US Treasury prices were slightly lower as curves resumed flattening after risk sentiment recovered somewhat as the Turkey panic subsided. This comes after US press secretary Sanders Monday said national security adviser Bolton met with Turkish ambassador Serdar Kilic at the White House.

– Turkish Lira up about 4.4% with other EM currencies up as well (RUB, ZAR, MXN).
– Overnight in Tokyo US Tsys traded in a very tight range with small Japanese regional bank and Asian CB sales.
– JGBs were under pressure with the stabilization of the Lira and return to risk. Event-wise, no auction or BOJ purchase today so trading volume continued to be light during the session. Yield curve had steepening bias as some investors have sold 20y JGBs since yesterday. On top of this selling flow, dealers still have long position in back end after 30y supply last Thursday thus super-long end traded top-heavy with 30y yield up 1.5bp at the close. Omon holiday also stalled flows.
– Meanwhile, China’s weak data, both retail sales and IP, are likely to prompt the authorities to further intervene soon maybe with a new RRR cut or higher infrastructure spending.
– China’s Retail Sales decelerated in July, +8.8% y/y, vs expected 9.1%, previous 9%. Automobile sales down 2% y/y in July, narrowed from 7% decline in June, down for the third month in a row. Home appliance sales up mere 0.6% y/y, sharply lower than 14.3% growth in June.
– China May Fixed Assets Urban YTD YoY: 5.5% v 6.0%e (lowest ever), Private FAI: 8.8% vs 8.4% prior (4-month high), State Owned & State Holdings: 1.5% vs 3.0% prior (lowest ever; down from 23.7% in Apr. 2016).
– London trade saw Tsys dragged lower by Bunds/Gilts and very heavy Eurodollar selling (particularly EDU9) as markets repriced Fed back on hiking path.
– At a speech today in Ankara hosted by pro-government think tank Seta, Turkey’s Pres Erdogan said Turkey will boycott American electronics, the Turkish economy is resilient, and its banks have the best capital buffers in Europe. (good luck!)
– While risk is better, Turkish Finance Minister will hold a call with up to one thousand investors on Thursday.
– German Q2 GDP stronger than expected at +0.5% q/q (consensus +0.4% q/q). An additional silver lining is the fact that Q1 GDP was revised up to +0.4% q/q from +0.3% q/q.