• Major European indices [Euro Stoxx 50 +0.6%] are firmer after a subdued Asia-Pac lead, though the tech sector is still the underperformer
• China have reportedly issued a warning against travelling to the US, and the Foreign Ministry states that it is clear every set back in trade talks was due to the US breaking consensus
• In FX, the USD has recovered to above the 97.0 handle while the AUD has been largely resilient to the RBA rate cut and Governor Lowe’s comments
• Looking ahead, highlights include US Factory Orders, Fed’s Powell, Williams, Evans, Brainard & Kaplan

ASIA-PAC

Asian equity markets traded subdued after the headwinds from Wall St where tech underperformed and the Nasdaq slipped into a correction as FAANG stocks were hit on reports of the US launching antitrust and business practice probes into the large tech names. ASX 200 (+0.2%) and Nikkei 225 (U/C) were indecisive as strength in mining names and a widely anticipated RBA rate cut helped offset the tech losses in Australia, while trade in Tokyo was relatively uneventful with exporter sentiment dampened by further unfavourable currency flows. Hang Seng (-0.5%) and Shanghai Comp. (-1.0%) weakened as trade tensions persisted as the US accused China of misrepresenting trade talks and placed the blame on Chinese negotiators back-peddling on issues, while the PBoC’s liquidity efforts resulted to a daily net drain of CNY 90bln. Finally, 10yr JGBs were higher and the 10yr yield dropped to the lowest since August 2016 of below -0.10% amid the risk averse tone and as prices tracked the moves in T-notes following the comments from Fed’s Bullard, while 10yr JGB auction results showed higher accepted prices.

PBoC injected CNY 60bln via 7-day reverse repos for a net daily drain of CNY 90bln. (Newswires) PBoC sets CNY mid-point at 6.8822 (Prev. 6.8896)

US said it is disappointed that China is misrepresenting trade talks in response to China's White Paper on trade in which the US Trade Representative and Treasury Department said US insistence of enforceable commitments is not a threat to China's sovereignty, while they added that China negotiators backed away from previously agreed provisions in wrapping up issues during trade talks. (Newswires)

China's Embassy in US expressed strong dissatisfaction and opposition to US statement on the Tiananmen Square anniversary. (Newswires)

US

China have issued a warning against travelling to the US, according to State Media. Subsequently, China's Foreign Ministry says it is clear that every set-back in US trade talks was due to the US breaking consensus, have resolve and ability to defend their interests and rights. (Newswires)

US Commerce Secretary Ross reiterated President Trump's message that Mexico needs to do more on illegal immigration in a meeting with Mexico's Economic Minister, while Mexico said without its efforts a further 500k migrants would reach US this year and that they could take several paths if the US goes ahead with the tariffs including asking for help from WTO or implementing its own tariffs on US goods. (Newswires)

US Congressional Republicans are discussing moves to stop Trump's tariffs on Mexico. (Washington Post)

Federal judge in Washington DC rejected House Democrats’ attempt to block President Trump's use of emergency powers to reprogram military funds for the border wall. (Newswires)

US House Judiciary Committee launched antitrust probe into tech industry including Google (GOOG), Amazon (AMZN), Facebook (FB) and others. (Newswires)

UK/EU

UK Conservative Party 1922 Committee is to meet today to set out a plan for electing a new leader, while there were separate reports that candidates with little support could be culled to speed up the process. (Newswires/Telegraph)

UK will reportedly take a tough line with US President Trump regarding China and say that Huawei participation in 5G will not impact US cooperation. (Times) Elsewhere, US President Trump said a "big" US/UK trade deal is possible once the UK "gets rid of the shackles", adding that the US and UK are "already starting to talk". (Twitter)

UK Markit/CIPS Cons PMI (May) 48.6 vs. Exp. 50.5 (Prev. 50.5) - Lowest since March 2018.

- Modest fall in construction output in May

- Commercial work remains the weakest performing category

- Sharpest drop in workforce numbers since November 2012

Italian Deputy PM Di Maio says he is ready to back the proposed "flat tax" and devolution measures under certain conditions (Corriere Della Sera). Subsequently, reported that the European Commission may propose a Wednesday start to the procedure against Italy regarding their debt. (La Repubblica) Italian Deputy PM Salvini has stated he has no intention of bringing down the government, and is prepared to meet government partners whenever.

