• The S&P 500 posted its largest two-day decline in more than a year with the index down 2.6% since Friday.
• APAC stocks were lower amid concerns related to a potential 'imminent' response by Israel against Iran, while markets also digested mixed data from China.
• Better-than-expected Chinese GDP for Q1 was negated by disappointing Industrial Production and Retail Sales data.
• European equity futures indicate a negative open with the Euro Stoxx 50 future -1.2% after the cash market closed up 0.6% on Monday.
• DXY has gained a firmer footing on a 106 handle, EUR/USD moved closer to the 106 mark, antipodeans lag.
• Looking ahead, highlights include German Wholesale Price Index, ZEW, UK Jobs, Canadian & NZ CPI, Fed’s Daly, Jefferson, Williams, Barkin, Powell, ECB’s Rehn, BoE’s Bailey, Lombardelli & BoC's Macklem, IMF WEO, Fed Discount Rate Minutes, Supply from Netherlands & UK, Earnings from LVMH, United Health, UAL, Bank of America & Morgan Stanley.

US TRADE

EQUITIES

• US stocks continued to sell off which saw the S&P 500 post its largest two-day decline in more than a year with the index down 2.6% since Friday and finished beneath its 50DMA for the first time in five months. Stock futures had initially attempted a recovery after geopolitical hedges from the weekend were unwound, although the risk-off conditions were then renewed and stocks retreated throughout the session amid reports that Israel was working on a retaliation which an official said could be 'imminent'. This supported gold, oil and haven currencies, while Treasuries were pressured after better-than-expected Retail Sales added to the signals of a hot US economy.
• SPX -1.20% AT 5,062, NDX -1.65% AT 17,707, DJI -0.65% AT 37,735, RUT -1.37% AT 1,976.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Daly (voter) said recent inflation data was not surprising and inflation bumps along the way aren't particularly surprising, while she said don't want to end up with a too-strong or too-weak policy response and that the worst thing to do is act urgently when urgency isn't necessary. Daly also stated that there is no urgency to cut rates and progress on inflation was significant but still not there yet.
• US House Republicans plan to try to pass four bills this week to send aid to Israel, Ukraine and Taiwan, while the bills will include a ban on TikTok and to sell off seized Russian assets, according to sources cited by Punchbowl's Jake Sherman. US House Speaker Johnson later confirmed the House will consider separate bills this week to fund Israel, support Ukraine, strengthen allies in the Indo-Pacific, and measures to boost national security, while he added that the voting could come on Friday evening and will honour the 72-hour rule.

APAC TRADE

EQUITIES

• APAC stocks were lower across the board with global risk appetite sapped by geopolitical concerns related to a potential 'imminent' response by Israel against Iran, while markets also digested mixed key releases from China.
• ASX 200 retreated with selling across all sectors and consumer discretionary front-running the declines.
• Nikkei 225 was among the worst hit and fell beneath the 38,500 level with the index shedding over 800 points.
• Hang Seng and Shanghai Comp. conformed to the downbeat mood despite better-than-expected Chinese GDP for Q1 which was negated by disappointing Industrial Production and Retail Sales data, while property sector woes persisted after home prices further deteriorated and with developer Times China (1233 HK) facing a winding-up petition filed by Hang Seng Bank.
• US equity futures (ES -0.2%) remained subdued after the losses on Wall St where the S&P 500 registered its worst two-day performance in over a year and dipped beneath its 50DMA, while participants look ahead to the looming pick up in earnings releases.
• European equity futures indicate a negative open with the Euro Stoxx 50 future -1.2% after the cash market closed up 0.6% on Monday.

FX

• DXY climbed to a 5-month high after the recent hot US Retail Sales data, while there were comments from Fed's Daly who stated that recent inflation data was not surprising and there is no urgency to cut rates.
• EUR/USD remained subdued against the dollar with the single currency not helped by recent dovish ECB rhetoric.
• GBP/USD printed fresh YTD lows and continued yesterday's pullback from resistance at the 1.2500 level.
• USD/JPY traded at the 154.00 handle after yield differentials recently widened on the US Retail Sales data.
• Antipodeans declined owing to the risk-off mood and with CNH pressured following a weaker PBoC fix.
• PBoC set USD/CNY mid-point at 7.1028 vs exp. 7.2475 (prev. 7.0979).

FIXED INCOME

• 10-year UST futures partially nursed yesterday's losses after tumbling post-US Retail Sales.
• Bund futures clawed back some of the recently lost ground and briefly reclaimed the 132.00 level.
• 10-year JGB futures traded subdued after recent selling pressure in global peers and were only briefly supported by stronger results at the enhanced liquidity auction for longer-dated JGBs.

COMMODITIES

• Crude futures were underpinned by geopolitical risks after reports of a potential 'imminent' response by Israel against Iran.
• US oil output from top shale-producing regions is to climb marginally in May to the highest since December 2023, according to EIA.
• US will not renew the temporary license that eased sanctions on Venezuela's oil and gas sector unless progress is made by President Maduro, according to a US State Department spokesperson.
• Spot gold held on to the prior day's gains after benefitting from a haven bid, while Citi was bullish on gold in which it projected prices to reach USD 3,000/oz over the next 6-18 months and expects gold trading to regularly test and breach USD 2,500/oz in H2 this year.
• Copper futures pulled back from the prior day's best levels amid the risk-aversion and after mixed Chinese data.

CRYPTO

• Bitcoin was mildly pressured alongside the risk-off mood and breached the USD 63,000 level to the downside.

