Asia-Pac equity markets traded positive, although lacked firm impetus amid mass closures in the region

Israel PM Netanyahu said Iran has been hiding nuclear weapons activity and that Israel can provide “new and conclusive proof” of this

Looking ahead, highlights include UK and US mfg PMI, Canadian GDP, US construction PMI, ISM mfg PMI, APIs, NZ jobs and GDT

ASIA

Asia-Pac equity markets traded positive, although lacked firm impetus amid mass closures in the region and following the negative lead from Wall St where sentiment was dampened amid geopolitical concerns. This was due to Israel’s stern rhetoric on Iran which it alleged had lied on its nuclear program, while the telecoms sector led the declines amid doubts the T-Mobile-Sprint merger would get regulatory approval. ASX 200 (+0.6%) saw energy names underpinned on higher oil prices following Israel’s exposure of Iran and the possible implications it could have on the nuclear agreement, while financials also gained after big 4 bank ANZ reported over 4% profit growth. Nikkei 225 (+0.2%) was in the green but with price action indecisive as it began a 2-day trading week and pondered over the recent JPY strength. There wasn’t much price action elsewhere with mainland China, Hong Kong, India, Singapore, South Korea and Taiwan among the markets shut for public holiday, while US equity futures were off prior lows amid mild short covering and after reports the US extended tariff relief for its allies by delaying its decision another month to June 1st. Finally, 10yr JGBs were higher to track the prior day’s upside in T-notes and with the BoJ present in the market under its bond buying programme, while yields were lower across the curve with outperformance seen in super-long-end bonds.

UK/EU

UK PM May is reported to be mulling a deal with Brussels that Brexiteers fear could result to ‘EU Mark II’ and make the UK take rules from EU. May has informed ministers that the UK could “potentially” accept an association agreement with the EU, which critics say would make Britain a “rule taker” from Europe (Telegraph) Similar reports suggest that the UK are set to unveil a new proposals to the EU and attempt to overcome the Irish border issue as negotiations resume once again this week.

FX

Trade in FX markets was quiet amid the absence of participants in the region for Labour Day which will also be followed by the numerous closures across the European continent today. As such, the greenback held on to recent gains with the DXY close to 92.000 which has kept its main counterparts subdued, with EUR/USD below the 1.2100 level where it had met resistance during US trade. Elsewhere, USD/JPY and related crosses were rangebound with JPY holding on to most of the prior day’s risk-averse flows into the safe-haven, while AUD nursed some losses as it bided its time heading into the RBA rate decision which proved to be a non-event as the central bank kept policy unchanged as unanimously expected and mostly rehashed its prior policy statements.

Australian RBA Cash Rate (May) 1.50% vs. Exp. 1.50% (Prev. 1.50%). (Newswires) RBA reiterates that steady policy is consistent with growth and inflation targets, while it also repeated that low rates supports the domestic economy and that a stronger AUD would slow economic pick-up. Furthermore, RBA stated that Inflation and wage growth likely to stay low for a while but added that it expects stronger exports.

COMMODITIES 

Commodities were mixed in which WTI crude futures continued on from the geopolitical-fuelled uptrend which had briefly pushed prices above USD 69/bbl during US hours. Elsewhere, gold and copper prices lacked demand as the greenback held firm and amid widespread market closures including China, while the lacklustre trade in metals also followed the prior day’s losses in the complex in which LME copper and aluminium prices had declined over 2%.

China Dalian Commodity Exchange will open iron ore futures trading to foreign capital beginning this Friday. (Newswires)

EIA stated that US crude oil production rose by 260k BPD in February to 10.264mln BPD (Prev. 10.004mln BPD in January), while US total oil demand (Feb) rose 2.4% Y/Y or 460,00 BPD to 19.619mln BPD, (January saw a 6.3% rise). (Newswires)

GEOPOLITICAL

Israel PM Netanyahu said Iran has been hiding nuclear weapons activity and that Israel can provide “new and conclusive proof” of this, while Netanyahu was also said to seek a vote to enable the Defence Minister to decide on war in extreme circumstances. (Newswires) Iran denied these allegations while the Iranian Foreign Minister tweeted that allegations are old and have already been dealt with by the IAEA. (Twitter)

US Secretary of State Pompeo stated that Israel’s nuclear files on Iran are real and that many are new, while US Treasury Secretary Mnuchin stated that President Trump is still considering the Iran agreement. (Newswires)

US

The yield curve flattened on Monday on a combination of month-end and softish data, causing the 10yr yield to retreat from last week’s best levels, falling to sub-2.94%. While most of the action was concentrated in the long-end of the curve (30s yields down c.2bps at settlement), all the major yield spreads were narrowing; 5s30s flattened by c.1bps the lowest spread in more than six years. Ahead of Wednesday’s Quarterly Refunding Announcement, the US Treasury borrowed USD 488bln in Q1, expectations are to issue USD 75bln in net marketable debt in Q2, down USD 101bln previous estimate, and USD 273bln in net marketable debt in Q3. Elsewhere, BTPs underperformed their peers on Monday after Italy’s 5SM leader Di Maio called for a fresh election in June. Following the election in March, talks between parties have largely failed and no successful attempts were made to form a government. US 10yr T-Notes futures settle 4 ticks higher at 119-20.

US President Trump effectively extended tariff relief for EU and other allies for a month to June 1st and is said to finalize agreement to exempt South Korea on steel. The reports stated that US delayed the deadline for decision for EU, Canada and Mexico, while US reached agreements in principle regarding tariffs with Argentina, Australia and Brazil. (WSJ)

US proposed an increase of regional content value in autos to be increased to 75% from 62.5% with the content to be implemented in 4 years for light vehicles and 2 years for trucks, while there were also comments from Mexico’s automaker association AMIA that the US proposal is not viable given the situation of the industry in North America. (Newswires)