EU HICP Flash YY (May) 1.2% vs. Exp. 1.3% (Prev. 1.7%)

- EU HICP-X F&E Flash YY (May) 1.0% vs. Exp. 1.1% (Prev. 1.4%)

- EU HICP-X F,E,A&T Flash YY (May) 0.80% vs. Exp. 0.90% (Prev. 1.30%)

- EU Unemployment Rate (Apr) 7.6% vs. Exp. 7.7% (Prev. 7.7%)

GEOPOLITICAL

Turkish President Erdogan says Turkey will not take a step back from the Russian S-400 missile deal. (Newswires)

US President Trump statement about alleged withdrawal of Russian military specialists from Venezuela does not correspond to reality, as according to sources cited by Interfax. Separately, Russia’s Kremlin state that Russia have not official informer the US on military personel in Venezuela. (Newswires)

EQUITIES

Major European indices are now firmer [Euro Stoxx 50 +0.6%] and diverting from the negative overnight session as tech suffered with FAANG stocks underperforming on Wall St. due to reports that the US is launching an antitrust and business practice probe into tech names. While tech names still lag, the sectors has come off of lows as equities have been grinding higher this morning with no significant fundamental drivers behind the move. EU sectors are mixed, with the aforementioned tech sector underperforming on the potential probes into tech names; sector heavyweight SAP (-1.5%) is the notable negative tech stock as it comprises a 27.6% sector weighting, and has over a 10% weighting in the DAX (+0.8%). Elsewhere, other notable movers this morning include Hargreaves Lansdown (-4.2%) at the bottom of both the Stoxx 600 and FTSE 100 (+0.2%), following concern over customer backlash as the Co. had promoted the Woodford fund extensively in-spite of its underperformance, the Co. finally removed the fund from their recommendation list on Monday. Towards the top of the Stoxx 600 rests Telecom Italia (+3.3%) after a filing showed the Co’s CFO purchased 150k ordinary shares. Separately, much of the sessions positive stock activity has been driven by broker moves with the likes of Lagadere (+2.2%), Royal Mail (+3.3%), BMW (+1.9%) and Volkswagen (+2.2%) supported by broker moves.

FX

USD - The Dollar is trying to recover after another bout of post-Bullard selling pressure pushed the DXY through 97.000, albeit marginally and briefly, with the index back above the big figure and now probing fresh highs within a 97.265-96.987 range as certain G10 counterparts succumb to independent bearish impulses. However, Buck bulls and bears will now be focusing on a raft of Fed speakers to see if other members turn more dovish, and in particular Chair Powell.

AUD/EUR - Both holding up relatively well in the face of seemingly negative factors as RBA Governor Lowe flags further policy easing and a potentially lower than previously forecast OCR by the end of 2019 (was 1% vs the current 1.25% after last night’s 25 bp cut), while Eurozone inflation missed already considerably softer consensus forecasts. Aud/Usd remains firmly above 0.6950 around 0.6975 between 0.6955-93 trading parameters, and Eur/Usd is pivoting 1.1250 where the top of a band of option expiries reside (1 bn from 1.1235), but capped at the 100 DMA (1.1278).

GBP/CAD/JPY - All a fraction firmer against the Greenback, as Cable straddles 1.2650 and shrugs off another poor UK PMI, but the Pound underperforms vs the Euro on political/Brexit grounds (cross hovering just below 0.8900). Meanwhile, the Loonie is also displaying a degree of resilience in the face of weak crude prices and testing offers/resistance ahead of 1.3400 in a 1.3450-20 band and the Yen extended safe-haven gains through 108.00 to 107.85 before losing some momentum.

CHF/NZD - The major ‘laggards’ with the Franc stalling ahead of 0.9900 and Kiwi also finding it tough to breach a round number at 0.6600 vs its US rival as the Aud/Nzd cross rebounds from pre-RBA levels amidst general Aussie short covering and profit taking.

