• Asian equity markets began H2 indecisively with the region constrained by disappointing data releases including Chinese Official & Caixin Manufacturing PMIs
• EUR/USD hampered after CSU party leader Seehofer offered to resign amid the migration dispute
• Looking ahead, highlights include Eurozone, UK and US mfg PMIs, US construction spending, ISM manufacturing and ECB’s Praet

ASIA

Asian equity markets began H2 indecisive with the region constrained by disappointing data releases including Chinese Official & Caixin Manufacturing PMIs which both fell short of estimates, while the latest BoJ Tankan survey was mixed with headline Large Manufacturing Index also below forecasts. As such, ASX 200 (-0.2%) and Nikkei 225 (-1.3%) were lacklustre although strength in Property and Healthcare sectors kept Australia afloat for most the session, while Japan was dampened following mixed Tankan data but with a weaker JPY intiially limiting the downside. Elsewhere, Shanghai Comp. (-1.1%) was among the underperformers after both the Official and Caixin Manufacturing PMI missed estimates, while PBoC inaction resulting to a net daily drain and the absence of participants in Hong Kong for public holiday also ensured a subdued tone. Finally, 10yr JGBs were marginally higher amid the cautious risk tone in Japan and BoJ’s presence in the market, while the less than impressive BoJ tankan survey and source reports the BoJ are to revise lower its CPI forecasts at this month’s Outlook Report is also seen to likely to keep the BoJ maintaining its ultra-loose policy for a prolonged period.
 

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires)

PBoC set CNY mid-point at 6.6157 (Prev. 6.6166)

Chinese Manufacturing PMI (Jun) 51.5 vs. Exp. 51.7 (Prev. 51.9).

Chinese Non-Manufacturing PMI (Jun) 55.0 vs. Exp. 54.8 (Prev. 54.9)

Chinese Composite PMI (Jun) 54.4 (Prev. 54.6)

Chinese Caixin Manufacturing PMI Final (Jun) 51.0 vs. Exp. 51.1 (Prev. 51.1)
 

Japanese Tankan Large Manufacturing Index (Q2) 21 vs. Exp. 22 (Prev. 24).
Japanese Tankan Large Manufacturing Outlook (Q2) 21 vs. Exp. 20 (Prev. 20)
Japanese Tankan Large Non-Manufacturing Index (Q2) 24 vs. Exp. 23 (Prev. 23)

Japanese Tankan Large Non-Manufacturing Outlook (Q2) 21 vs. Exp. 22 (Prev. 20)
Japanese Large All Industry Capex (Q2) 13.6% vs. Exp. 9.3% (Prev. 2.3%)
 

UK

BoE's Cunliffe has warned that escalating trade wars, strains in emerging markets and a rising possibility of a Chinese credit crisis could combine into a “painful” experience for the British economy. (Sunday Times)

UK PM May has vowed to defy cabinet plotters, telling aides that she will not be bullied out of office by ministers or hardline Brexiteers opposed to her EU plans. May has opted to stand and fight if Conservative MPs force a vote to oust her, adding that she is content to “win by one vote”. (Sunday Times)

UK PM May representative in Brexit discussions Robbins is said to have told ministers there is no chance for a bespoke trade deal with EU. (Times)

Downing Street has produced a third model for handling customs after the UK leaves the EU, the BBC understands. Specifics of the new plan have not been revealed publicly but senior ministers will discuss it at Chequers, the prime minister's country retreat, on Friday. (BBC)

UK Business Secretary Clark hinted the Brexit transition could be extended beyond 2020 to allow companies more time to prepare for Britain’s future relationship with the EU. (The Guardian)

Jacob Rees-Mogg has threatened UK PM May with a rebellion by Brexiteer Tory MPs if she doesn’t deliver a hard Brexit. (Sky News)

Italian Deputy-PM Salvini states that 2019’s European elections are an opportunity to create an “international alliance of populists” and overcome a “Europe of the elites”. (FT)
 

EU

Germany Interior Minister and CSU party leader Seehofer offered to resign, which follows a meeting over the weekend with Chancellor Merkel that Seehofer described as pointless and in which he rejected the migration deal that was negotiated at the EU summit. However, reports later stated that Seehofer is said to remain in politics if Chancellor Merkel's CDU party backs down regarding migration, while he also said he wants to avoid the collapse of Merkel's government and is said to be seeking one more discussion with the CDU. (Newswires) CSU caucus chief Dobrindt opposed the resignation and requested an internal vote, while there were also comments from Economy Minister Altmaier who stated that the German coalition is in a serious situation. (Newswires)

