• No major fundamental EU session updates leave European Indices [Euro Stoxx 50 -0.5%] subdued and largely in-line with their Asia-Pac counterparts.
• In FX, the USD is lacklustre ahead of US CPI; with G10 counterparts failing to significantly capitalise on this amidst the downbeat tone
• Looking ahead highlights include, US CPI, ECB’s Coeure. Supply from the US

ASIA-PAC

Asian equity markets traded mostly subdued after the flat lead from Wall St where the relief rally stalled, and the major indices finished flat to snap a 5 and 6-day win streak for the S&P 500 and DJIA respectively. ASX 200 (U/C) and Nikkei 225 (-0.4%) were mixed with Australia kept afloat by mining names as iron prices in China surged to fresh record highs, while the Japanese benchmark mirrored the indecisiveness of its US peers amid a firmer JPY and with SoftBank among the laggards as a group of US states attempt to block the Sprint and T-Mobile merger. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-0.6%) were negative following another net liquidity drain by the PBoC and pessimism regarding the ability to reach a US-China trade deal at the G20, with underperformance in Hong Kong amid increases in money market rates and mass protests outside government buildings in opposition against the controversial extradition bill. Finally, 10yr JGBs kept rangebound with price action hampered by the indecisiveness in the region and amid a lack of BoJ presence in the market today.

PBoC injected CNY 15bln via 7-day and CNY 20bln via 28-day reverse repos for a net daily drain of CNY 25bln. (Newswires) PBoC set CNY mid-point at 6.8932 (Prev. 6.8930) Chinese CPI (May) Y/Y 2.7% vs. Exp. 2.7% (Prev. 2.5%). (Newswires) Chinese PPI (May) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.9%)

Chinese M2 Money Supply YY* (May) 8.5% vs. Exp. 8.6% (Prev. 8.5%)

- Chinese Outstanding Loan Growth* (May) 13.4% vs. Exp. 13.5% (Prev. 13.5%)

- Chinese New Yuan Loans* (May) 1180B vs. Exp. 1225.0B (Prev. 1020.0B)

UK/EU

Polls suggested that Boris Johnson could win a 140-seat majority for the Tory party at the next general election if he becomes party leader. In other news, Remain MPs are reportedly plotting to thwart Boris Johnson’s plans for a no-deal Brexit on the day he launches his leadership campaign. (Telegraph)

ECB's Villeroy (Dovish) says monetary policy must be kept accommodative as long as EZ is not at inflation target, adding that the ECB can do more if the current downturn worsens. (Newswires)

GEOPOLITICAL

Japanese PM Abe said he will exchange options with Iran's leaders to ease tensions, while there were also reports that Iran officially announced its Khordad 15th surface-to-air missile system. Subsequently, Iranian officials will ask Japanese PM Abe to act as a mediator to ease oil sanctions, according to reports; and Iran would see any facilitation of oil exports by the US as a gesture of goodwill in the lowering of tensions. (Newswires)

Saudi-led coalition has confirmed that Yemen's Houthis were behind Saudi's Abha airport attack, no further details as of yet, according to Saudi Press Agency. (Newswires)

Turkish Defence Ministry says the language from the US on the S-400 deal is not in spirit of alliance and Turkey is preparing a response to US Acting Defence Secretary's letter. (Newswires)

EQUITIES

European equities are mostly lower [Eurostoxx 50 -0.5%] in a continuation of the subdued lead from Asia in which Hong Kong’s stock index suffered heavy losses due to the mass protests against the controversial extradition bill. Sectors are mixed, with heavy underperformance across energy names (sector -1.2%) amid the slide in oil prices. Meanwhile, defensive sectors (utilities +0.3%, healthcare +0.4%) are in the green as investors flock to the ‘safer’ and more stable stocks. In terms of individual movers, shares in British American Tobacco (-6.0%) fell to the foot of the Stoxx 600 index as the cigarette maker expects global industry volume to fall by around 3.5%, although the Co. reiterated guidance despite its peer Imperial Brands (-1.8%) cutting guidance for their tobacco business yesterday. Elsewhere, shares in Axel Springer (+11.8%) rocketed after KKR’s Traviata confirmed that it is to make a takeover offer for the company for EUR 63/shr (vs. yesterday’s close at EUR 55.85/shr). Meanwhile, SMI’s LafargeHolcim (-3.1%) fell to the bottom of the index after a major shareholder cut his stake in the company.

FX

DXY - The Dollar is on the defensive ahead of US headline inflation data that could provide more justification for the Fed to consider a rate cut, with the index only just holding above chart support ahead of 96.500 in the form of the 200 DMA within a 96.578-722 range.

