• European indices are predominantly lower [Euro Stoxx 50 -0.4%] as the risk-off theme prevails
• The US have reportedly asked the WTO to pause the investigation into China IP until December, and India are reportedly preparing higher tariffs on 20 US goods
• Looking ahead highlights include, US Retail Sales, Industrial Production, Business Inventories, University of Michigan Sentiment, BoE’s Carney

ASIA-PAC

Asia equity markets traded mixed as they awaited Chinese Industrial Production and Retail Sales data, where retails sales beat on expectations, nevertheless Asia-Pac indices remained mixed as risk-off sentiment prevailed. ASX 200 (+0.2%) was lifted by strength in commodity-related stocks but with gains capped due to weakness in the largest weighted financials sector amid anticipation of a lower rate environment and with AMP shares heavily pressured after it received compliance orders from the financial regulator APRA. Nikkei 225 (+0.4%) was also underpinned by the mining sectors which saw Chiyoda as the biggest gainer, while Sony shares were also bolstered after activist investor Loeb called on the Co. to spin off its semiconductor business. Elsewhere, Hang Seng (-0.7%) was subdued and Shanghai Comp. (-1.0%) was indecisive amid trade uncertainty and after the PBoC’s efforts resulted to a net weekly injection of CNY 65bln vs. last week’s CNY 320bln net drain. Finally, 10yr JGBs followed suit to the recent upside in T-notes, while the BoJ was also present in the market with today’s Rinban operation heavily concentrated in the belly of the curve.

PBoC injected CNY 100bln via 28-day reverse repos for a weekly net injection of CNY 65bln vs. last week’s CNY 320bln net drain. PBoC set CNY mid-point at 6.8937 (Prev. 6.8934)

Chinese Retail Sales YY (May) 8.6% vs. Exp. 8.1% (Prev. 7.2%)

- Chinese Industrial Output YY (May) 5.0% vs. Exp. 5.5% (Prev. 5.4%)

- Chinese Urban Investment (YTD)YY (May) 5.6% vs. Exp. 6.1% (Prev. 6.1%)

Chinese President Xi say China will promote steady developments of ties with Iran, no matter how situation changes. (Newswires)

PBoC are to increase re-discount quota by CNY 200bln and increase SLF quota by CNY 100bln on June 14th to maintain ample liquidity for small and medium banks. (Newswires)

US

Over 600 US companies urged US President Trump to resolve the China trade dispute, with Walmart and Target among the signatories in the letter to the White House. (Nikkei)

US have asked the WTO to pause the investigation into China IP until December., according to sources (Newswires)

India are reportedly preparing to impose higher tariffs on over 20 US good next week, according to sources. (Newswires)

UK/EU

UK Tory leadership rivals are said to be mulling an alliance to block Boris Johnson from becoming PM. However, Johnson’s supporters have called on 'vanity candidates' to drop out of the Conservative leadership race in order to speed up the process of appointing a new PM. (The Guardian/Telegraph) For reference, Health Secretary Hancock has pulled out of the Tory leadership race. (Newswires)

French Finance Minister Le Maire said EU ministers reached an agreement on Eurozone budget, while reports later stated that Le Maire commented that progress has been made but Eurozone budget deal still has a long way to go. (AFP/Newswires))

Eurozone Minister have failed to reach an agreement on the EZ budget, budget size was not discussed, talks are to continue in the coming months, according to an official. Subsequently EU’s Moscovici says the European Commission will continue with preparations for disciplinary steps against Italy. (Newswires)

ECB’s Draghi states that the overall effect of ECB monetary policy on bank profitability has been broadly neutral so far. (Newswires)

GEOPOLITICAL

US Military said Navy Destroyer USS Mason is en route to the area where the 2 oil tankers were attacked, while it added it has no interest in engaging in new conflict in the Middle East and that it is ready to defend US interests as well as freedom of navigation. Furthermore, the US released video footage of Iranian military removing an unexploded mine from the Japanese tanker that was attacked in the Gulf of Oman. (Newswires)

Iran categorically rejected the US unfounded claim regarding tanker attacks according to Iranian mission to the UN, while there were also comments from Iran Foreign Minister Zarif that US allegations against Iran without evidence shows the B team is moving to Plan B of sabotaging diplomacy. (Newswires/Twitter)

Turkey’s Foreign Minister states that they will retaliate in the event the US imposes sanctions due to the S-400 missile system. (Newswires)

EQUITIES

Major European indices are mostly lower [Eurostoxx 50 -0.4%], with the exception of the SMI (+0.2%), as the region temporarily side-lines the prospect of Fed rate cuts and succumb to the risk-off sentiment as a result of rising US tensions with China, Russia, Germany, Iran, Turkey and India. Sectors are largely in the red with defensive stocks faring better, gains in the healthcare sector are keeping the SMI afloat. Meanwhile, IT names plumbed the depths with the sector heavily underperforming after a warning from Broadcom regarding a slowdown in global chip demand. As such, Infineon (-5.1%), STMicroelectronics (-4.0%), Dialog Semiconductor (-3.1%), ASML (-3.0%) and ASM (-2.7%) are all near the foot of the Stoxx 600. On the flipside, Scor (+2.6%) and Royal Mail (+2.0%) are in positive territory amid positive broker moves.

