• Sentiment soured in Asia after Trump cast doubts over NK summit and expressed dissatisfaction regarding trade talks with China
• In FX, JPY was a beneficiary of safe-haven flows. USD flat. TRY experienced a ‘flash crash’ which saw the currency drop over 2.5% against the greenback
• Looking ahead, highlights include EZ Mfg and Services PMIs, UK CPI, US New Home Sales, DOEs, FOMC minute and a slew of speakers

ASIA

Asian equity markets traded mostly negative as the downbeat sentiment rolled over from US where stocks retreated and DJIA pulled back from the 25k level, after US President Trump placed doubts on the summit with North Korea and expressed dissatisfaction regarding trade talks with China. ASX 200 (-0.2%) was led lower by the energy sector following weakness in crude as Santos shares slumped about 9% after the Co. rejected the approach from Harbour Energy and disengaged from further talks. Nikkei 225 (-1.0%) underperformed as exporters suffered the brunt of a firmer currency, while Shanghai Comp. (-0.8%) and Hang Seng (-1.0%) conformed to the broad risk averse tone amid Trump discontentment with trade discussions. Furthermore, the PBoC conducted a net daily liquidity drain from the interbank market, while basic materials names were pressured by NDRC plans to reduce benchmark coal prices and after US Treasury Secretary Mnuchin clarified that steel and aluminium tariffs were not part of the recent truce and will remain in place for China. Conversely, baby related stocks gained in Hong Kong as participants reacted took their first opportunity to react to the prospects of China relaxing its child policy restrictions and Standard Chartered was boosted on reports Barclays was examining a potential merger with rivals including the dual-listed lender. Finally, 10yr JGBs are marginally higher amid gains in T-notes and a broad risk-averse tone, while the BoJ were also present in the market for JPY 840bln of JGBs in maturities spread across the curve.

US President Trump said he is not happy with how talks went with China and that talks were a start, but he is not satisfied. US President Trump also stated there is no deal with China on ZTE and that he would like to see a large fine for the Co. which could be USD 1.3bln as well as a new board and management, while he also envisions ZTE being required to purchase large portion of their components from US companies. Elsewhere, US Commerce Secretary Ross plans to visit China in early June for trade talks. (Newswires)

PBoC injected CNY 80bln via 7-day and CNY 70bln via 14-day reverse repos for a net daily drain of CNY 30bln. (Newswires)
PBoC set CNY mid-point at 6.3773 (Prev. 6.3799)

UK/EU

UK Chancellor Hammond said must deliver a Brexit that prioritises jobs, growth and prosperity, while he added that they must listen to businesses and that they expect further progress when EU leaders meet next month. (Newswires) The Telegraph report that UK Environment Secretary Gove has accused Hammond of being “short-sighted” over Brexit and helping to inflict a “damaging blow” to the Conservative Party’s “environmental credentials”. (Telegraph) UK Foreign Minister Johnson has continued to increase pressure on the government by stating that UK PM May must ‘get on with’ removing the UK from the EU. (Newswires)

Italian President Mattarella has not yet decided whether to give the PM role to Conte according to sources, while there were also reports that Italy 5SM leader Di Maio may be back in the running for the role of PM. Furthermore, League leader Salvini said Conte remains their PM candidate and would like Paolo Savona as Economy Minister. (Newswires/Repubblica)

Trump Administration is said to consider a 10% cut in European steel and aluminium exports to the US. (Newswires)

FX

JPY was the most active as the negative risk tone spurred flows into the safe-haven, which pushed USD/JPY firmly below the 111.00 handle and resulted to similar underperformance in related-crosses. Commodity-linked currencies were subdued as oil prices retreated from multi-year highs with AUD also dampened after weak Construction data, while NZD saw a bout of pressure after the RBNZ published an article on unconventional monetary policy in which it stated it has significant room for easing in a conventional manner with the OCR at 1.75%. The losses in NZD were then instantly pared given the context of the comments which were made as an implicit argument against adopting unconventional measures, before the broad risk averse sentiment pressured currencies across the FX space and saw NZD/USD test 0.6900 to the downside. Elsewhere, TRY experienced a flash crash which saw the currency drop over 2.5% against the greenback and extend on its recent trend of record lows approaching into next month’s election, in which President Erdogan has vowed to take greater control of the central bank if he wins, although the currency has since pared some of the losses amid a lack of immediate fresh news catalyst behind the latest bout of selling.

Australian Construction Work Done (Q1) 0.2% vs. Exp. 1.3% (Prev. -19.4%). (Newswires)

RBNZ published an article on unconventional monetary policy post-GFC, in which it stated that it has significant room for easing in a conventional manner as the OCR is at 1.75%, while RBNZ also noted that New Zealand monetary policy is stimulatory and that it is not projecting a significant decline in OCR. (Newswires)

COMMODITIES

Commodities were lacklustre overnight amid a broad risk averse tone, with WTI crude futures slipping back below the USD 72/bbl after source reports suggested June could be a live month for OPEC in which it could increase production to offset shortages from Venezuela and Iran, while the latest API reports also showed a narrower than expected drawdown in headline crude inventories. Elsewhere, gold traded range-bound with participants tentative ahead of today’s FOMC minutes release, while copper was also lacklustre alongside the downbeat risk sentiment.

US API weekly Crude Stocks (18 May): -1.3mln (Exp. -1.600mln, Prev. +4.854mln). (Newswires)

OPEC may decide to raise oil output in June due to concerns over Venezuela production decline and Iran oil shortages, according to OPEC and oil industry sources. (Newswires) Saudi, Russian and UAE oil ministers will discuss a controlled relaxation of the over-compliance seen with the OPEC+ production deal. Furthermore, reports added that the 3 ministers are due to meet in St. Petersburg this week and an early, full unwinding of OPEC cuts is not under consideration. (Argus)

Russia’s Energy Ministry said it does not rule out a global oil production cut deal will be stretched to 2019. (Newswires)

GEOPOLITICS

US President Trump said he thinks North Korea leader Kim is serious about denuclearisation and that we are moving along on the summit. However, he also added that there is a substantial possibility that the summit with North Korea’s Kim will not work out in June and that he is disappointed by the change in attitude of North Korea’s Kim. (Newswires)

South Korean President Moon stated there is no doubt North Korea will hold a summit with the US, according to a South Korean government spokesperson. (Newswires)

North Korea Leader Kim is said to be worried about a military coup for when he is in Singapore for summit with US President Trump. In other news, North Korea have accepted the list of South Korean reporters to visit its nuclear test site during dismantling. (Newswires)

US President Trump’s administration is seeking to shutter ‘every’ Iran nuclear enrichment site, according to US officials. (Newswires)

White House “peace team” has completed draft of administration Middle East peace plan, although White House wants to postpone its unveiling until time and conditions are right. (Newswires)

US

Treasuries were marginally lower at settlement, as the yield curve saw some very modest steepening, with yields higher by less than 1bps across the curve. In European trade, bunds were driving the fixed income complex as safe haven flows gyrated in response to Italian political headlines. In the US, although Treasury volume was okay, Treasuries traded in a c.7 tick range ahead of the FOMC minutes tomorrow. US 10yr T-Notes futures settled 1 tick higher at 118-28.

US President Trump said the House Ways and Means Committee are working on additional tax cuts by November and that he will propose new tax cuts before that month. (Newswires)

US House passed the Dodd-Frank rollback bill which was then sent to President Trump to sign, while the US House also passed the “right to try” bill which seeks to permit terminally ill patients to try experimental drugs still in clinical trial stage. (Newswires)