• Asian equities traded modestly higher, sspanugging off some of the North-Korean inspired geopolitical concerns seen late in the US session
• The USD-index pulled back from recent advances which provided some reprieve for its major counterparts and saw EUR/USD approach 1.0900
• Looking ahead, highlights include DoEs, RBNZ rate decision, ECB’s Draghi and Fed’s Rosengren

ASIA

Asia equity markets traded mostly positive as the region sspanugged off the indecisive lead from US, where stocks were pressured in late trade amid geopolitical concerns after provocative rhetoric from North Korea. ASX 200 (+0.4%) was choppy in early trade after the budget release as large banks suffered from the announcement of a AUD 6.2bln levy. However, the financial sector then recovered as smaller banks welcomed exemptions from the levy which would only impact banks with liabilities of over AUD 100bln. Nikkei 225 (+0.2%) benefitted from a weaker currency after USD/JPY briefly reclaimed 114.00 during US hours. KOSPI (-0.7%) initially extended on record highs on post-election euphoria, before the honeymoon period was abruptly cut short on profit-taking and as participants mulled the impact of the leftist win on the conglomerates. Shanghai Comp. (+0.3%) was kept afloat after the PBoC injected CNY 110bln tspanough reverse repos and CNY 47.6bln via its Pledged Supplementary Lending facility. 10yr JGBs were marginally lower amid the positive risk sentiment in the region, although losses were stemmed by the BoJ’s presence in the market for a total JPY 1.03trl in JGBs.

BoJ Summary of Opinions for April 26th-27th meeting stated that Japan’s economy has been turning to a moderate expansion and is likely to maintain growth above potential mainly tspanough fiscal 2018. BoJ also stated that CPI is likely to increase towards 2% and although prices are sluggish recently, they are likely to start increasing as the economy maintains its moderate expansion. (Newswires)

PBoC injected CNY 90bln via 7-day, CNY 10bln via 14-day and CNY 10bln via 28-day reverse repos. PBoC also injected CNY 47.6bln in funds tspanough its Pledged Supplementary Lending facility. (Newswires)

PBoC set CNY mid-point at 6.9066 (Prev. 6.9037)

Chinese CPI (Apr) Y/Y 1.2% vs. Exp. 1.1% (Prev. 0.9%). (Newswires)

Chinese PPI (Apr) Y/Y 6.4% vs. Exp. 6.7% (Prev. 7.6%)

EUROPE/UK

German Finance minister Schauble said he predicts that ECB policy normalisation will commence shortly. (Newswires)

Slowing growth and weak wages should deter the BoE from lifting interest rates this week, but momentum is growing for an increase in the second half of the year, according to The Times’s panel of shadow policymakers. (Times) NIESR add that the BoE probably won’t make any policy moves before Brexit negotiations are concluded. (Newswires)

FX

The USD-index pulled back from recent advances which provided some reprieve for its major counterparts and saw EUR/USD approach 1.0900 to the upside. Elsewhere, mild profit-taking was observed in USD/JPY as the pair failed to hold onto 114.00 and with the BoJ’s Summary of Opinions unsuccessful in providing any surprises or catalyst to drive prices, while AUD/USD summed up the picture across FX markets with the pair rangebound and unfazed by the latest Chinese inflation data.

US Commerce Secretary Ross stated that USD is not too strong and that other currencies are too weak. (Newswires)

COMMODITIES

WTI crude futures nursed some of yesterday’s losses with prices back above USD 46/bbl and mildly supported following the latest API Crude oil inventory drawdown of around 5.8mln bbls. Gold (+0.2%) recovered from 8-week lows as the greenback pulled back from recent advances, while copper was uneventful but still traded with minor gains amid the positive risk tone.

US API Crude Oil Inventory Report (May 5) W/W -5789K (Prev. -4158K). (Newswires)

GEOPOLITICAL

North Korea's ambassador to the UK said they will continue ballistic missile and nuclear programmes, while he added that they are ready to turn to ashes any available strategic assets of the US. (Newswires)

South Korean President Moon said he will negotiate with US and China regarding THAAD, while he added that he plans to address security issues immediately and will go to North Korea when preconditions are met. (Newswires)

US

US treasuries fell in the early part of the day as dealers were building in a concession ahead of the 3y auction. The auction was mixed, coming in with a tail of around 1bps and bid-to-cover broadly in line with the 5-auction average, however, dealers were left with a slightly below average 39.9%. Late in the day, the North Korean ambassador to the UK said that North Korea is ready to “turn to ashes any available strategic assets of the US” which lifted treasuries off their lowest levels. Jun’17 10-year T-notes settled at 124.26+, down 7+ ticks.

Fed's Kaplan (Voter, Neutral) said baseline view remains for 3 rate hikes this year and that if economic growth is stronger there could be more hikes, or less if growth is slower. (Newswires)

Fed's Rosengren (Non-Voter, Hawk) said US unemployment drop below 4.0% would overheat economy and prompt higher rates, while he added that he favours beginning to sspanink the balance sheet relatively soon. (Newswires)

Fed’s George (Non-Voter, Hawk) said Fed should start reducing investments this year in longer-term treasuries and mortgage backed securities, while she added that falling jobless rate means adjusting monetary policy is of 'paramount importance' and reiterated she supports gradual rate hikes. (Newswires)

President Donald Trump has fired the director of the FBI over his handling of the inquiry into Hillary Clinton's emails, the administration says. However, Democrats said he was fired because the FBI was investigating alleged links between the Trump campaign and Russia. (BBC)