• Major European indices [Euro Stoxx 50 -0.5%] are subdued following from a mixed Asia session, with sentiment afflicted by reports that China potentially has no current interest in the continuation of US talks
• Opposition Labour Leader Corbyn confirms that cross-party Brexit talks have gone as far as they can
• Looking ahead, highlights include US University of Michigan Sentiment, Fed's Clarida & Williams, ECB's de Guindos

ASIA-PAC

Asian equity markets were mostly higher as the region took impetus from the positive performance on Wall St, where all major indices notched a 3rd consecutive win streak with risk sentiment underpinned by encouraging earnings from Walmart and Cisco. ASX 200 (+0.6%) and Nikkei 225 (+0.9%) traded positive with Australia led by continued strength in tech and amid the growing list of calls for a rate cut next month including notorious RBA watcher McCrann, while Japanese exporters were buoyed by recent favourable currency moves and as Sony shares surged over 10% after the announcement of a JPY 200bln share buyback. Hang Seng (-1.2%) andShanghai Comp. (-2.5%) were pressured after a lack of PBoC reverse repo operations throughout the week resulted to net weekly drain of CNY 50bln. In addition, China cancelled orders of 3247 tons of pork from US which was the largest cancellation in more than a year and was seen to be another fallout of the ongoing US-China trade dispute, while commentary in Chinese state media suggested China may have no interest in resuming trade discussions with the US for now. Finally, 10yr JGBs were lower amid the upbeat risk tone in Japan and on spill-over selling from the bear flattening stateside, while the BoJ’s Rinban announcement was for a reserved JPY 200bln of long to super-long JGBs.

PBoC skipped open market operations for a net weekly drain of CNY 50bln vs. last week's CNY 50bln net injection. (Newswires)

PBoC set CNY mid-point at 6.8859 (Prev. 6.8688)

China state media commentary said China may have no interest in continuing trade talks with the US for now and sees little sincerity in President Trump's approach. In related news, the NDRC said trade friction impact on Chinese economy is controllable, while it added that China is to study impact of tariffs and prop up growth when required.

BoJ Governor Kuroda said low rates must be maintained for a long period to achieve the price goal and that forward guidance is the framework in which BoJ will decide policy based on data and information available at the time. Furthermore, Kuroda said there is a good chance BoJ will keep current low rates past Spring 2020 if conditions warrant and suggested the BoJ is thinking of keeping rates low for quite a long time. (Newswires)

Japanese Chief Government spokesman Suga says that PM Abe could dissolve the lower house of Parliament if opposition submits a motion of no confidence. (Newswires)

US Commerce Department place Huawei on their entity list, making the trade war more like a 'real' war. Trade talks have been stuck in a deep shock, Chinese are more convinced that concessions will not achieve peace, Chinese Global Times Editor. (Twitter)

PBoC will not let USD/CNY go above 7.00, according to sources. (Newswires)

UK/EU

UK Labour leader Corbyn says that Brexit talks "have gone as far as they can", adding that he will oppose PM May's Brexit deal. Prior to this, UK Labour sources confirm that cross party talks with the government are definitely off, according to The Sun's Deputy Political Editor Hawkes. In addition Labour Party sources indicate that there is no point in doing a deal with a government which is on the verge of collapse. For reference, this does follow earlier reports that Labour are planning to pull out of cross party talks today, as according to sources. (Newswires/Twitter)

Prior to the Labour announcement it was reported that, cross-party Brexit talks will now move on to a second phase aimed at agreeing on a process for Parliamentary votes to find a Brexit consensus. (Newswires)

UK PM May and Labour leader Corbyn reportedly discussed plans to the leave the EU on July 31st and avoid a second referendum, according to Evening Standard citing a leaked document. (Evening Standard) Subsequently, a Labour source has stated that this document is genuine and has not yet been agreed by Labour.

- Aim being for Britain to leave the EU on July 31st

- Will be a separate free vote on whether to let the public have a final say, Whitehall source adds that the aim is to rule out a referendum before an exit plan is selected.

Italian Deputy PM Di Maio is not worried about potential EU sanctions against Italy as Europe will change after the European Parliamentary Elections. (Newswires)

EU HICP Final YY (Apr) 1.7% vs. Exp. 1.7% (Prev. 1.7%)

- EU HICP Final MM (Apr) 0.7% vs. Exp. 0.7% (Prev. 1.0%)

GEOPOLITICAL

Venezuela President Maduro alleged the US government has invaded Venezuela's embassy in Washington DC. (Newswires)

North Korea called UN an unfair organization and pledged to fight sanctions. (Yonhap)

Iran’s most prominent military leader has recently met Iraqi militias in Baghdad and told them to “prepare for proxy war”, according to The Guardian. (Guardian)

Iranian Revolutionary Guards say that even short-range missile can reach US warships in the Gulf. (Newswires) 

EQUITIES

A relatively downbeat session thus far for major European stocks [Eurostoxx 50 -0.5%], following on from a mixed lead in Asia where the Shanghai Composite shed 2.5% as hopes for a trade deal dwindled amid reports that China may not want to continue trade talks with the US for now. Major indices are broadly lower by around 0.5-0.7%, although, the FTSE 100 outperforms as UK exports benefit from the weaker Sterling. Sectors are showing broad-based losses with the exceptions of utilities (defensive sector) and energy names due to price action in the complex. Elsewhere, Thomas Cook (-24.8%) shares slumped for a second consecutive day, with traders citing the downside to a downgrade at Citi with a price target of zero. Finally, GVC Holdings (+2.5%) remain near the top of the Stoxx 600 after the Co. cut its potential impact from the FOBT GBP 2 limit from GBP 120mln to GBP 105mln. Notable pre-market US earnings this morning from Deere & Co (DE), who missed on EPS but beat on revenue and lowered their net income guidance.