FX

FX markets were mostly quiet, although the DXY attempted to recover last Friday’s lost ground which has resulted to a mild pull-back in EUR/USD with the single currency slightly hampered by political discord in Germany which threatens Merkel’s government after Interior Minister and CSU party leader Seehofer offered to resign amid migration dispute. The firmer greenback also saw GBP/USD relinquish the 1.3200 handle and USD/JPY briefly test 111.00 to the upside. Elsewhere, antipodeans weakened amid Trump-triggered oil declines and a pessimistic tone in the New Zealand Treasury’s economic indicators, while MXN was initially underpinned following the elections in which Lopez Obrador won a decisive victory and is also set for a majority in parliament. However, gains were reversed as markets digested the ramifications of a left-wing government which would likely have a much fiscally looser stance than some of its opponents.

New Zealand Treasury said March quarter Real GDP grew 0.5% which was below forecast in the Budget Economic and Fiscal Update and that annual current account deficit widened to NZD 7.9bln or 2.8% of GDP from NZD 7.7bln or 2.7% of GDP. Furthermore, the Treasury also stated it is seeing signs of less momentum in the economy. (Newswires)

Andres Manuel Lopez Obrador won a decisive victory in the Presidential election with quick count results showing he received 53.0%-53.8% of votes, while an exit poll also showed that Lopez Obrador is set to get a majority at the lower house. (Newswires)

COMMODITIES

Oil prices were pressured from the open and briefly fell below USD 73.00/bbl in reaction to a tweet from US President Trump over the weekend that he spoke with Saudi Arabia’s King Salman on raising production maybe by as much as 2mln barrels and that prices were too high which the Saudi ruler agreed with. However, the White House were quick on clarifying that Saudi Arabia stated they could raise output if required and that there was no actual agreement to raising output by the said amount. Nonetheless, oil prices gapped lower at the open and head into the European open with losses of around 1.2%. Elsewhere, gold prices were uneventful with mild pressure seen as the greenback nursed losses, while copper languished amid weakness in stocks and disappointing data from China.

US President Trump tweeted that he asked Saudi Arabia’s King Salman to raise production maybe up to 2mln bpd to make up for Iran and Venezuela, while Trump added that prices are too high and that King Salman has agreed. The White House later clarified that Saudi Arabia has 2mln bbls of spare capacity and could raise output if needed but didn’t vow to raise it by a stated amount. (Newswires/Twitter)

Iran Oil Minister Zanganeh is said to urge fellow OPEC members to refrain from unilateral measures in a letter to UAE Energy Minister and OPEC President in which Zanganeh also warned that any production increases above limits is in breech of the agreement. (Newswires)

Saudi Arabia reportedly boosted June crude exports to highest since 2013, according to KPLER. (Newswires)

US Baker Hughes Total Rig Count (29 Jun) 1047 (Prev. 1052). (Newswires)

US

Treasury trading was particularly quiet on Friday despite it being month-end, quarter-end, and half-end. Heading into the afternoon, volumes declined as it appeared most market players tried to get away early ahead of the Independence Day holiday next week. Despite equities trending higher, the risk-on sentiment failed to send bonds lower with IFR noting slightly month-end demand keeping bonds elevated. US 10YR T-Notes futures (Sep 2018) settled unchanged at 120-06.

US President Trump said will wait until mid-term elections to decide on NAFTA and that he has no plans on backing down regarding China. Elsewhere, US President Trump said on Friday he is working on phase 2 of the tax plan and that he is considering cutting corporation tax again from 21% to 20%. (Newswires)

US Commerce Department was reported on Friday to have begun a review of US export controls ordered by President Trump, which will align with CFIUS legislation requirement to review emerging and foundational technologies essential to US national security. In separate news, there were also reports on Friday that US President Trump is said to have told advisors he wants the US to withdraw from the WTO. (Newswires)

EU warned that US car import tariffs could result to a global retaliation that could impact as much as USD 300bln of US goods. (FT)