US President Trump announced the US is to pull out of the Iran nuclear deal and will institute ‘highest level’ of sanctions on Iran

Asia stocks traded mixed after a lacklustre lead from Wall St. USD firmer with the DXY above 93.00 and at a fresh YTD high amid rising US yields

Looking ahead, highlights include Norwegian and Swedish CPI, US PPI, DoEs, Fed’s Bostic, RBNZ and US 10yr Auction

IRAN NUCLEAR AGREEMENT

US President Trump announced the US is to pull out of the Iran nuclear deal and will institute ‘highest level’ of sanctions on Iran. Trump added that the deal should never have been made and has allowed Iran to continue to enrich uranium, while he stated the US is to be ready, willing and able to renegotiate a deal with Iran. (Newswires)

US Treasury Department said oil related sanctions on Iran are to be re-imposed in 180 days and US Treasury Secretary Mnuchin said that effectively sanctions will be going into place immediately. Furthermore, Mnuchin also commented that the US will be working with allies on a comprehensive deal and that firms can seek waivers or special licences to operate in Iran. (Newswires)

French President Macron noted that France will work collectively on a broader framework, covering nuclear activity, the post-2025 period, ballistic activity, and stability in the Middle-East, notably Syria, Yemen, and Iraq. Furthermore, there were also comments by EU’s Mogherimi that the EU vows to uphold Iran nuclear accord despite Trump’s decision. (Twitter/Newswires)

Iran’s leader Rouhani said Iran is committed to its own and confirmed that Iran will continue the nuclear deal with members of the P5+1 even without US, while Rouhani added he is ready to resume nuclear work following talks with EU members of the deal. (State TV/Newswires)

There was volatility in crude prices with the rumour mill rife in the hours leading to the announcement. WTI crude initially fell around USD 2 to below USD 68/bbl amid CNN reports that US President Trump is to announce new sanctions against Iran and will not withdraw from the deal. However, the weakness was then pared on conflicting reports that President Trump decided to pull-out of the agreement which was later confirmed and underpinned WTI crude back above USD 70/bbl. (Newswires)

ASIA

Asia stocks traded mixed after a lacklustre lead from Wall St and as markets digested US President Trump’s decision to withdraw from the Iran nuclear agreement which in turn underpinned oil prices. ASX 200 (+0.2%) was kept afloat as energy names coat-tailed on the upside in oil, although gains were limited by weakness in financials after Australia’s largest lender CBA reported earnings. Elsewhere, Nikkei 225 (-0.4%) failed to benefit from JPY weakness and traded subdued, in which electricity names took a power dive on the higher input costs, while both Shanghai Comp. (+0.1%) and Hang Seng (+0.5%) were initially weaker after a daily net liquidity drain by the PBoC and the verbal spat between US and China envoys at the WTO. However, Chinese markets later recovered with Hong Kong leading the rebound as money market rates eased, in which the 1-month HIBOR declined for a 6th consecutive session. Finally, 10yr JGBs were uneventful despite the cautious risk tone and BoJ’s presence in the market for over JPY 1tln in 1yr-10yr JGBs. This was amid gains in yields which tracked upside in their US counterparts with the US 10yr yield homing in again on the 3.000% level.

PBoC injected CNY 60bln via 7-day and CNY 40bln via 14-day reverse repos for a net daily drain of CNY 100bln. (Newswires)
PBoC set CNY mid-point at 6.3733 (Prev. 6.3674)

UK/EU

The UK Government has suffered an unexpected Brexit defeat in the Lords, as peers backed retaining key aspects of the EU’s single market through continued participation in the European Economic Area. Lords also backed an amendment to remove the Brexit date of 29 March 2019 from the legislation. (Sky News)

Eurosceptic ministers are reported to be worried that UK PM May could bypass her Brexit war cabinet and ask the full cabinet for support regarding a customs partnership with the EU. (Telegraph)

Initially, party sources reported Forza Italia are to consider stepping back to allow a 5-Star/League government, however this was later denied by Berlusconi. (Newswires)

UK BRC Sales Like-For-Like (Apr) Y/Y -4.2% vs. Exp. -0.8% (Prev. 1.4%). (Newswires)

FX

USD was firmer with the DXY above the 93.00 level and at a fresh YTD high amid rising US yields. This dampened price action across its major counterparts, while the PBoC also weakened its reference rate in response. USD/JPY was higher after support at the 109.00 level eventually held and amid cross-related flows in which GBP/JPY reclaimed the 148.00 handle and with algo-short covering said to have been triggered in NZD/JPY. Elsewhere, AUD and NZD lacked any substantial drivers with the latter subdued ahead of today’s RBNZ policy meeting, in which expectations are one-sided for no change in rates and with the scope for tighter policy also restricted by ongoing soft inflation.

COMMODITIES

Commodities were mixed with crude prices ultimately higher after President Trump confirmed the withdrawal of the US from the Iran nuclear agreement which helped oil recover from the initial rumour-triggered volatility, with WTI crude futures back above USD 70/bbl while Brent crude gained around 2% to move closer to USD 77/bbl. Elsewhere, gold prices declined as the greenback held firm and copper was flat alongside an indecisive risk tone in the region.

US API weekly Crude Stocks (4 May) -1.850M vs. Exp. -0.700M (Prev. +3.427M). (Newswires)

Saudi Arabia Energy Ministry said they will coordinate efforts with Opec+ to mitigate the impact of any potential oil supply shortfall on market stability. (Newswires)

EIA cut forecast for 2018 world oil demand growth by 30k bpd and now sees 1.76mln bpd increase, while it raised 2018 US crude output estimate to 10.72mln bpd from 10.69mln bpd. (Newswires)

GEOPOLITICAL

US President Trump and China’s Xi agreed on a phone call that sanctions on North Korea will remain in place until it permanently dismantles nuclear programmes, according to the White House. (Newswires)

US Secretary of State Pompeo is expected to return from North Korea with 3 detainees, according to South Korean press reports. (Yonhap)
US

Treasuries were lower on Tuesday with most of the action concentrated in the front end and belly of the curve. The 5yr yield was up by c.3bps, the 2yr and 10yr yields were higher by c.2bps. The Treasury auctioned USD 31bln in 3yr notes with a tail of 0.1bps. The yield came in at 2.664%, the highest since May 2007. Dealers were left with the largest proportion of the issuance at 42.2%, well above the 6-auction average. Directs were awarded 12.3% and indirect 14.6%, the smallest portion since July 2016. US 10yr T-Notes futures settle 5+ ticks lower at 119-16+.