• Asian indices are predominantly negative, following on from Wall St. where the SPX’s 8-day winning streak ended & ahead of today’s ECB rate decision, FOMC minutes & Brexit summit
• EU’s Tusk states that extending Article 50 to June 30th is not long enough; instead, proposes a 1-year flexible extension
• Looking ahead, highlights include UK GDP, Output, US CPI, ECB Rate Decision, FOMC Minutes, Special EU Council meeting on Brexit, OPEC Monthly Report, ECB's Draghi; BoE's Ramsden & Fed's Quarles

ASIA-PAC

Asian equity markets were mostly negative amid spill-over selling from Wall St where all majors finished lower and the S&P 500 snapped an 8-day win streak as sentiment was pressured by EU-US trade tensions and downward revisions to IMF's global growth forecasts. ASX 200 (+0.1%) was initially subdued with the energy sector pressured by a pullback in oil prices and with heavy losses seen in Crown Resorts after Wynn Resorts abruptly ended takeover talks, although the index has since pared its losses amid strength in gold miners, tech and the largest weighted financials sector. Nikkei 225 (-0.7%) suffered from the recent flows into JPY and disappointing Machine Orders, while Hang Seng (-0.3%) andShanghai Comp. (-0.4%) conformed to the global downbeat risk tone amid further PBoC inaction and as participants awaited upcoming central bank activity and any fresh developments in the US-China trade saga. Finally, 10yr JGBs were marginally higher as they tracked gains in T-notes amid the risk averse tone across the region, while the BoJ were also present in the market with today’s Rinban operation heavily focused on the belly.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7110 (Prev. 6.7142)

China's Foreign Ministry Spokesman Lu said China and the US have made substantial progress in the latest trade talks, while there were also comments from US Agriculture Secretary Perdue that he spoke with China about reducing tariffs on US ethanol and suggested that things look positive. (Newswires)

UK/EU

UK Lawmakers accepted PM May's plan to seek a Brexit delay through until June 30th (420 ayes vs. 110 noes). (Newswires) However, EUs Tusk said that the June 30th is not long enough for a Brexit extension and would rather propose an extension of up to a year with a flexible exit, while Tusk added that a long extension averts a rolling crisis and that there is little reason to believe that UK ratification would be done by June. (Newswires)

Draft EU statement noted that the EU are to agree to further Brexit delay, while it was also suggested that the UK is to act in a constructive and responsible manner throughout this unique period in accordance with the duty of sincere cooperation and if UK fails to live up to obligations, a withdrawal will occur on June 1st 2019. (Newswires/FT)

UK PM May is mulling a plan to let lawmakers thrash out a Brexit deal if talks fail and Cabinet sources confirmed that bringing forward the withdrawal agreement bill was discussed, while there separate commented from Chancellor Hammond who suggested MPs could revoke Article 50 to prevent a no-deal sinking value of GBP. (Guardian/Telegraph)

Grassroot Tory party groups are said to consider motions calling for replacement of UK PM May with MPs said to want a new leader by late July. (Telegraph)

Italy confirmed that it is to cut 2019 GDP growth target to 0.2% from 1.0% and stated there will be no new taxes. (Newswires)

FX

In FX markets, price action across the major pairs was mostly uneventful ahead of today’s ECB policy meeting and FOMC minutes, although the DXY was marginally firmer and back above the 97.00 level. As such, the greenback’s main counterparts were subdued with EUR/USD contained near the prior day’s lows amid anticipation of a potentially more dovish tone at the ECB and amid escalating EU-US trade tensions, with the pair also constrained by its close proximity to 5, 10 and 20 DMA levels. GBP/USD traded sideways ahead of the EU emergency summit where PM May's hopes for a Brexit delay until June 30th is likely to be turned down. Elsewhere, the risk averse sentiment hampered USD/JPY and JPY-crosses, while AUD/USD initially softened due to its high-beta properties and with a recent pull back in oil doing no favours for the currency. Furthermore, Westpac also reaffirmed its forecasts for the RBA to cut rates in August, although AUD later recovered following comments from RBA Governor Debelle which were less dovish than some had hoped as he hinted of a data dependent approach and was bullish on the labour market.

