• European indices are downbeat [Euro Stoxx 50 -0.5%] following on from the performance of their Asian counterparts as focus remains firmly on US-China trade uncertainty
• China Global Times Editor believes that China has not yet released countermeasures immediately as China may be drafting a plan which will have precise effects
• In FX, the safe haven’s JPY and CHF are outperforming while antipodeans are underperforming with FX largely dictated by the trade induced risk-off sentiment
• Looking ahead, highlights include Fed’s Rosengren, Clarida and BoC’s Lane

ASIA-PAC

Asian stocks and US equity futures began the week negative as focus remained on the US-China trade tensions with US President Trump unwilling to backdown in a Twitter tirade during the weekend in which he alleged that China loves ‘ripping off’ America. Furthermore, President Trump suggested China may have felt they were being beaten so badly on negotiations that it may want to wait around for the next election but warned that a deal will be far worse for them if it is negotiated during his second term, while he also recently stated that the process has begun to place additional tariffs at 25% on the remaining USD 325bln of Chinese goods. ASX 200 (-0.2%) and Nikkei 225 (-0.7%) were negative with Australia led lower by weakness in financials after index top-component CBA reported a decline in Q3 profits and as ANZ Bank shares traded ex-dividend, while Tokyo sentiment was weighed by currency flows and a deluge of earnings, with the “Sell in May…” idiom holding true as the Japanese benchmark sits on losses of around 1000 points month to date. Elsewhere, the Shanghai Comp. (-1.2%) was also weaker amid the absence of Hong Kong participants and due to the ongoing trade dispute with negotiators said to be at odds on 3 major issues including disagreement on removal of all remaining tariffs as well as the wording of a deal and with China said to view US import targets as unrealistic, while the PBoC also skipped open market operations again which resulted to a daily net liquidity drain of CNY 20bln. Finally, 10yr JGBs were relatively flat with only minimal support seen despite the negative risk tone and BoJ’s presence in the market for a total JPY 750bln in 1yr-5yr JGBs.

President Trump suggested that he thinks China felt they were being beaten so badly on negotiations that they may as well wait around for next election, but warned that a deal will become far worse for them if it is negotiated during his second term and that it would be wise for China to act now but he loves collecting big tariffs. (Twitter)

White House economic adviser Kudlow said China has invited US Treasury Secretary Mnuchin and Trade representative Lighthizer to China to continue trade talks, while he also suggested that it is US importers are paying for the tariffs instead of China and that both sides will lose in the trade war. (Newswires/Fox)

US and China trade negotiators were said to be at odds on 3 major issues including disagreement on removal of all remaining tariffs, differences in wording of the agreement and with China said to view US import targets as unrealistic. In related news, Chinese press accused the US of obstructing progress on bilateral trade talks. (Xinhua/People's Daily)

China's Mofcom Spokesman Geng states that there is currently no information on a US President Trump and Chinese President Xi meeting at the upcoming G20 summit. (Newswires)

China Global Times Editor believes that China has not released countermeasures immediately as China may be drafting a plan that will have precise effects, making sure it hits the US while minimizing damage to itself. (Newswires)

China Auto Industry Association says US auto tariffs will have a large impact on Chinese auto parts exports. (Newswires)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires) PBoC set CNY mid-point at 6.7954 (Prev. 6.7912)

UK/EU

UK PM May is meeting with the 1922 committee on Thursday in which she is expected to provide a clear road map for standing down as leader. In other news, UK PM May is reportedly promising to reopen Brexit talks with the EU in an attempt to breathe life back into negotiations with the opposition Labour Party and take UK out of EU by the summer, while UK Brexit Secretary Barclay reportedly seeks to ramp up preparations for abrupt exit before 31st October. (Newswires/FT)

Subsequently, A Tory MP executive has said a majority are in favor of changing the rules to get rid of PM May if a timetable for her departure is not set on Thursday's meeting, as according to Buzzfeed's Wickham. (Twitter)

UK PM May was said to be pressured by cabinet ministers last night to drop cross-party Brexit talks and launch a final attempt to reach a compromise in parliament. (Times) Separate reports suggest that cross-party talks are on the brink of collapse as Labour insists on having a second referendum as part of any deal. (Daily Mail)

