 2025" industrial plan, the U.S. official said. The Wall Street Journal also said the U.S. Commerce Department and National Security Council were proposing "enhanced" export controls to keep such technologies from being shipped to China.

2. The United States will soon present a timeline to North Korea with "specific asks" of Pyongyang after a historic summit between U.S. President Donald Trump and North Korean leader Kim Jong Un, a senior U.S. defense official said. The official, who spoke to a small group of reporters ahead of a trip to Asia this week by Defense Secretary Jim Mattis, did not specify details but suggested that the timeline would be rapid enough to make clear Pyongyang's level of commitment.

3. Bank of Japan policymakers said the central bank should "patiently continue" its powerful monetary easing but attention must be paid to the potential side effects of prolonged easy policy, a summary of opinions at the June review showed. Some board members said the central bank needs to keep monetary easing from severely distorting economic and financial conditions, and to make the current policy sustainable. With inflation well below the BOJ's 2 percent target despite five years of stimulus, one member said the central bank must make efforts to improve communication with the public on its commitment to meet the price stability goal, the summary showed.

4. The Bank for International Settlements (BIS) urged the world's top central banks to keep lifting interest rates on Sunday, but warned escalating trade tensions between the United States and China could turn into a dangerous downward spiral. The new head of the BIS, former Mexican central bank chief Agustin Carstens, spoke to Reuters as the central bank umbrella group delivered its first annual report under his watch. For the time being though the baseline BIS scenario is that as long as there is no galloping escalation in the trade tensions or borrowing costs, the global economy will continue to improve. It therefore backed the Federal Reserve to keep moving up U.S. interest rates and for other major central banks like the ECB to ease out of massive stimulus programmes that have been in place for years.

5. The risk to Britain's economy from a sharp slowdown in China could be around 50 percent larger than previously estimated, new Bank of England research showed on Friday. British banks' exposures to mainland China and Hong Kong exceed those to the United States, euro zone, Japan and South Korea combined, despite the fact that Britain's economy is dwarfed by the sum of these countries, the report showed. Still, British banks have become much better capitalised since the global financial crisis, something that could soften the harmful effects of any substantial slowdown in China.

6. Germany's economic boom times are over and Europe's largest economy is on the way to a more normal growth path, Ifo economist Klaus Wohlrabe told Reuters on Monday after its latest survey showed a deterioration in German business confidence. Wohlrabe said the specter of a global trade war sparked by U.S. President Donald Trump and a slowing global economy contributed to the drop in the Ifo business climate index to 101.8 in June.

Domestic News

7. China and the European Union are engaged in negotiating a bilateral investment deal, as both sides agreed to oppose protectionism and defend the global multilateral trading system, Chinese Vice-Premier Liu He said.

8. The People's Bank of China (PBOC), the country's central bank, announced Sunday a cut for banks' reserve requirement ratios (RRR), releasing a total of 700 billion yuan for them to carry out a debt-for-equity swap and support the financing of small and medium-sized enterprises (SMEs). China will continue to implement prudent and neutral monetary policy, but structural easing already began, the central bank said.

9. The re-lending and rediscount quotas for small companies, as well as sectors concerning rural areas, will be increased by a total of 150 billion yuan with re-lending interest rates cut by 0.5 percent, according to guidelines for increasing financial support for small and micro firms, released on the website of the People's Bank of China (PBOC). Loans for small firms with a credit line of 5 million yuan or less will be included in the scope of collateral for the central bank's medium-term lending facility operation.

II. Market Overview
FX
1. Global Market

The dollar fell to a fresh two-week low against the Japanese yen on Monday, as worries about escalating trade tensions between the United States and other leading economies hurt risk appetite. The greenback was down 0.44 percent at 109.48 yen, after slipping to a two-week low of 109.38 earlier in the session. The dollar index, which measures the greenback against a basket of six major currencies, was down 0.28 percent at 94.249. The euro was 0.45 percent higher against the greenback at $1.1708, after hitting a more than one-week high of $1.1713.

2. Home Market

China's yuan slumped 274 bps to its lowest level in six months on Monday, paring some losses from a 380 bps decline during the session. The central bank also cut the midpoint rate by almost 90 bps to a 5-1/2-month trough. Concerns over mounting tensions between China and the U.S. added to divergence between the monetary policies of the world’s largest two economies in pushing up demand for forex.

Precious Metals

Gold hovered near last week's six-month low on Monday as investors flocked to U.S. Treasuries rather than bullion, amid concerns over a global trade war ratcheting higher. Spot gold closed at $1,265 per ounce. U.S. gold futures for August delivery settled down $1.80, or 0.1 percent, at $1,268.90 per ounce. But some analysts say the standoff between the world's two largest economies, which threatens to limit global economic growth, could eventually benefit gold.

Commodities
Crude Oil

Oil fell on Monday as investors prepared for an extra 1 million barrels per day (bpd) of oil to hit markets after OPEC agreed to raise production and as U.S. equity markets slipped on trade war fears. Brent crude futures fell 82 cents, or 1.1 percent, to settle at $74.73 a barrel. U.S. light crude settled at $68.08 a barrel, down 50 cents.

U.S. Treasuries
1. U.S. Bonds

The U.S. Treasury yield curve flattened to its lowest level in over 10 years on Monday as concerns about trade wars and divisions within the euro zone boosted demand for longer-dated safe-haven debt. Trade fears and tensions in Europe have raised concerns that divisions could slow global growth and potentially impede the Federal Reserve from making further interest rate hikes. Benchmark U.S. 10-year notes gained 5/32 in price to yield 2.884 percent, down from 2.900 percent late on Friday. The yield curve between 2-year and 10-year notes flattened to 33 basis points, the lowest level since 2007.

2. Chinese bonds

China’s interbank bond market was quiet after the People's Bank of China (PBOC) cut RRR for the third time within the year. Yields of active cash bonds rose after opening lower. The 10-year treasury bond futures pared some losses after falling over 0.3 percent.

Stock Market
1. U.S. Equities

An escalating trade dispute between the United States and other leading economies battered U.S. stocks on Monday, handing the S&P 500 and Nasdaq their steepest losses in more than two months. The Dow Jones Industrial Average ended the session below its 200-day moving average for the first time since June 2016. The S&P 500 tumbled as much as 2 percent early Monday on reports that the U.S. Treasury Department was drafting curbs that would block firms with at least 25 percent Chinese ownership from buying U.S. tech firms. The Dow Jones Industrial Average fell 328.09 points, or 1.33 percent, to 24,252.8, the S&P 500 lost 37.81 points, or 1.37 percent, to 2,717.07 and the Nasdaq Composite dropped 160.81 points, or 2.09 percent, to 7,532.01.

2.Hong Kong Equities

Hong Kong stocks fell to a six-month low on Monday, dragged by tech shares as the United States plans limits on Chinese investment in U.S. technology firms. The Hang Seng index fell 1.3 percent, to 28,961.39, while the China Enterprises Index lost 1.2 percent, to 11,208.90.

3. China Equities

China stocks fell 1 percent to a two-year low on profit-taking as an expected reserve requirement ratio (RRR) cut was largely offset by lingering trade war fears. Volatile liquidity and market sentiment make early rebound unsustainable. More time is needed to restore investors’ confidence and to hit bottom. The Shanghai Composite Index gained 30.42 points or 1.05 percent to 2,859.34 points. The turnover of Shanghai A shares rose to 132.3 billion yuan from previous session’s 127 billion yuan.