• The DUP is reported to have tspaneatened to walk away from talks with the Conservative party over forming a government
• Asian equity markets traded mostly negative following the downbeat Wall St. close, where energy lagged
• Looking ahead, highlights include UK PSNB figures, US existing home sales, DoEs

ASIA

Asia equity markets traded mostly negative following the downbeat Wall St. close, where energy lagged after WTI crude briefly slipped below USD 43/bbl to hit a 9-month low. ASX 200 (-1.6%) underperformed with the index dragged by weakness across commodities, while Nikkei 225 (-0.4%) was dampened by a firmer JPY. Shanghai Comp. (+0.2%) and Hang Seng (-0.6%) were mixed with the mainland bourse kept afloat following MSCI’s inclusion of China A-shares in its Emerging Market index, which in turn also dampened stocks in South Korea due to expected outflows from the decision. 10yr JGBs are mildly higher with mild demand seen amid weakness in stocks, while the BoJ were also in the market for JPY 1.03tln of JGBs ranging from 1yr-10yr maturities.

MSCI will include China A-Shares in its Emerging Market index beginning June 2018 and sees adding 222 large cap China A-Shares, while MSCI CEO said he expects initial inflows from China A-share inclusion to be USD 17bln-18bln. (Newswires)

PBoC injected CNY 40bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8193 (Prev. 8.8096)

BoJ meeting minutes for April 26th - 27th meeting stated that members viewed Japan's economy had been turning towards a moderate expansion and which is likely to continue. Furthermore, members concurred that financial conditions in Japan were highly accommodative and that pursuing current powerful easing is appropriate. The minutes also stated that momentum towards price goal is not firm enough and that risks to economy are skewed to downside. (Newswires)

Saudi Arabia’s King Salman removed Muhammad bin Nayef as the Crown Prince and will be replaced by Deputy Crown Prince Muhammad bin Salman. (Newswires)

EUROPE/UK

UK PM May stated that the Brexit needs to be delivered in a way the commands maximum public support, while May added they will work with parliament, businesses and devolved governments to ensure a smooth and orderly exit. (Newswires)

30 UK Conservative MPs are reported to have told PM May they will not accept a Brexit without a deal. (Sky News)

The DUP was reported to have tspaneatened to walk away from talks with the Conservative party over forming a government. Last night there was speculation that the Conservatives could even open talks with the Liberal Democrats’ 12 MPs about supporting the Tory Government if the DUP talks fail. (Telegraph)

FX

FX markets traded relatively uneventful which helped the USD hold on to yesterday’s gains against most of its major counterparts, with GBP/USD languishing firmly below 1.2700 after yesterday’s Carney-triggered downside. Elsewhere, commodity-linked currencies remained subdued after oil slipped into bear market territory and a 9-month low, while JPY outperformed as the mostly negative risk sentiment spurred flows into the safe-haven.

COMMODITIES

WTI crude futures remained near 9-month lows after failing to make any significant recovery from yesterday’s losses, in which prices slipped into bear market territory and briefly below USD 43/bbl. Gold (+0.3%) attempted to nurse recent losses overnight, although is still near 5-week lows as a firmer greenback limited upside, while copper trade was subdued by the global risk-averse sentiment.

US API Crude Oil Inventory Report (Jun 16) W/W -2720K (Prev. 2753K). (Newswires)

GEOPOLITICAL

US Officials stated that new activity has been detected at North Korea's nuclear test site, although it is unknown if a nuclear test is imminent. (Twitter/CNN)

US  

Treasuries seemed to be sceptical of the recent hawkish Fed speak and there was further flattening of the major spreads yesterday, with 5s30s narrowing by 1.6bps, and 2s10s narrowing by 3bps. Sep 17 T-Note futures settled 9 ticks higher.

Fed's Kaplan (Voter, Neutral) said inflation has been uneven and sluggish but the US is near full employment, while he added that need to be careful about hiking rates further if 10-year yield stays where it is. (Newswires)