UK opposition Labour party trade policy chief Gardiner said biggest sticking point is uncertainty PM May's successor will deliver on deal negotiated with government, while UK Shadow Brexit Secretary Starmer is pessimistic on passing any cross-party Brexit deal which lacks a confirmatory referendum and stated that as many as 150 Labour MPs would reject a deal which didn’t include a confirmatory referendum. (Newswires/Guardian)

An Observer poll ahead of the European elections has placed the Brexit party on 34%, with Labour slipping to 21% and the Conservatives collapsing to just 11%. Ominously for Theresa May, support for the Tories at the European elections is now less than a third of that for Farage’s party, and below that for the Liberal Democrats, who are on 12%. (Observer)

ECB’s Nowotny (Hawk) said he expects euro-zone growth to rebound in H2 which will pave the way to deliberate normalizing crisis-mode stimulus policies, while he also suggested markets should not interpret recent comments by ECB President Draghi as a signal ultra-loose monetary policy would be prolonged. (Nikkei)

EU Trade Commissioner Malmstrom will be meeting US Trade Representative Lighthizer next week, although a date for negotiations has not been agreed yet. (Newswires)

Norwegian GDP Growth Mainland (Q1) 0.3% vs. Exp. 0.4% (Prev. 0.9%, Rev. 1.1%). (Newswires)

GEOPOLITICAL

US Acting Defense Secretary Shanahan approved new deployment of patriot missiles to Middle East over Iran concerns. (Newswires)

US Seretary of State Pompeo says that they see increasing threats from Iran, and that the US are prepared to respond in an appropriate way. (CNBC)

French Nuclear Regulator ASN state they have received 22 warnings regarding irregularities in the fraud investigation, and that a small number of the 22 warnings may indicate potential fraud which is related to nuclear safety. (Newswires)

EQUITIES

European equities are following on from the downbeat Asia-Pac trade [Eurostoxx 50 -0.5%] as focus remains on US-China trade developments after the two sides failed to reach a deal on Friday. Indices are experiencing broad-based losses, although the FTSE 100 (Unch) is outperforming as heavyweights BP (+1.2%) and Shell (+1.5%) rose to the top of the index amid price action in energy markets. Sectors are mostly in the red with the Energy sector (+1.0%) clearly outperforming whilst defensive sectors are buoyed by the uninspiring risk sentiment. Auto names are largely subdued by the trade spats with the US, ahead of the potential US auto import tariffs by May 18, although some desks expect a delay to the deadline given US’ standstill with China. Meanwhile, Renault (-1.4%) shares took a dive after Le Monde reported that the Co. are said to have discovered a failing of their anti-pollution system. Elsewhere, Thyssenkrupp (-6.3%) rests at the foot of the Stoxx 600 after calling off their deal with Tata Steel, which sparked some concerns amongst Indian shareholders and UK unions. Back to trade, JPM acknowledges that there is no visibility in regards to the next trade move, with sentiment to potentially worsen before getting better, although the analysts to expect a compromise as the most probable outcome as the sides have too much to lose heading into the upcoming US election and the 70yr anniversary of the People’s Republic of China. “In a sense, the more markets suffer near term, the more are they likely to bounce, as key actors are forced to deescalate” JPM concludes.

FX

JPY/CHF/USD - Aversion is spreading if not quite running rife or reaching FTQ proportions and the catalyst is the failure to find a compromise on trade after the latest round of talks between the US and China. Hence, the Yen and Franc are outperforming, with the former eyeing 109.60 vs the Dollar and strong resistance at 109.50 that has held twice, while Usd/Chf is now under 1.0100 from 1.0200+ recently and Eur/Chf is testing bids below the 200 DMA (1.1341). However, the DXY is also deriving underlying support ahead of 97.000 and a key chart level just above the big figure that has been tested on a couple of occasions (circa 97.150) as the Greenback registers gains against riskier/high beta G10, and the Greenback rallies more broadly vs EMs.

GBP/EUR - Minor exceptions to the major rule as Cable retains its grip of 1.3000, albeit only just as UK PM May faces yet another tough week of Brexit negotiations and prepares for a showdown on Thursday with the 1922 committee that is urging her to set a resignation date. Similarly, the single currency remains above 1.1200 within a relatively tight 1.1224-45 range with the base coinciding with the 30 DMA and the headline pair also flanked by decent expiry options (1.4 bn between 1.1190-1.1200 and 1.3 bn from 1.1240 to 1.1250).

