• European equities are lower across the board (Eurostoxx 50 -0.4%) as trade tensions continue to weigh on sentiment
• DXY remains above 95.00 in European trade after an early bout of strength (now off best-levels)
• Looking ahead, highlights include German national CPI, US GDP (F), weekly jobs, EU summit, BoE’s Haldane, US 7yr note auction

ASIA

Asian equity markets traded somewhat indecisive following the headwinds from Wall St where all major indices wiped out intraday gains, as trade uncertainties remained in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. ASX 200 (+0.3%) and Nikkei 225 (Unch) were mixed with Australia kept afloat by commodity names as the energy sector outperformed on further gains in crude, while a firmer currency and disappointing Retail Sales data weighed on sentiment in Tokyo. Hang Seng (+0.5%) and Shanghai Comp. (-0.9%) were choppy on the trade uncertainties and following another net liquidity drain by the PBoC, although Chinese stocks later recovered amid pre-emptive measures in the face of a looming trade war including a further devaluation of the currency and adjustments of tariffs on some imports from other Asia-Pac nations.  Finally, 10yr JGBs traded flat amid the indecisive risk tone and amid weaker demand at today’s 2yr auction later, in which accepted prices also declined from prior.

PBoC injected CNY 80bln via 7-day reverse repos, for a net daily drain of CNY 100bln. (Newswires)

PBoC set CNY mid-point at 6.5960 (Prev. 6.5569)

China Mofcom said US planned curbs on technology exports to China could backfire and that it does not support using national security as a basis for investment restrictions, while Mofcom also announced it will adjust tariffs on an array of imports from several Asia-Pac countries effective July 1st. (Newswires)

Japanese Retail Sales (May) M/M -1.7% vs. Exp. -0.8% (Prev. 1.4%). (Newswires)

Japanese Retail Sales (May) Y/Y 0.6% vs. Exp. 1.4% (Prev. 1.6%)

CENTRAL BANKS

BoJ Deputy Governor Wakatabe says the benefits of yield-curve control outweigh side effects; no need to adjust policy now. (Newswires)

RBNZ maintained the Official Cash Rate at 1.75% as unanimously expected, while it reiterated that it expects to keep rates at current expansionary level for considerable period and that the next direction is equally balanced between up and down. RBNZ added that global economic growth is likely to underpin demand for New Zealand products and services, but also stated that recent weaker GDP implies marginally more spare capacity in economy than anticipated and that CPI remains below target. Furthermore, the RBNZ later announced from 2019 onwards rate decisions will be announced after 1400 local time on a Wednesday and implemented the following day. (Newswires)

EU/UK/US

The 27 EU leaders are to raise the pressure on UK PM May by warning her about the growing risk of a no-deal Brexit. (The Guardian)

UK Trade Minister Fox said early evidence suggests safeguards may be needed to protect the steel industry following the US tariffs. (Newswires)

German Interior Minister Seehofer said the CSU party is not seeking a break-up of the coalition government nor oust Chancellor Merkel, while there were also comments from German Finance Minister Scholz said he does not rule out possibility coalition can reach solution to migration issue.  (Newswires)

German Chancellor Merkel said on migration, “we are not where we want to be yet”; adding “we won't be able to reach a common migration agreement at the June Summit”. She went on to say Germany must consider coalition of the willing on migrant policy if an agreement is not reached by the 28 EU members and the migrant policy may make or break the EU. (Newswires)

Finnish PM said he ready to agree a deal with German Chancellor Merkel on immigration within the EU. (Newswires)

GEOPOLITICS

South Korean and US Defence Chiefs agree UN Sanctions against North Korea will be in place until North Korea takes solid, irreversible measures towards denuclearisation. (Newswires)

EQUITIES

European equities are lower across the board (Eurostoxx 50 -0.6%) in recent trade with all major bourses in the red as trade tensions continue to weigh on sentiment. Consumer staples outperform while IT names lag behind (Europe’s tech sector -1.7%) amid NEC Director Kudlow rejecting the notion that US President Trump has softened his stance in regards to China on foreign investment, adding that the approach is aimed at “protecting our technological family jewels”. In terms of stocks specifics, Shire (+2.1%) shares are higher after Takeda shareholders rejected a proposal which opposed a deal with Shire.