RBA Deputy Governor Debelle said he sees tension between strength in jobs and weakness in output data, while he suggested how tension resolves in approaching months will be important for future path of rates. Debelle also commented that labour market and leading indicators of employment are solid, and although he noted that consumption growth in H2 last year was considerably slower than anticipated, he added that other parts of the economy evolved as expected. Furthermore, he added they can theoretically lower policy rate if needed and does not expect a need to introduce QE, while he still sees decent growth in the economy. (Newswires)

Turkish President Erdogan said Istanbul election irregularities may result to a cancellation. (Newswires)

COMMODITIES

Commodities were mixed overnight in which oil consolidated after its recent pull back from multi-month highs, while overnight news flow has been on the bearish side including EIA reducing its global oil demand growth forecasts and a larger than expected build in headline API crude stockpiles. Nonetheless, WTI crude futures have just about held on to the USD 64.00/bbl level, while RBOBoutperformed the energy complex as gasoline inventories showed a drawdown of 7.1mln bbls vs. Exp. 2.0mln bbls draw. Elsewhere, gold prices were flat amid tentativeness ahead of the ECB meeting and FOMC minutes, while copper was also lacklustre amid the risk averse tone and with Dalian iron ore futures snapped a 7-day win streak.

US API Weekly Crude Stocks +4.09M vs. Exp. +2.3M (Prev. +3.0M).(Newswires)

US EIA cut 2019 world oil demand forecast by 50k BPD to 1.4mln BPD YY increase and cut 2020 world oil demand growth by 10k BPD to 1.45mln BPD increase. EIA expects US crude output to rise in 2019 by 1.43mln BPD to 12.39mln BPD (prev. 1.35mln BPD rise) and sees US oil demand to rise by 360K BPD in 2019 (unchanged), while it expects US crude output to rise in 2020 by 710K BPD to 13.10mln BPD (prev. 730K BPD) and sees US oil demand to rise by 250K BPD in 2020 (prev. 220K BPD rise). (Newswires)

US President Trump plans to issue 2 executive orders on Wednesday which aims to ease domestic natural gas transport and avoid lengthy disputes related to cross-border energy projects as seen in the Keystone XL pipeline. (Axios)

GEOPOLITICS

North Korea Leader Kim called current situation tense and urged officials to pursue party strategy of economic development with a sense of self-reliance, during the country’s politburo meeting. (KCNA) Saudi-led coalition conducted strikes on Houthi target in Yemen's capital. (Newswires)

Exit polls and initial results show that Benjamin Netanyahu is on course to take victory in the Israeli elections and build his fifth coalition government. (Newswires) 

US

Yields narrowed slightly along the curve in light trade ahead of Wednesday’s risk events (FOMC mins, Clarida speaks after market, ECB, Brexit conference). A soft NFIB survey resulted in some buying interest, and Trump’s Twitter trade war salvos also found buyers. The IMF lower growth expectations were also cited as a reason to buy. The Aramco offering of USD 12bln 5-parter didn’t dent the complex too much, despite books reportedly climbing over USD 100bln. The Treasury’s sale of USD 38bln of 3-year notes was ho hum; the auctioned tailed, and the yield was the lowest since Feb 2018. Direct participation rose sharply. Tomorrow the Treasury will auction 10-year notes; the last 10s auction stopped-through the screens, and saw the lowest yield at auction since Jan 2018; cover, meanwhile, was the highest since June, with dealers taking their lowest takedown since March 2017, leaving investment funds with a slightly higher takedown, while foreign participation was relatively unchanged. US T-note (M9) futures settled 6 ticks higher at 123-20+.

Fed's Clarida (Voter, Neutral) said the jobless rate may have room to decline without inflation and that it makes sense for the Fed to remain open minded amid a constantly evolving economy. (Newswires)

US Senate Majority Leader McConnel has spoken to House Speaker Pelosi and US President Trump about a bipartisan 2-year deal on budget caps, while there were also comments from Treasury Secretary Mnuchin that President Trump is not interested in holding debt ceiling increase 'hostage' to secure border wall funding. (Newswires)