JPY/GBP/EUR/CHF - All taking advantage of the softer Greenback, as the Yen rebounds towards 108.00 and into decent option expiry territory with 1 bn sitting between 108.40-25 before a further 1.2 bn from 108.10 down to the big figure. Note, Usd/Jpy has also pared gains on a partial retracement in global stocks as improving risk sentiment wanes, but the Franc has not regained as much safe-haven allure given Thursday’s SNB quarterly policy review and the likelihood of more NIRP and intervention iterations – check out the headline feed or Research Suite for a detailed preview. Usd/Chf and Eur/Chf remain above 0.9900 and 1.1200 respectively, with the single currency also consolidating above 1.1300 vs the Dollar and inching closer towards last Friday’s post-NFP highs circa 1.1348 where stops are anticipated, but could be countered by hedges for a 1.2 bn expiry at the 1.1350 strike. Meanwhile, Cable has retested yesterday’s post-UK data/BoE commentary peaks just shy of 1.2750 and Eur/Gbp is pivoting 0.8900 awaiting Tory leadership front-runner BoJo’s official campaign launch.

NZD/CAD/AUD - Ongoing global trade concerns are undermining the non-US Dollars, as the Kiwi remains capped below 0.6600 and Loonie retreats further from best levels towards 1.3300, and perhaps takes heed of the more pronounced recoil in crude prices having decoupled somewhat in wake of supportive Canadian jobs data and the fillip from the US and Mexico clinching a deal to avert tariffs. However, the Aussie is underperforming in the run up to tomorrow’s labour report and probing key Fib support circa 0.6945.

EM - Usd/Try is back above 5.8000 amidst latest Turkish remonstrations about the US not adhering to the spirit of alliance on the missile front and reports that an official response to a letter from Washington is being prepared. Meanwhile, the Lira is also looking pressured ahead of the looming CBRT that could turn more dovish given recent inflation data showing a slowdown in CPI, weaker oil and Try appreciation from worst levels – for more see Ransquawk’s headline feed and/or Research Suite.

Notable FX expiries:

- EUR/USD: 1.1300 (818M), 1.1325 (726M), 1.1350 (1.2BLN)

- USD/CAD: 1.3275 (1.1BLN), 1.3325-35 (900M)

- USD/JPY: 108.00-10 (1.2BLN), 108.25-40 (1BLN), 108.60 (400M), 109.20-30 (800M)

FIXED INCOME

Core EU bonds slipped to fresh intraday lows and into negative territory before finding more underlying bids, but haven’t traded in lock-step since as the 10 year benchmarks resume their recent divergent trend. Possibly encouraged by a relatively well received 10 year tap, especially given competition from peripheral and other syndications that are seeing plenty of investor interest, Bunds are back above par in contrast to Gilts hovering just above a 130.13 Liffe low (-9 ticks vs +17 ticks at best). Meanwhile, Short Sterling futures are now down 0.5-2 ticks and have been 2.5 ticks adrift in wake of Tuesday’s toppy AHE ex-bonus outcome and hawkish-leaning BoE utterings, but also amidst the ongoing UK political paralysis pending a new PM and the resumption of Brexit. However, market contacts note decent call option buying in Mar20 where 99.375 and 99.50 strikes have both been purchased in 5k clips. Elsewhere, US Treasuries are holding a firmer and flatter line into CPI and the 10 year note auction after a successful 3 year sale to start this week’s issuance schedule.

COMMODITIES

Another day of losses for the energy complex with WTI (-2.7%) and Brent (-2.8%) futures heavily pressured amid the latest surprise build in API crude stocks (+4.9mln vs. Exp. -0.5mln) coupled with risk aversion around the market, whilst the EIA’s downgrade in global oil demand forecast only adds to the bearish sentiment. WTI futures currently hover just above the USD 51.50/bbl level, having dipped below its 200 WMA (52.59) whilst its Brent counterpart briefly fell under the USD 60.50/bbl mark. News flow for the complex has been light thus far with participants now gearing up for the weekly DoEs to potentially reinforce the build in stockpiles seen in the APIs.

Elsewhere, gold (+0.8%) resumes its climb as the recent relief rally dissipated. The yellow metal is comfortably above the USD 1325/oz level ahead of US CPI data. Turning to base metals, copper prices are sliding despite a weaker Buck amid the absence of risk appetite in the market, although it is worth noting from a supply point of view that Labour unions at Codelco’s Chuquicamata mine are set to reject the latest wage offer in a vote tomorrow, which could see a operations come to a halt at the largest open pit copper mine. Finally, given the recent supply-driven surge in iron ore prices, Chinese steel mills are facing a slump in profit margins and are reportedly seeking lower grade iron ore to cut costs, thus the spread between medium and low grade iron ore in China has narrowed to two-and-half year lows.

UAE Energy Minister Al-Mazrouei said OPEC+ is very close to an agreement for an extension, while he added that current inventories suggest curb should remain in place and that the deal should be extended at least until the end of the year. (Newswires)

CME raised NYMEX Crude Oil July futures margins by 9.5% to USD 3450/contract and raised NY Harbor Heating Oil July futures margins by 7.9% to USD 3775/contract. (Newswires)

China NDRC, industry ministry and natural resources ministry launch survey on rare earths in which the regions surveyed must provide specific data and cases on major issues in protecting, developing and applying the resources. (Newswires)

Goldman Sachs expects Brent at USD 65.50/bbl in Q3 2019 amid the upcoming de-bottlenecking of the Permian Basin, GS maintains WTI 2yr forward forecast at USD 50/bbl. (Newswires)