FX

DXY - The index continues respect resistance above the psychological 97.000 level (on a closing basis) and ahead of the recent range top at 97.370, as safer currency havens outperform amidst heightened geopolitical and global trade tensions. Moreover, the Dollar remains capped by growing expectations that the Fed will flag a rate cut next week following a run of macro data pointing to a more pronounced slowdown in the economy and benign inflation that that challenges the transitory theory put forward by Powell and other at the last FOMC gathering. On that note, impending retail sales and ip reports could cement an ease in July if not this month. DXY currently relatively contained within a 97.154-96.942 range.

JPY/SEK - The Yen has nudged back up towards 108.00 vs the Buck, and is only really lagging behind Gold in the aforementioned risk-off climate plus the Swedish Krona in the G10 stakes due to firmer than forecast CPI and CPIF metrics that keeps the Riksbank on track to raise the repo. However, Usd/Jpy is still encountering underlying bids ahead of the big figure and may also be propped by decent option expiry interest between 108.00 and 108.15 (1 bn). Back to Scandinavia, Eur/Sek has extended post-inflation data declines through technical support at 10.6500 (10 DMA) and briefly below 10.6400 vs 10.7100+ at one stage.

NZD/AUD - The major losers yet again, and with the Kiwi now underperforming after NZ manufacturing PMI only just held above the 50.0 threshold. Nzd/Usd has slipped under 0.6550 towards 0.6525 and Aud/Nzd is pivoting 1.0550 even though the Aussie has relinquished the 0.6900 handle and chart support a pip below amidst another round of more aggressive RBA policy easing calls (NAB now predicting 3 cuts in 2019 from 2 previously and RBC reckons the OCR will be lowered to 0.5% by May next year).

EUR/CAD/CHF/GBP - All lower against the Greenback as well, albeit to a lesser extent compared to the Antipodean Dollars and to varying degrees. The single currency is retreating further from 1.1300 where massive expiries run off (4.4 bn) and the Loonie has reversed to test support ahead of 1.3350 having lost some of Thursday’s oil-powered momentum as crude prices simmer down after the post-tanker attack spike. Meanwhile, the Franc has pared gains across the board with Usd/Chf at the upper end of a 0.9966-26 band and Eur/Chf back above 1.1200 on SNB reflection (renewed and reemphasised convictions to keep NIRP or even cut deeper and continue intervention). Elsewhere, Cable has is now pivoting 1.2650 with independent bearish impulses from the ongoing UK political hiatus and resultant suspension of any real Brexit developments, but BoE Governor Carney may provide some additional impetus later.

EM - No respite for the Lira it seems as Usd/Try rallies through 5.9000 to 5.9300+ and not far from chart resistance around 5.9500, including a 50% Fib of the retracement from last month’s highs to earlier June lows. The latest catalyst, warnings from Turkey’s Foreign Ministry that any US sanctions will be reciprocated.

New Zealand Manufacturing PMI (May) 50.2 (Prev. 53.0, Rev. 52.7). (Newswires)

Swedish CPI YY (May) 2.2% vs. Exp. 2.0% (Prev. 2.1%)

- Swedish CPI MM (May) 0.3% vs. Exp. 0.1% (Prev. 0.7%)

FIXED INCOME

As another Tory leadership candidate raises the white flag and by default if not design boosts BoJo’s prospects, UK debt has recoiled from marginal new record highs at 130.68 and is struggling to pick up the baton again from a fresh 130.37 Liffe base. However, Bunds continue to climb after fewer, more fleeting and shallower pull-backs, with the 10 year Eurozone benchmark now poised to surpass 172.00 having eclipsed chart ‘resistance’ at 171.97. Similarly, US Treasuries are eyeing upside technical levels, like 127-23 in the 10 year note and in the current safe-haven vs risk-off environment it is conceivable that the symbolical 2% cash yield could be tested, especially with this week’s supply out of the way and if looming data adds more fuel the Fed rate cut fire. Back to Eurex, 172.09 has been flagged on some charts as a level, but again resistance appears futile in the current clime.

COMMODITIES

The energy complex is poised for a weekly loss as the two tanker attacks off the coast of Oman only provided brief reprieve for the declining prices, with trade woes and rising US supply outweighing concerns in the Middle East. This morning also saw the release of the IEA monthly report in which the agency cut their outlook on oil demand growth by 100k BPD, which is in-fitting with the OPEC (70k BPD) and EIA (160k BPD) downgrades to oil demand growth for 2019 released earlier in the week. The report also noted that OPEC supply in May fell to the lowest since 2014 due to Iranian sanctions, in which Iranian oil production fell to the lowest since the 1980s. WTI and Brent are lower on the day and currently pressured by the continuation of the risk aversion. Elsewhere, gold has continued to advance as the yellow metal benefits from the risk-off sentiment, with prices now above the key USD 1350/oz ahead of strong trend-line resistance at USD 1358.50/oz. The rally in gold has spilled into other precious metals with silver hitting one-week highs and platinum gaining almost 1%. In terms of base metals, copper remains subdued amid the broad risk tone whilst Dalian iron ore touched new record highs as Chinese steel mills kept demand steady for the metal.

IEA Monthly Report: cuts 2019 oil demand growth forecast by 100k bpd to 1.2mln bpd

- Sees oil demand growth picking up in H2 2019 to 1.6mln bpd and looks for 1.4mln bpd in 2020, demand for OPEC crude slipping to 29.3mln bpd in 2020.

- OPEC supply in May fell to its lowest level since 2014 amid Iranian sanctions, and declines in Saudi and Nigerian output

- State that Iran production fell 210k BPD in May to 2.4mln, lowest level since late 1980's

- Iran oil exports dropped 480k BPD in May to 810k BPD

Libyan oil production is around 1.25mln BPD according to the Libyan Economy Minister. (Newswires)