Deere & Co (DE) Q1 19 (USD): EPS 3.52 (exp. 3.62), Revenue 11.3bln (exp. 10.19bln). Co. cuts FY 19 adj. Net income guidance to around USD 3.3bln (Prev. around USD 3.6bln) and revenue guidance to +5% (Prev. around +7%)

NVIDIA Corp (NVDA) Q1 19 (USD): EPS 0.88 (exp. 0.79), Revenue 2.2bln (exp. 2.2bln); sees Q2 revenue at 2.55bln (exp. 2.53bln); gaming revenue 1.05bln (down 39% YY). Co. shares rose 2% after-market. (Newswires)

FX

DXY - The Greenback has held onto the bulk of its post-US data/survey gains by virtue of advances against riskier/high beta counterparts as safer-havens within the G10 community are outperforming in wake of pretty defiant comments from China revealing a reluctance to pursue talks further given recent actions taken by the US. The index is hovering just below the 98.000 level after an apparent clean break of Fib resistance at 97.842 within a 97.953-759 range. To recap, 98.102 is the mtd DXY high and then the 2019 peak at 98.346 comes into focus.

JPY/CHF - As noted, the Yen and Franc are back in favour on US-China trade stains, but also as Brexit, Italian budget and geopolitical issues weigh on broad risk sentiment, with Usd/Jpy retreating from circa 110.00 highs back towards 109.50 and away from decent option expiries at the big figure (1.2 bn). Usd/Chf is holding around 1.0100, but Eur/Chf is back below 1.1300 and near recent lows not far from key chart supports and levels that may prompt some form of SNB action.

CAD/AUD/GBP - All on the back foot due to the aforementioned bearish/negative factors, as the Loonie revisits recent lows around 1.3500 and Aussie extends losses through 0.6900 to 0.6873 following latest jobs data that heightens the prospect of a June RBA rate cut after this month’s dovish hold. Similarly, the Pound continues to slide, and Cable has now hit fresh lows since the Valentine’s Day base of 1.2773 at 1.2755 on confirmation that cross party talks have come to a conclusion with no collusion in terms of an alternative WA. Note also, Gbp/Jpy has tripped stops on a break of the psychological 140.00 level.

EUR/NZD - Also victims of the ongoing Usd revival and overall downturn in risk appetite, with the single currency declining to fresh weekly lows and testing bids said to be sitting at 1.1160 and protecting 1.1150 ahead of the current 1.1135 May base, while the Kiwi is slipping further away from 0.6550 and closer to 0.6525 given only scant support from Aud/Nzd cross flows within 1.0550-25 parameters.

EM - Mixed blessings for the Turkish Lira as the US halved its tariff on steel, but removed preferential status on metals overall, while the AKP is still reportedly on a mission to tap CBRT reserves. Usd/Try extending above 6.0000 and testing resistance at 6.1000 before paring back, while the Yuan is not taking much heed of reports that 7.0000 is the PBoC’s line in the sand as the US-China tariff spat shows no sign of improving.

FIXED INCOME

Not a great deal of further action in bonds with Bunds capped and contained within a range by perkier core Eurozone inflation and a bit more strength at the Eurozone margins on the one hand vs another change in the tide of risk sentiment more broadly. However, UK debt and STIRs have recovered from their earlier Liffe wobble to edge fresh intraday highs (Gilts to 128.88, +27 ticks vs -1 tick at one stage) as the end of Tory-Labour talks becomes official and the 2 parties failed to find a common Brexit deal to put to Parliament. Meanwhile, US Treasures are holding a firm recovery bid after Thursday’s shake-out in the aftermath of healthy macro updates and a 3rd consecutive Wall Street bounce that may or may not extend given latest Chinese contentions on the trade situation with the US.

COMMODITIES

Choppy trade in the energy complex, although WTI (+1.1%) and Brent (+0.7%) futures are ultimately higher ahead of this week’s JMMC meeting in Saudi Arabia, which sets the stage for the OPEC/OPEC+ meeting in June. Focus will be on Iran’s situation amidst US sanctions and the expiry of waivers and whether there is scope to extend the current output cut deal between OPEC and its allies. Ship tracking data showed that Iranian oil shipments in May thus far has fallen to zero, however, ING highlights that a large number of Iranian tankers turn off their transponders. This follows reports of a tanker carrying Iranian oil reportedly unloading its cargo of almost 130k tonnes of oil near Zhousan, in China, Iran’s largest customer. Furthermore, comments from Iran’s revolutionary guard emphasis rising tensions between the country and the US, with the latest stating that “even short-range missiles can reach US warships in the Gulf”.

Market participants will be on the lookout for how US President Trump reacts to these threats from Iran. In terms of weekly price action so far, WTI futures are poised for a positive week after having breached its 50 WMA (61.81) to the upside whilst similarly, Brent futures are set for a week of gains, after having dipped below USD 70/bbl (and its 50 WMA at the figure) earlier in the week. Elsewhere, precious metals are little changed with spot gold (-0.2%) meandering further below the 1300/oz level after having lost more ground to yesterday’s rising Buck.

Turning to base metals, copper prices are back on the decline amid overnight news (reported via China’s state media) noting that China may have no interest in continuing trade talks for now amid little sincerity from US. The red metal is set to notch a 5th week of losses. On the flip side, Dalian iron ore prices continue their uptrend, up almost 10% this week amid robust demand and a number of supply side issues, including a warning from Vale that a dam at its Gong