• Mounting geopolitical concerns continue to guide investor sentiment with Asian equities trading mostly lower
• This sentiment was also seen in FX markets with JPY one of the main beneficiaries, dragging USD/JPY below 111.00
• Looking ahead, highlights include UK inflation, German ZEW and Fed’s Kashkari

ASIA

Asia equity markets mostly traded with a subdued tone as geopolitical news continued to be in focus following reports that the US hold open the possibility for future action in Syria and with North Korea vowing to take the toughest counteraction against the US following its carrier deployment to the Korean peninsula, while China had amassed 150K troops on the North Korean border which was later reported to be to a deal with possible North Korean refugees. Fears were evident as safe-haven flow was apparent with the stronger JPY weighing on the Nikkei 225 (-0.6%), while sentiment in China was also dampened with the Shanghai Comp. (-0.5%) and Hang Seng (-0.9%) negative after the PBoC continued to refrain from liquidity injections. ASX 200 (+0.3%) took the spotlight in the day’s session, as the index extended on gains above 5,900 to approach close to a 9-year high with the materials driven index buoyed by Rio Tinto, which is up over 2% on the day, while gains across the energy sector also underpinned the index. Finally, JGBs was mildly supported as the flight to safety has been the theme, with the Japanese 10y yield pressured as a result to below 0.05% and print its lowest since January 2017.

PBoC refrained from conducting open market operations today for a daily net drain of CNY 20bln. (Newswires)

PBoC sets CNY mid-point at 6.8957 (Prev. 6.9042)

EUROPE/UK

Newsflow from the region remains light overnight.

FX

JPY gained ground against its major counterparts as a result of safe-haven flows in which USD/JPY declined below 111.00 once again, with bears looking to target the key 110.10 support level. Resources were a noticeable catalyst in FX markets with CAD and AUD holding to most the retrospective upside in the energy and material sectors, although NZD waned amid underperformance in NZD/JPY which tripped stops tspanough the 77.00 level to the downside.

COMMODITIES

Gold (+0.1%) saw marginal upside tspanoughout Asian trade, amid hostile comments from North Korea, aimed at the US following the states moving a nuclear-powered aircraft carrier to waters off the divided peninsula. Energy however, saw subdued trade following the bullish pressure seen tspanoughout yesterday’s session, as WTI, Brent and RBOB all came off session highs, albeit marginally so.

Kuwait Oil Minister said he sees signs global crude stocks are dropping and sees more oil stock declines in the next few months. (Newswires)

GEOPOLITICAL

White House Spokesman Spicer said to hold open possibility of future action in Syria. (Newswires)

China and South Korea have agreed to place “strong” new sanctions on North Korea if it conducts further nuclear or long-range missile tests, according to a South Korean official. (Newswires)

North Korea vowed to take toughest counteraction against US after the US deployed the USS Carl Vinson to the Korean peninsula. (Newswires)

Chatter of 150k Chinese troops deploying on the North Korean border in anticipation of pre-emptive US strike - Unconfirmed via Social Media. (Newswires) Later reports stated that China has deployed 150K troops in order to deal with the possible North Korean refugees over fears that Trump may strike Kim Jong-un following the missile attack on Syria. (Newswires)

US

US Treasuries closed the session firmer although off best levels with volumes said to be light ahead of Yellen’s speech. The 3y auction was soft with a 0.8bps tail and the B/C softer than the five-auction average. Jun’17 10y T-note futures settled at 124.29, up 3 ticks.

Fed Chair Yellen (Dove) stated that appropriate policy stance is close to neutral and that it is appropriate to gradually increase rates if economy continues to perform. Yellen further commented economic growth potential is likely a bit under 2% and that lacklustre GDP growth is stunning considering strong job growth. (Newswires)