NOTABLE ASIA-PAC HEADLINES

• Chinese President Xi told German Chancellor Scholz during their meeting in Beijing that bilateral ties will continue to develop as long as both sides respect each other and seek common ground, while he added that they must view and develop bilateral relations in an all-round way from a long-term and strategic perspective.
• China's stats bureau said economic conditions are still not stable and the external environment is complex, while it added that uncertainty is increasing and that consumer inflation will recover mildly. China's stats bureau also stated that China's property market is still in the middle of adjustments.
• Japanese Chief Cabinet Secretary Hayashi said won't comment on forex levels or currency intervention and reiterated that it is important for currencies to move in a stable manner reflecting fundamentals, while he added that excessive FX volatility is undesirable and is prepared to take all measures on FX.

DATA RECAP

• Chinese GDP QQ (Q1) 1.6% vs. Exp. 1.4% (Prev. 1.0%)
• Chinese GDP YY (Q1) 5.3% vs. Exp. 4.6% (Prev. 5.2%)
• Chinese Industrial Production YY (Mar) 4.5% vs. Exp. 6.0% (Prev. 7.0%)
• Chinese Retail Sales YY (Mar) 3.1% vs. Exp. 4.6% (Prev. 5.5%)
• Chinese House Prices YY (Mar) -2.2% (Prev. -1.4%)

GEOPOLITICS

MIDDLE EAST

• Israeli PM Netanyahu asked defence forces to provide a target of options that would "send a message" but not cause casualties to respond to Iran, while options include a potential strike on a facility in Tehran or a cyber-attack, according to WaPo citing sources.
• Israeli Airforce has completed its preparation for an imminent attack against Iran and the Israeli war cabinet decided in its Monday session to give a "clear and strong" response to Iran's attack, in coordination with the US, according to a report by Israel's Channel 12. Furthermore, an Israeli official also said that Israel’s response to the Iranian attack may be “imminent", according to NBC News.
• Israel's military chief of staff said there will be a response to Iran's launch of many missiles and drones towards Israeli territory.
• Israel's objective is to hurt Iran without causing an all-out war and wants to embark on action against Iran coordinated with the US, according to Israel's Channel 12 News following the cabinet meeting.
• Israeli army spokesman said Defence Minister Galant discussed preparations to carry out the evacuation of civilians in preparation for the ground operation in Rafah, according to Al Jazeera.
• Israeli army spokesman said a Rafah operation is still on the table and they must still complete it successfully. It was also reported that an Israeli official said there is not even a single clause in which Hamas approves or accepts the position of the mediators in regards to a hostage deal, according to Axios.
• Iran's Foreign Minister said they warned Washington that if the Israeli entity embarks on any adventure, their response will be faster, stronger and broader, according to Al Jazeera. It was also reported that Iran's Foreign Minister said in a call with China's Foreign Minister that Iran is willing to exercise restraint and has no intention of further escalating the situation, according to Chinese state media.
• Iranian official said Iran’s response will come within seconds if Israel makes any mistake, according to Al Arabiya.
• Iranian official said they are ready for the second level of response through weapons that have not been previously used in the conflict with the Israeli entity, while the official added they do not want war, but are ready for it if it is imposed on them and their options are wide. Furthermore, the official said they have the full will to respond militarily to the Israeli entity again, but in a stronger way and that the Israeli entity must know that crazy and bullying behaviour does not work with a country like Iran, according to Al Jazeera.
• Iran's IRGC commander said in the new equation, every time Israel attacks their interests, assets, personalities or citizens, Iran will hit back from its soil, while Israel's Defence Minister said Israel won't accept an equation in which Iran responds with a direct attack every time Israel strikes targets in Syria, according to BBC correspondent Kasra Naji on X.
• US President Biden said the US is committed to Israeli security, while the State Department said the US is still pursuing a hostage deal that would allow an immediate ceasefire. Furthermore, the State Department said Israel has moved a significant way in submitting the proposal rejected by Hamas and that Hamas is currently the barrier and obstacle to a ceasefire in Gaza.
• US official said Israel's possible response does not aim to escalate, but rather to make Iran understand Israel's ability to reach anywhere, while Israel may resort to striking targets deep inside Iran, according to Al Jazeera.
• US officials expect a possible Israeli response to Iran’s attack over the weekend to be limited in scope and most likely involve strikes against Iranian military forces and Iranian-backed proxies outside Iran, according to four US officials cited by NBC News.
• US Pentagon spokesperson said no specifics were given by Iran to the US on the timing or details of their attack, while the US does not seek conflict with Iran.
• Iraqi PM confirmed Iraq's interest in obtaining expertise and arms from the US, as well as keenness on security partnership during a meeting with US Defense Secretary Austin, according to Reuters.
• Saudi Arabia acknowledged that it helped defend Israel against Iran whereby Saudi Arabia's royal family posted on its website about the country's role in defending Israel against the Iranian barrage, according to Jerusalem Post.

OTHER

• Russia and Ukraine negotiated with Turkey regarding a deal to ensure the safety of merchant shipping in the Black Sea which Turkey was due to announce although Ukraine pulled away from the deal at the last minute.
• German Chancellor Scholz plans to urge Chinese President Xi to scale back the economic support China is giving Russia and pressure Moscow to take part in peace talks on Ukraine with the aim of settling the conflict on terms acceptable to Kyiv, according to WSJ.
• US Treasury imposed sanctions on 12 Belarus entities and 10 individuals citing support for the Russian war in Ukraine.
• US judges North Korea to have the capability to manufacture biological weapons through genetically modified weapons, according to Yonhap.

EU/UK

NOTABLE HEADLINES

• EU leaders are set to revive their capital markets union plan in search for defence funding, according to FT.