• Today sees the beginning of UK-EU Brexit negotiations with UK press suggesting a potential tspaneat to May’s leadership
• French President Macron’s party and allies won a parliamentary majority with over 300 seats of the total 577-seats.
• Looking ahead, highlights include the beginning of UK-EU Brexit negotiations, ECB’s Lautenschlaeger, Fed’s Dudley and Evans

ASIA

Asian equity markets began the week on the front-foot with all major indices in the green, as participants eyed the political landscape in Europe including the start of Brexit negotiations today and after French President Macron’s party and its allies won a clear majority in the 2nd round parliamentary elections. Nikkei 225 (+0.6%) gained as JPY softened across the board, while ASX 200 (+0.3%) was led higher by outperformance in utilities and financials. Shanghai Comp. (+0.7%) and Hang Seng (+1.0%) are also upbeat following a firm liquidity operation by the PBoC, while the region also awaits MSCI’s verdict tomorrow on whether to add China A-shares to its Emerging Markets Index in the nation’s 4th attempt for inclusion. Finally, 10yr JGBs were subdued alongside gains in riskier assets and after the BoJ’s Rinban announcement, in which it refrained from JGB purchases and instead concentrated on treasury bills.

Japanese Trade Balance (May) -203.0bln vs. Exp. 43.3bln (Prev. 481.1bln). (Newswires)

Japanese Exports Y/Y (May) 14.9% vs. Exp. 16.0% (Prev. 7.5%)

Japanese Imports (May) Y/Y 17.8% vs. Exp. 14.5% (Prev. 15.2%)

Chinese House Price Index (May) Y/Y 10.4% (Prev. 10.7%). (Newswires)

Chinese House prices increased M/M in 56 out of 70 cities (Prev. 58) and increased Y/Y in 69 out of 70 cities (Prev. 69).

PBoC injected CNY 50bln in 7-day, CNY 40bln in 14-day and CNY 30bln in 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.7972 (Prev. 6.7995).

EUROPE

French President Macron’s party and allies won a parliamentary majority with over 300 seats of the total 577-seats. (Newswires)

Fitch affirmed Portugal at BB+; Outlook revised to positive from stable. (Newswires)

UK

UK Rightmove House Price Index (Jun) Y/Y 1.8% vs. Exp. 2.8% (Prev. 3.0%). (Newswires)

UK Rightmove House Price Index (Jun) M/M -0.4% (Prev. 1.2%)

Senior Conservative MPs are said to have tspaneatened a leadership challenge to PM May if she softens her stance on Brexit terms, with Brexit Secretary David Davis touted as the lead candidate for the next leader of the Conservatives. However, UK Chancellor Hammond has dismissed speculation that the UK could pursue a soft Brexit. (Telegraph)

Police confirmed that 1 person died and others were injured from a ‘major incident’ near the Finsbury Park area in London. where a van struck pedestrians leaving a mosque. There were also comments from PM May that police are treating the incident as a potential terrorist attack and that she will chair an emergency response meeting today. (Newswires/Twitter/Evening Standard)

DBRS affirmed the UK at AAA; stable trend. (Newswires)

FX

NZD/USD outperformed to approach the 0.7300 handle after better than prior Westpac Consumer Confidence and Services PMI figures. This was also supported by cross-related flows in which NZD/JPY briefly broke above 81.00 and as AUD/NZD ceded the 1.0500 handle. Elsewhere, USD/JPY rebounded from Friday’s losses and reclaimed 111.00, with outflows to JPY seen amid an improved risk-tone and after weaker than expected trade figures.

COMMODITIES

Commodities were rangebound overnight amid a lack of key market events and data, which saw WTI remain near opening levels, while gold prices were also uneventful and languished around its lowest levels in over 3 weeks. Elsewhere, copper eked mild gains amid the positive risk sentiment in Asia, although upside was limited alongside subdued trade across the complex.

Saudi Oil Minister Al-Falih stated that market fundamentals are going in the correct direction and that the market just needs time to rebalance. Al-Falih further added that compliance in April and May was more than 100% and hopes Libyans return to normal output levels. (Newswires)

GEOPOLITICAL

Iran's Revolutionary Guard said it launched missile strikes on terrorist positions in eastern Syria as retaliation for the attack on Tespanan. (Newswires)

US military confirmed it shot down a Syrian warplane for bombing positions held by US-backed forces. (Newswires)

US

Fed's Kaplan (Voter, Neutral) said he sees a modest recovery in growth over the rest of the year and that the economy is in good shape. Kaplan also commented that inflation is 'very muted' and called for patience on rate hikes. (Newswires)