• Asian equities traded with caution after US equity futures saw pressure following the latest developments in the FBI saga
• JPY strengthened as the cautious tone triggered flows into safe-haven assets which saw USD/JPY break firmly below 113.00
• Looking ahead, highlights include the UK labour report, Eurozone CPI and the DoE Inventory report

ASIA

Asian equities traded cautious amid weakness in energy and US political concerns after reports of a memo from former-FBI Director Comey which stated that President Trump urged him to drop the investigation into former National Security Adviser Flynn. This pressured US equity futures across the board and set the negative tone for both the ASX 200 (-0.8%) and Nikkei 225 (-0.6%), while touted profit taking by pension funds and poor Machinery Orders added to the disappointment in Japan. Shanghai Comp. (-0.1%) and Hang Seng (-0.2%) traded choppy, although somewhat outperformed their regional counterparts after the PBoC injected CNY 140bln via open market operations and regulators approved the Bond Connect scheme which would allow foreign investors access to mainland China’s USD 9.5tln bond market. 10yr JGBs were initially supported alongside gains in T-notes as the risk averse sentiment spurred a flight to safety, while the BoJ were also in the market for a total of JPY 1.03tln of JGBs with 1yr-10yr maturities. However, JGBs then failed to sustain the upside, with prices retreating tspanoughout the session.

Mainland China and Hong Kong regulators approved the cross-border link that will allow overseas investors access to the mainland's USD 9.5tln bond market. The program will run alongside the 2 connect schemes already in place and will begin with ‘northbound’ trading first, with the official launch date of the scheme and timing for ‘southbound’ trade to be announced at a later date. (CEN)

PBoC injected CNY 110bln in 7-day reverse repos and CNY 30bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8635 (Prev. 6.8790)

EUROPE/UK

ECB’s Coeure stated that the recent rise in long-term yields hasn't affected ECB policy. (Newswires)

FX

JPY strengthened as the cautious tone triggered flows into safe-haven assets which saw USD/JPY break firmly below the 113.00 handle, while AUD was mildly lower after weaker than expected Consumer Confidence data, coupled with a retreat in oil post-APIs. EUR/USD extended on its recent rally to break above the 1.1100 level and as the greenback was pressured by political concerns with the whole Comey situation refusing to fade quietly for President Trump.

S&P affirmed Australia rating at AAA; outlook negative. (Newswires)

COMMODITIES

WTI crude futures fell early in the session amid an unexpected build in API crude inventories, which saw prices decline around 1% to firmly below the USD 49/bbl level. Copper traded muted overnight amid the cautious tone spurred on by the US political situation, which in turn benefitted gold (+0.5%) due to safe-haven flows.

US API Crude Oil Inventory Report (May 12) W/W 882K (Prev. -5789K)

US

US Treasuries outperformed their European counterparts on the back of the soft housing data. The 10y T-note settled at 125.17+, up 3 ticks.

US President Trump asked ex-FBI Director Comey to close the investigation into Trump’s former National Security Adviser Michael Flynn, according to news reports citing a Comey memo. However, the White House denied this and stated that US President Trump never asked Comey to end probe of Michael Flynn, while there were also reports that the US House Oversight Committee Chaffetz Chair stated that the subpoena pen was ready for the Comey memo and demanded all related FBI documents. (NYTimes/NBC/Newswires)

US President Trump's disclosure endangered a spy placed within ISIS by Israel, according to ABC News citing current and former US officials. (ABC News)