EM - Contrasting fortunes for the Lira and Rand, as Usd/Try retreats further from 6.0000 towards 5.8100 in spite of more talk from Turkish President Erdogan about the merits of Russia’s S-400 system over the US F-35 alternative that could trigger sanctions. However, Usd/Zar has rallied over 1% to just shy of 14.6500 in wake of significantly weaker than expected SA GDP data.

RBA cut the Official Cash Rate by 25bps to 1.25% as expected and stated that it took the decision to lower rates to support employment growth as well as provide greater confidence inflation will be consistent with medium-term targets. RBA added that the outlook for global economy remains reasonable and that main domestic uncertainty continues to be household consumption although some pick-up of growth in household income is expected which should support consumption growth. Furthermore, the RBA said the central scenario is for economy to grow 2.75% this year and next, while underlying inflation is seen at 1.75% this year and 2.00% next year. (Newswires)

RBA Governor Lowe says it is not unreasonable to expect a lower cash rate from here, though the board has not yet made a decision and much depends on the labour market

- Economic forecast has assumed rates at 1% by year-end, rate decision was not in response to the deterioration in economic outlook since May; Monetary policy has downsides, should not be the only option.

- Does not anticipate getting to rate lows seen in the UK or Canada (0.25%) but has the capacity to do so if needed

- States that he is confident that inflation will rise if unemployment gets to 4.5%, adding that there is no reason to change the inflation target band

- Lowe adds that he is very concerned about a trade war

- Australia can sustain jobless rate of “4 point something”

- Banks should fully pass through rate cut to variable mortgage rates, it is disappointing that some banks have not passed a full rate cut through (ANZ: 18bps, Westpac 20bps)

Australian Current Account Balance SA (AUD)(Q1) -2.9B vs. Exp. -2.5B (Prev. -7.2B, Rev. -6.3B). (Newswires) Australian Net Exports Contribution (Q1) 0.2% vs. Exp. 0.2% (Prev. -0.2%) Australian Retail Sales (Apr) M/M -0.1% vs. Exp. 0.2% (Prev. 0.3%)

FIXED INCOME

Bunds are still on the verge of another test of Sep19 contract highs, and just posted a marginal new Eurex best of 171.08 even though the bounce in Italian debt from 128.79 lows has been more emphatic (stop just short of 130.00) in wake of less incendiary remarks from Salvini, better than forecast unemployment data and weak Eurozone inflation ahead of the ECB. However, Gilts and US Treasuries remain depressed after their recent run up, with the former still blighted by UK political and Brexit issues to an extent and nor far from a fresh 129.91 Liffe base, and the latter biding time awaiting more data and Fed speak to see if others including Chair Powell shift towards the more dovish stance of Bullard.

COMMODITIES

The energy market continues to be pressured as the ongoing trade concerns dampens global demand output, with WTI (-0.6%) and Brent (-0.6%) on the backfoot in early European trade following on from a lacklustre Asia-Pac session. News-flow this morning has largely been from the OPEC front in which a letter showed that Iran opposes delaying the OPEC meeting to July, whilst Algeria and Kazakhstan have also told OPEC that the early July dates are unsuitable. This comes amid split views as to whether the OPEC/OPEC+ meeting should be at the end of June or in early July (touted dates July 3rd/4th), which Russia is in favour for. Furthermore, sources stated that Russian production this month fell to 10.87mln, down from the prior month’s 11.11mln BPD which was reported via the Energy Ministry. Finally, traders will be eyeing tonight’s API data for any signs of a short-term catalyst, with the street looking for headline inventories to draw by around 1.8mln BPD.

Elsewhere, gold (Unch) is choppy and largely unchanged intraday as the yellow metal gave up its gains as the Buck recovered. Meanwhile, copper is little changed as the weaker Dollar countered the soured risk sentiment. Finally, Zinc prices dropped to six-month lows overnight amid a deterioration of the global outlook, with the recent China PMIs pointing to growth of just 4.5%-5%, according to CapEco.

Iran opposes delaying the OPEC meeting to July, as according to a letter; Algeria and Kazakhstan have also told OPEC that the early July dates are unsuitable. (Newswires)

US SEC is probing Siemens (SIE GY) Philips (PHIA NA) and General Electric (GE) for allegedly using local middlemen to negotiate bribes with the Chinese government