• Asian equity markets traded somewhat indecisively after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China
• Chinese stocks later recovered amid pre-emptive trade measures including a further devaluation of the CNY and adjustments on tariffs for some imports from other Asia-Pac nations
• Looking ahead, highlights include regional and national German CPIs, US GDP (F), weekly jobs, EU summit, BoE’s Haldane, US 7yr note

ASIA

Asian equity markets traded somewhat indecisive following the headwinds from Wall St where all major indices wiped out intraday gains, as trade uncertainties remained in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. ASX 200 (+0.2%) and Nikkei 225 (Unch) were mixed with Australia kept afloat by commodity names as the energy sector outperformed on further gains in crude, while a firmer currency and disappointing Retail Sales data weighed on sentiment in Tokyo. Hang Seng (+0.4%) and Shanghai Comp. (+0.2%) were choppy on the trade uncertainties and following another net liquidity drain by the PBoC, although Chinese stocks later recovered amid pre-emptive measures in the face of a looming trade war including a further devaluation of the currency and adjustments of tariffs on some imports from other Asia-Pac nations.  Finally, 10yr JGBs traded flat amid the indecisive risk tone and amid weaker demand at today’s 2yr auction later, in which accepted prices also declined from prior.

PBoC injected CNY 80bln via 7-day reverse repos, for a net daily drain of CNY 100bln. (Newswires)
PBoC set CNY mid-point at 6.5960 (Prev. 6.5569)

China Mofcom said US planned curbs on technology exports to China could backfire and that it does not support using national security as a basis for investment restrictions, while Mofcom also announced it will adjust tariffs on an array of imports from several Asia-Pac countries effective July 1st. (Newswires)

Japanese Retail Sales (May) M/M -1.7% vs. Exp. -0.8% (Prev. 1.4%). (Newswires)
Japanese Retail Sales (May) Y/Y 0.6% vs. Exp. 1.4% (Prev. 1.6%)
 

UK/EU

BoE's Cunliffe warned of impact of recessions to households with large debt and said that a 2% interest rate increase could push households with debt levels of over 40% into financial difficulty. (BBC)

The 27 EU leaders are to raise the pressure on UK PM May by warning her about the growing risk of a no-deal Brexit. (The Guardian)

UK PM May's former chief of staff has suggested the PM must urgently harden her negotiating strategy, adding: "The time for playing nice and being exploited is over". (Telegraph)

The EU is quietly increasing efforts to work on emergency plans to cope with the initial days of a hard Brexit, including transitional measures to mitigate damage should the UK crash out of the bloc without an exit deal, according to the FT. (FT)

German Interior Minister Seehofer said the CSU party is not seeking a break-up of the coalition government nor oust Chancellor Merkel, while there were also comments from German Finance Minister Scholz said he does not rule out possibility coalition can reach solution to migration issue.  (Newswires)
 

FX

FX markets were relatively quiet in which most majors took a breather from the prior day’s losses against the greenback. This kept the DXY above the 95.00 level, while EUR/USD and GBP/USD languished near the prior session’s lows at the 1.1500 and 1.3100 handles respectively. Elsewhere, the cautious tone spurred mild flows into JPY in which USD/JPY briefly tested 110.00 to the downside, while antipodeans were mixed as AUD nursed losses and with NZD softer after the RBNZ decision to keep rates unchanged as expected, in which it reiterated that rates will remain at the current level for a considerable period and that the possibilities of a future hike or cut were evenly balanced.

RBNZ maintained the Official Cash Rate at 1.75% as unanimously expected, while it reiterated that it expects to keep rates at current expansionary level for considerable period and that the next direction is equally balanced between up and down. RBNZ added that global economic growth is likely to underpin demand for New Zealand products and services, but also stated that recent weaker GDP implies marginally more spare capacity in economy than anticipated and that CPI remains below target. Furthermore, the RBNZ later announced from 2019 onwards rate decisions will be announced after 1400 local time on a Wednesday and implemented the following day. (Newswires)

Bank of Canada Governor Poloz said the impact of tariffs will feature in the July meeting and that the BoC is working to incorporate the impact of steel and aluminium tariffs in its projections. Poloz also stated the BoC cannot follow mechanical models on rates too strictly given there is uncertainty and reiterated a data-dependent stance, while Poloz further commented that the economy will warrant higher rates and they will ensure that it is a gradual process. (Newswires)

COMMODITIES

Commodities were slightly softer overnight with WTI crude futures pulling back mildly overnight following its recent advances which pushed prices to their highest in over 3 years, with support this week due to ongoing supply uncertainty regarding Iran sanctions as well as the mammoth drawdowns to stockpiles in both API and DoE inventories. Elsewhere, gold was uneventful with the precious metal restricted as USD remained firm, while an indecisive risk tone also kept copper range-bound.
 

US

Despite the Trump Administration announcing trade measures that are not extreme as some had feared, Treasury yields were lower across the curve, with ‘growth concerns’ being cited. The 30-year yield dropped beneath 3% again, and 10-year yields are a couple of basis points above 2.80%. The result was 2s10s flattening to the lowest level since 2007. Some suggested that Treasury were moving in sympathy with Bunds in the pre-market, with German debt in demand after the row between the German government coalition over immigration. US 10YR T-notes futures (Sep 2018) 12+ ticks higher at 120-12+.

Fed’s Rosengren (Non-Voter, Neutral) warned against running the US economy above capacity and stated that a gradual path of interest rate hikes does lower the risk of a serious policy mistake, while he also commented that wages have not yet risen rapidly. (Newswires)

Fed’s Bullard (Non-Voter, Dove) reiterated view for caution in moving rates too quickly. (Newswires)