• Asian equities saw little in the way of firm direction with the Nikkei 225 supported by a softer JPY and the ASX hampered by commodities
• USD held on to the gains spurred by hawkish comments from Fed's Dudley. EUR/USD and GBP/USD firmly below 1.1200 and 1.2800 levels respectively
• Looking ahead, highlights include BoE’s Carney, Fed’s Fischer, Rosengren, Kaplan and ECB’s Coeure

ASIA

Asia equity markets were mixed after somewhat failing to sustain the momentum from Wall St. where the tech sector rebounded from last week’s underperformance and the DJIA extended on record highs. Nikkei 225 (+1.1%) outperformed and printed fresh 22-month highs due to a weaker currency, while ASX 200 (-0.5%) was dampened by softness across commodities and with financials pressured after Moody’s downgraded ratings on Australia’s big 4 banks. Shanghai Comp. (+0.1%) and Hang Seng (-0.1%) traded choppy after the PBoC’s reduced its liquidity operations to a paltry CNY10bln, which was counterbalanced by a decline in money market rates with the CNH Overnight HIBOR at an 8-month low. 10yr JGBs were subdued amid a positive risk tone in Japan and with the demand at the enhanced liquidity auction for super-long JGBs virtually unchanged from prior.

PBoC injected CNY 10bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8096 (Prev. 6.7972)

EUROPE/UK

The meeting between UK Brexit Minister Davis and EU Chief Negotiator Barnier was “positive” with the parties agreeing on tspanee areas for talks: Citizens’ rights, financial settlement and other separation issues. Barnier added that a fair deal is possible and is better than no deal. (EBS)

In a Telegraph exclusive, sources close to Boris Johnson suggest that they believe Brexit Secretary Davis is too old to lead the Conservative Party and would be incapable of uniting the Conservatives. (Telegraph)

Confederation of British Industry increased its 2017 UK GDP forecast to 1.6% from 1.3% and raised 2018 forecast to 1.4% from 1.1%. The CBI add that they expect a rate hike from the BoE in H2 2017. (Newswires)

FX

USD held on to the gains spurred by hawkish comments from Fed's Dudley that he is confident US inflation would increase in tandem with wages and that the expansion in US has a long way to go. This kept most of the greenback’s major counterparts near their prior session's lows, with EUR/USD and GBP/USD firmly below 1.1200 and 1.2800 levels respectively. USD/JPY remained at the upper-bound of the 111.00 handle, while AUD languished from the slip in commodities and after the RBA minutes failed to spur demand as it provided very few surprises.

RBA minutes from June 6th meeting reiterated it is appropriate to keep accommodative stance on monetary policy unchanged and that rising AUD complicates economic adjustment. The minutes also stated that the RBA still expects GDP growth to rise to 3% overtime, despite soft Q1 figures. (Newswires)

COMMODITIES

Commodities were despondent after yesterday’s weakness in which WTI crude futures failed to hold above USD 45/bbl, while gold (+0.2%) held near prior session lows and in proximity to retest a break below the 200DMA level after hawkish comments from Fed’s Dudley underpinned the greenback.

US

US yields were higher on Monday as Fed’s Dudley (voter) stuck with the same message that was portrayed at Wednesday’s rate decision, saying that halting the tightening cycle now could jeopardise the recovery. The curve flattened after the comment with 5s30s tightening by over 3bps. Sep’17 10y T-note futures settled at 126.14+, down 9+ ticks.

Fed's Evans (Voter, Dove) stated that he did not dissent at the FOMC due to the economy doing quite well and that the current FFR is in line with his outlook. Fed Evans later added that the Fed could delay the next FOMC rate hike until December to analyse economic data and that it is important to see several months of improving inflation. (Newswires)