• Trade concerns saw a slight moderation after US President Trump suggested he would ease off on demands for new tight restrictions regarding Chinese investments
• Asian equity markets remained cautious. In FX, USD, EUR and GBP were quiet overnight with the greenback holding onto the prior day’s advances
• Looking ahead, highlights include US durables, US advanced goods trade, DoEs, RBNZ, Fed’s Quarles, Rosengren, US 5yr Note auction

ASIA

Asian equity markets were mixed with the region cautious as trade concerns lingered, albeit with a slight moderation after US President Trump suggested he would ease off on demands for new tight restrictions regarding Chinese investments and instead go through channels already in place such as the Committee on Foreign Investment in the United States. ASX 200 (+0.1%) was choppy as the initial gains led by the energy sector were briefly eclipsed by weakness in telecoms and financials, while Nikkei 225 (Unch.) exporter names were dampened by currency strength. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.5%) were also subdued amid the current backdrop of trade concerns and after a net liquidity drain by the PBoC which saw the mainland index extend on its descent through bear market territory. Finally, 10yr JGBs were relatively flat with only minimal support seen from the risk-averse tone in Japan and the BoJ’s presence for JPY 810bln of JGBs across the curve.

Chinese President Xi is said to have warned leaders to be prepared in the event of a full-scale trade war with US during a 2-day meeting, according to a note from SGH Macro Advisors that also suggested the PBoC will refrain from buying US Treasuries and seek to lower them. (Twitter)

PBoC injected CNY 60bln via 7-day reverse repos for a net daily drain of CNY 150bln. (Newswires)
PBoC set CNY mid-point at 6.5569 (Prev. 6.5180); weakest fix since 25th December 2017

Chinese Industrial Profits (May) Y/Y 21.1% (Prev. 21.9%). (Newswires)

UK/EU

UK Business Secretary Clark presented his vision for the softest possible Brexit yesterday and accused pro-Leave colleagues of undermining confidence in the government. (Times)

UK and European trade unions and business organisations have demanded for “pace and urgency” to be put into Brexit talks. The TUC and CBI released a rare joint statement calling for “measurable progress”. (The Guardian)

UK Chancellor Hammond said he hopes the UK can seize the unlimited opportunities from China's Belt & Road initiative, while he added that as the UK and EU build new relationships, the UK will deepen its ties with the rest of the world. (Newswires)

US Trade Representative Lighthizer said retaliatory tariffs demonstrate trading hypocrisy and that there is no credible basis for EU legal theory regarding tariffs, while he added the US will take all necessary actions to protect its interests. (Newswires)
 

FX

In FX markets USD, EUR and GBP were quiet overnight with the greenback holding onto the prior day’s advances. Conversely, the major Asia-Pac currencies were more eventful with USD/JPY declining at the Tokyo fix on the cautious risk tone to break below the 110.00 handle, while AUD/JPY and NZD/JPY tripped through stops at the prior session’s lows and the 81.00 and 75.00 levels respectively. The pressure on antipodeans was also due to China exposure for AUD after the PBoC set its weakest reference rate since December 25th and following disappointing New Zealand Business indicators.

New Zealand ANZ Business Confidence (Jun) -39.0% (Prev. -27.2%). (Newswires)
New Zealand ANZ Activity Outlook (Jun) 9.4 (Prev. 13.6)

New Zealand Trade Balance (May) 294.0M vs. Exp. 100.0M (Prev. 263.0M, Rev. 193.0M). (Newswires)
New Zealand Trade - Exports (May) 5.42B vs. Exp. 5.25B (Prev. 5.05B, Rev. 4.96B)
New Zealand Trade - Imports (May) 5.12B vs. Exp. 5.10B (Prev. 4.79B, Rev. 4.77B)
 

COMMODITIES

Commodities were mixed with WTI crude outperforming as it extended on its gains to just shy of the USD 71.00/bbl level following reports the US will not issue oil waivers for Iran and was pressing its allies to halt all oil imports from the nation by November. In addition, the latest API inventory report showed the largest drawdown to crude stockpiles since September 2016, although the impact was relatively contained on slight fatigue considering WTI had already rallied over 3% prior to the release. Elsewhere, gold continued its weakening trend as the greenback held on to prior advances, while copper mirrored the cautious risk tone.

US API Weekly Crude stocks (22 Jun): -9.22mln (Exp. -2.60mln, Prev. -3.02mln). (Newswires)

Saudi Arabia is said to plan to pump roughly 11mln BPD in July (Prev. 10.8mln BPD in June), an all-time record high, according to a source familiar with the matter. (Newswires)

Gabon oil workers are planning a 15-day strike at Total facilities which will commence on Sunday if they do not receive salary increases or new bonuses, or if there is no reduction of foreign employees. (Newswires)
 

GEOPOLITCAL

North Korea is said to have continued to make improvements to its Yongbyon nuclear facilities with infrastructure improvements visible, according to reports citing satellite images. (Yonhap)
 

US

There was very little movement in yields across the curve, and the TPLEX has been trading within a very narrow range, despite the so-called concerns over trade wars and this week’s bumper supply. The US Treasury’s auction of 2yr notes saw a small tail of 0.2bps, though the high-yield rate slipped for the first time in nine months. Internals were lacklustre, with cover falling slightly, while dealer participation was again slightly higher. US 10YR T-notes futures (Sep 2018) 1 ticks lower at 120-00.

US House voted 400 vs. 2 in favour of passing bill to tighten oversight of US foreign investment due to concern over China. In related news, US President Trump suggested he would back down from his demand for new tight restrictions on Chinese investments into technology and instead rely on other channels already in place such as CFIUS. (Newswires)

Fed's Bostic (voter, dove) said recent trade developments have made him think that risks to the economy are to the downside, while he added the he sees only one further rate hike in 2018. (Newswires)

Fed's Kaplan (non-voter, neutral) said Fed policy is still accommodative and that he still sees the neutral rate between 2.5%-2.75%, while he also stated that a flattening yield curve can impact behaviour of business. (Newswires)

White House Deputy Director of the National Economic Council and top trade adviser Eissenstat is to leave the Trump administration. (The Hill)

S&P affirmed US AA+ rating, Outlook Stable. (Newswires)

Canada Finance Minister Morneau said Canada will support tariff-affected industries and will provide details on NAFTA tariff support shortly. In other news, Canada is said to be preparing steel quotas and tariffs on China and other nations to stop producers there from dumping goods which cannot be sold to the US. (Newswires)

Mexican presidential front-runner Lopez Obrador’s NAFTA negotiator hopes for a NAFTA deal in the coming months and agrees with current approach. (Newswires)