AUD/NZD/CAD/NOK/SEK - All on the receiving end of investor angst and with the Aussie and Norwegian Krona also undermined by data in the form of housing finance, investment lending and mortgages, and Q1 GDP as Norway’s mainland growth slowed more than expected and contracted in total SA terms. Aud/Usd is back below 0.7000 as a result and not far from 2019 lows (stripping out the early January ‘flash crash’ trough), while Eur/Nok has touched 9.8500 as Eur/Sek hit 10.8500 and decade highs. Elsewhere, the Kiwi and Loonie are also suffering from safe-haven positioning and sub-0.6600 and 1.3400 respectively, with the latter also wary of expiry interest in decent size, albeit not close to current levels (1 bn at the 1.3300 strike and 1.1 bn at 1.3550).

EM - As noted above, more depreciation across the region with the Cny ending well down from PBoC midpoint fix levels at 6.8700+ vs 6.7954 and Cnh through late December 2018 lows at 6.9070. Meanwhile, not even a narrower than forecast March current account deficit has saved the Try from another decline through 6.0000 and brief fall to 6.1000 having rebounded towards the 21 DMA (5.9409) at one stage and on the back of heavy intervention (4.5 bn touted).

Bank of Thailand says the nation may be added to US currency manipulators watch list but adds they have not intervened in THB for advantage in trade with US. (Newswires)

Turkey are reportedly creating legislation for reserves transfer, Treasury Ministry intend to transfer the Central Bank's TRY 40bln legal reserves to the central budget, according to sources. (Newswires)

Australian Home Loans (Mar) -2.5% vs. Exp. 2.3% (Prev. 2.0%). (Newswires)

FIXED INCOME

Risk sentiment remains sour on the renewed US-Sino trade strains, but EU equities are not extending losses or succumbing to a real safety flight and this has sapped some bullish momentum from core bonds along with perhaps consolidation/retracement ahead of recent peaks. Bunds and Gilts both extended gains to 22 ticks at 166.47 and 128.17 respectively, but have subsequently eased back to stand flat, with last week’s highs proving resistant even though US Treasuries remain firm and the curve continues to flatten or even invert in certain areas.

COMMODITIES

WTI (+1.4%) and Brent (+1.5%) prices have been on the rise as the complex sets aside trade woes and focus on a number of supply-side developments. 1) Over the weekend, two Saudi oil tankers were attacked off the coast of UAE, on the way to the Persian Gulf to load oil. The UAE stated that the tankers have been damaged although the OPEC producer did not mention the precise nature of the incident.  The Saudi Energy Minister condemned the attacks, which comes at a time of heightened tensions in the area following US deploying carriers, bombers and defence missiles to the region amid friction with Iran, although nobody has claimed responsibility for the attack thus far. 2) State-side, the Houston shipping channel is closed following the collision between a tanker and two oil barges which resulted in a spill of 9k barrel of reformate (intermediate stage in the production of gasoline). Cleaning is underway, although the shipping disruptions caused are likely to cause a backlog on imports and exports. 3) Sources noted that Russia produced 11.16mln of oil thus far in May, down from April’s 11.23mln, whilst the oil intake by the Transneft pipeline fell 6% vs. April’s average volumes. As a reminder, this week sees the release of the OPEC and IEA Monthly Oil Reports followed by the JMMC meeting over the weekend as the cartel is seemingly shifting towards extending supply curbs past June, however, a revaluation may be needed given the rising threats on the supply-side. Elsewhere, precious metals are largely unchanged as a firm Dollar caps gains for gold (-0.2%) and silver (-0.4%). Meanwhile, copper (-1.0%) prices are heavily pressured by the overall risk-averse tone and demand disruptions from the US-China trade war, whilst iron ore futures benefitted as steelmakers replenish its stock of the base metal

Saudi Energy Minister Al Falih condemned an attack on 2 Saudi vessels that were sabotaged on Sunday morning near UAE. (Newswires)

Houston ship channel was closed following a collision of ships. The collision happened between a tanker and two oil barges which resulted in as much as tens of thousands of gallons of gasoline productions leaking into the shipping channel. (Newswires/abcNews)

Russian May 1-12th oil output 11.16mln bpd vs. April 11.23mln bpd, according to sources. (Newswires)

Sources note that oil intake by the Russian Monopoly Transeft pipeline is down by ~6% on May 1-12th vs. avg. volumes in April. (Newswires)

Oil transit pipe in Belarus is loaded at 60%, Belarus's Belneftekhim adds that transit oil flow ti Poland remains suspended., (Interfax)