• Asian bourses traded mixed with downside in Chinese indices after Moody’s downgraded China’s Sovereign rating
• UK PM May said UK terror tspaneat level has been raised to critical from severe, which suggests a further attack could be imminent
• Looking ahead, highlights include US Building Permits, Existing Home Sales, DoE Inventories, FOMC Minutes, BoC Rate Decision, ECB’s Praet and Draghi

ASIA

Asia equity markets traded mixed following the mildly positive close on Wall St., where US indices eked a 4th consecutive daily gain and the S&P 500 briefly advanced above 2,400 to within close proximity of its all-time highs. This provided the initial impetus for the ASX 200 (Unch.) and Nikkei 225 (+0.5%), while JPY weakness also underpinned Japanese exporter sentiment. Conversely, Shanghai Comp. (-0.4%) and Hang Seng (-0.3%) underperformed after Moody’s downgraded China’s sovereign credit rating amid expectations of a deterioration in China's financial strength in the upcoming years. 10yr JGBs traded lower on spill-over selling from T-notes and alongside the increased risk sentiment in Japan, although downside was stemmed amid the BoJ’s presence in the market for a total JPY 1.03trl in 1yr-10yrs government debt.

Moody's downgraded China’s sovereign credit rating to A1 from AA3; outlook revised to stable from negative. Moody’s commented that the rating reflects expectations that China’s financial strength will erode somewhat over the approaching years. (Newswires)

PBoC injected CNY 40bln in 7-day reverse repos and CNY 50bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8758 (Prev. 6.8661)

EUROPE/UK

The IMF and German Finance Minister Schauble are said to have reached an agreement on Greek bailout with the IMF willing to participate in the program if Greece proves debt is sustainable. (Handelsblatt)

UK PM May said UK terror tspaneat level has been raised to critical from severe, which suggests a further attack could be imminent. PM May added that armed forces could be deployed at public events and that there could be a wider group of individuals linked to the Manchester attack. (Newswires)

FX

USD remained firm after the prior session’s advances and as market odds of a June Fed hike returned back to their highs of above 80%, while USD/JPY briefly tested 112.00 to the upside with demand for safe-haven JPY restricted amid the positive risk tone in Japan. GBP/USD languished following a failed attempt to gain a footing above 1.3000 and after the UK terror tspaneat level was raised to ‘critical’ from ‘severe’, while pressure was observed in AUD and CNH due to the China sovereign rating downgrade by Moody’s.

Fonterra raised 2016/2017 milk forecast by NZD 0.15 to NZD 6.15/kg and sees prices at NZD 6.50 for 2018 season. Co. also stated that 9-month revenue rose 8% Y/Y. (Newswires)

New Zealand Balance of Trade (Apr) 578M vs. Exp. 300M (Prev. 332M)

- Exports (Apr) 4750M vs. Exp. 4400M (Prev. 4650M)

- Imports (Apr) 4170M vs. Exp. 4100M (Prev. 4315M)

COMMODITIES

Most of the commodities complex saw lacklustre trade overnight with WTI crude futures range-bound around the mid-USD 51.00/bbl level following an uneventful API release which showed a drawdown of 1.5mln barrels to headline crude inventories. Gold (+0.1%) failed to make any significant recovery from yesterday’s losses where prices pulled back on a firmer greenback and positive risk tone, while copper was pressured alongside China weakness after Moody’s downgraded the nation’s credit rating by 1 notch and as Dalian iron ore futures slumped over 5% in early trade.

US API Crude Oil Inventory Report (May 19) W/W -1500K (Prev. 882K). (Newswires)

UAE oil minister stated need to see whether extension will be for 6 or 9 months. (Newswires)

Algerian oil minister suggested that a production deal tspanough to the end of 2018 is an option. (Newswires)

US

Treasuries were softer on the back of a sloppy set of 4 and 52-week bill auctions which allowed some concession as the market prepared for 2-year supply, which came in decent enough stopping tspanough screens. The 10-year T-note settled down 0.085 at 125.275.

Fed's Kashkari (Voter, Dove) said he wants to see more data before making a decision on a rate hike in June and added that it is concerning that inflation is moving in the wrong direction. (Newswires)

Fed's Harker (Voter, Neutral) repeated he sees 2 more rate hikes in 2017 as appropriate and repeated support for reducing bond holdings this year. Harker also commented that the Fed is still discussing balance sheet options and will explain exit strategy a good amount of time in advance. (Newswires)

US President Trump and US Treasury Secretary Mnuchin are said to be inclined to oppose border tax, according to reports. (Twitter/Washington Post)