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Asian Market Wrap: Treasury yields have corrected some of yesterday’s gains that saw the 2-year hitting a decade high with investors increasingly pricing in 2 more rate hikes by year end. A fresh bout of risk aversion amid escalating trade tensions added support to core bond markets and 10-year Treasury yields are down -0.7 bp at 2.968%, 10-year JGB yields declined -1.0 bp to 0.095%. Stocks meanwhile are heading for their 10th day of losses in Asia, as China told the WTO that it wants to impose USD 7 bln a year in sanctions on the US in retaliation for the US non-compliances with a ruling on US dumping duties. Trump meanwhile stressed again that the US will be taking a tough stance on China. The MSCIs index of emerging market shares meanwhile has fallen to the lowest levels since May 2017, indicating that EM risks also continue to linger, with tomorrow’s central bank decision in Turkey in view. Across Asia stocks are mostly lower, with Topix and Nikkei losing -0.55% and -0.39%, Hang Seng and CSI 300 down -0.45% and -0.62% respectively. The ASX lost -0.12% and US futures are also lower, after a positive close on Wall Street yesterday as Apple led technology stocks and a surge in Oil prices underpinned energy producers. Oil prices are slightly below overnight highs over USD 70 per barrel, as hurricane Florence threatened east cost gasoline markets and amid sanctions on Iranian oil exports.

FX Update: Both the Dollar and Yen have firmed up against most other currencies amid a backdrop of risk aversion in Asia, with the Japanese currency marginally outperforming the US currency, seeing USDJPY nudge lower after initially posting a 1-week high in early Asia-Pacific dealings, at 111.65, with the pair then ebbing to the 111.45-50 area. The price was matched by EURJPY, AUDJPY and most other Yen crosses, reflecting a modest pick up in safe demand for the Japanese currency as stock markets in Asia headed south amid ratcheting up verbal threats between the US and China on trade and sanctions (US threatening sanctions over treatment of Uighur people, Beijing threatening sanctions on US over trade dumping duties), which has offset a signal from Canada that it is ready to make concessions to the US that may lead to a breakthrough in the NAFTA renegotiation (which helped lift the USA500 to a closing gain of 0.4% yesterday on Wall Street).

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