FX

DXY remains above 95.00 in European trade after an early bout of strength (now off best-levels) with trade posturing remaining a key focus for investor sentiment. In terms of the latest state-of-play, trade uncertainties remain in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. Markets continue to weigh counter-measures from China with CNY devaluation increasingly becoming part of the narrative in the spat between the two nations with China also announcing adjustments of tariffs on some imports from other Asia-Pac nations.

USD strength has somewhat abated as the session progresses with some commentators highlighting month-end rebalancing flows set to come into-play. Models suggest the USD could be sold amid equity re-balancing and thus provide some support for EUR/USD which has thus far been able to maintain at 1.1500 handle. This morning’s regional German CPI releases have indicated a pattern of declining rates for both the M/M and Y/Y (in-fitting with consensus for the mainland figures at 1300BST) but failed to spur much in the way of noteworthy price action for the multi-bloc currency. Today once again sees a slew of noteworthy option expiries; 1.1500 (1BLN), 1.1585-1.1600 (1.8BLN), 1.1640-50 (1.5BLN), 1.1660-80 (1.2BLN), 1.1700 (1BLN).

GBP has managed to recoup some of it’s initial losses against the USD (albeit still on a 1.3000 handle) after taking out stops to the downside at 1.3100 early doors in Europe before then running into support around 7-month lows at 1.3068. From a fundamental perspective, BoE’s Cunliffe did little to reveal his voting intentions at the August QIR and instead focused on household debt with a more medium-term focus. Narrative for the GBP could now shift towards Brexit ahead of the EU leaders summit; albeit expectations for any progress are particularly low with PM May set to get a slap on the wrist from her peers.

USD/CAD is continuing to return to pre-Poloz levels amid USD softening after the BoC head took time to note the uncertainties facing the Canadian economy which saw pricing for a rate hike decline to beneath 50%. Large option expiries could come into play for CAD with 1.3bln in USD/CAD at 1.3345-50.

NZD has continued its recent slide with the latest catalyst being that of last night’s RBNZ policy announcement which saw the bank keep rates unchanged as expected and reiterate that rates will remain at the current level for a considerable period and that the possibilities of a future hike or cut were evenly balanced. From a technical perspective, with the recent move to the downside leading to fresh 2018 lows, the next target to the downside for markets after the psychological 0.6700 figure could be that of the May 2016 low at 0.6676.

FIXED INCOME

Despite a firmer start to the session for Bunds, support for paper abated amid the modest turnaround in sentiment seen just after the cash equity open. However, in what has been a choppy morning thus far for paper, the German 10yr once again reversed course and tested (unsuccessfully) yesterday’s high of 162.55 to the upside. Focus for German paper will likely continue to focus on political risk as Merkel attempts to avert a collapse in her CDU/CSU alliance as she aims to strike a compromise with her Bavarian counterpart regrading immigration demands. From a UK perspective, the UK 10yr trades with little in the way of firm direction with politics also set to be at the forefront of investor sentiment as PM May heads to Brussels. BoE Agents’ summary of business conditions did little to spur price action after noting that retail sales growth had ticked up over the past month, boosted by stronger sales of seasonal clothing and footwear; growth in consumer services had slowed. Initial BTP strength faded after supply was absorbed by the market with the IT/GE 10yr spread continuing to widen with the Italy 10yr drawing the softest b/c at auction since the beginning of the year.

COMMODITIES

Commodities are mixed with choppy trade in gold (unch) after initially hitting 6-month lows as the yellow metal tracks the change in the dollar. WTI (+0.3%) and Brent (+0.1%) are back in positive territory, printing fresh highs for the day at USD 72.87/bbl and USD 77.93/bbl respectively. During the week, API and EIA crude inventories printed the largest drawdown since September 2016 with oil stocks dropping by nearly 10mln barrels. Traders will be mindful of halted oil exports in Libya following the country’s Eastern NOC’s instructions. Meanwhile, India’s oil ministry requested that refiners prepare for a 'drastic reduction or zero' imports from Iran from November, (according to sources) following US President Trump asking allies to quit importing Iranian oil.

Libya's Eastern NOC have instructed companies in the East of the nation to halt oil exports. Tankers attempting to enter East Libyan ports will be deemed illegal, a tanker due at Libya's Zueitina port is said to have been turned away. (Newswires)

China's top zinc and lead producers plan to cut zinc output by 10% in an attempt to boost zinc prices; according to sources. (Newswires)

India's oil ministry has requested that refiners prepare for a 'drastic reduction or zero' imports from Iran from November, according to sources. (Newswires)