• Asia cautious after US President Trump’s cancellation of the NK summit, albeit Trump has left the door open for the summit to take place in the future
• FX markets quiet with the USD recovering some of the lost ground from the FOMC minutes; GBP/USD back below 1.3400 and EUR/USD eyeing 1.1700
• Looking ahead, highlights include German IFO, UK GDP, US Durables, Uni. Of Michigan and a slew of speakers

ASIA

Asian stock markets traded cautiously as the region reacted to US President Trump’s cancellation of the summit with North Korea. However, losses for the regional bourses were contained in a similar fashion to their US counterparts after Trump kept the door open for the summit to take place in the future. ASX 200 (-0.2%), Nikkei 225 (Unch.) and KOSPI (-0.1%) all began weaker due to the summit cancellation with South Korea taking the brunt of the news, although the picture somewhat improved as participants digested a more conciliatory tone from North Korea overnight which stated it was still willing to resolve issues with the US, while US and South Korea officials also agreed to create conditions for talks between US and North Korea. In addition, Japanese stocks found some reprieve from a weaker currency, while Shanghai Comp. (-0.1%) and Hang Seng (-0.2%) were kept subdued amid a lack of drivers and as this week’s PBoC liquidity operations resulted to a net drain of CNY 30bln in contrast to the substantial net injection of CNY 410bln last week. Finally, 10yr JGBs were flat with only minimal support seen amid a cautious-but-improved risk tone in the region, while the BoJ’s Rinban announcement for over JPY 1tln of JGBs in 1yr-10yr maturities also failed to spur demand as the central bank kept all purchase amounts unchanged. 

US Commerce Secretary Ross will visit China June 2nd-4th for trade discussions. (Newswires)

PBoC skipped open market operations for a net weekly drain of CNY 30bln vs. last week's CNY 410bln net injection. (Newswires)
PBoC set CNY mid-point at 6.3867 (Prev. 6.3816)

Japanese Tokyo CPI (May) Y/Y 0.4% vs. Exp. 0.5% (Prev. 0.5%). (Newswires)
Japanese Tokyo CPI Ex. Fresh Food (May) Y/Y 0.5% vs. Exp. 0.6% (Prev. 0.6%)

UK/EU

BoE Governor Carney said BoE could tolerate a lengthier inflation overshoot up to a point and endorses a gradual path of hikes but added that it can be accelerated if growth rises above 1.5% trend rate and business investment recovers strongly. Carney also commented that Brexit is entering a ‘critical phase’ and BoE has tools to deal with all outcomes, while he added that BoE could take steps as it did after the Brexit referendum If the process becomes disorderly. (Newswires)

UK Chancellor Hammond said both Brexit customs models are work in progress, while there were also comments from EU's Barnier that they will not accept cherry picking regarding the Brexit. (Newswires)

UK officials are said to have warned that EU attitude to Brexit negotiations risks damaging security and economic ties. (BBC)

FX

FX markets were relatively quiet amid a sparse overnight data calendar, although the greenback was slightly firmer with the DXY approaching the 94.00 level as it recovered some of the lost ground from this week’s dovish-leaning FOMC minutes. This weighed on its major counterparts across the pond in which GBP/USD languished firmly below the 1.3400 handle while EUR/USD eyes a test of 1.1700 to the downside. Elsewhere, USD/JPY and JPY-crosses were higher on short-covering from the recent declines and amid a slight improvement of the risk tone, with softer than expected Tokyo CPI data as well as Gotobi demand suggested to be some of the factors at play. MXN remained firm overnight with support seen in late US trade on reports that Mexico made the US an offer in an effort to reach a NAFTA agreement.

Mexico reportedly made the US an offer in a bid to reach a NAFTA agreement. In other news, Mexico President Pena Nieto said he remains optimistic regarding NAFTA renegotiation following call with Canadian PM Trudeau, while there were earlier comments from Canadian PM Trudeau that the US move on possible auto tariffs is 'on even flimsier logical ground than argument in favour of steel and aluminium tariffs' and that the US auto tariffs are clearly linked to NAFTA talks. (Newswires)

COMMODITIES

Commodities traded sideways with WTI crude futures languishing below the USD 71.00/bbl level following yesterday’s risk averse tone spurred by Trump’s summit cancellation, while there were also comments from Saudi Arabian and Russian Energy Ministers that a relaxation of caps will be considered next month. Elsewhere, gold was marginally lower following a rebound in the greenback from the post-FOMC minutes weakness, while copper was indecisive amid the broad cautious overnight risk tone.

Saudi Energy Minister Al Falih said that they target balancing and not over correction of the oil market, while he added that easing OPEC+ caps is on table, but no decision has been made yet and that Saudi and Russia need to conduct at least 2 more meetings before June. (Newswires)

Russian Energy Minister Novak said the global oil glut is finished and that OPEC+ will definitely discuss easing caps in June. (Newswires)

Russian President Putin is said to back the completion of oil tax scheme and may get rid of oil export duties by 2024. (Newswires)

Sanctioned Russian oligarch Deripaska is said to be examining options to cede control in EN+ Group which has a controlling interest in Rusal, while there were also comments from Rusal that Deripaska has resigned as non-executive board member. (Newswires)

GEOPOLITICS

US President Trump said US is ready if necessary to counter any North Korean threat and that a maximum pressure campaign on North Korea will continue. President Trump also commented that it is possible the existing summit with North Korea could take place at a later date, while a White House official said back channels for discussions with North Korea are still open, but the rhetoric must change from North Korea's side. (Newswires)

North Korea expressed regret regarding the US cancellation of the summit and said it is willing to talk with the US anytime. North Korea added it is still willing to resolve issues with US whenever and however and that they hoped for issues to be resolved "Trump style". Furthermore, North Korea stated that the Summit was necessary to resolve current hostile bilateral relationship and that its previous remarks regarding the summit had been in protest against strong US comments, according to reports citing Vice Foreign Minister Kim Kye Gwan. (KCNA)

US and South Korea officials are said to have agreed in phone call to create conditions for talks between US and North Korea. (Newswires)

French President Macron stressed he does not want to renegotiate the Iran nuclear deal and that he sees possible talks to complement the deal but not replace it. (Newswires)

US

Treasuries edged higher in the session amid growing geopolitical tensions between North Korea and the US which deteriorated risk sentiment and pushed investors into safe havens. The yield curve bull-flattened with most of the buying action focused in the long end of the curve, where 10yr and 30yr yields were down by c.2bps at settlement, seeing 5s30s and 10s30s narrow by c.1bps. The Treasury auctioned 30bln in 7yr notes, stopping-through by 0.5bps at a high yield of 2.930%. The bid-to-cover came in at 2.62 the highest since January. 65.5% was awarded to indirects, dealers took 21.6% whilst directs saw the biggest share since February, just under 13%. Overall the auction was well-received given the strong internals. US 10yr T-Notes futures settled 16+ ticks higher at 119-15+.

Fed's Harker (non-voter, dovish) said he sees 3 rate hikes this year and 3 rate hikes next year, while he added that he may be open to a fourth hike in 2018 if inflation accelerates and that the Fed is getting closer to neutral rate. (Newswires)