• Asian equity markets were subdued with prices relatively range-bound following the modest performance in US. FX markets consolidated throughout most of the Asia-Pac session
• UK PM May admitted that the current options regarding UK customs plan are unworkable. The League and 5SM in Italy need more time to form a government
• Looking ahead, highlights include GE and EZ GDP, UK jobs, German ZEW, US retail sales, Fed’s Williams and Kaplan

ASIA

Asian equity markets were subdued with price relatively range-bound following the modest performance in US, where the major indices finished in the green but well off best levels and the DJIA met resistance just shy of the 25k level but still edged its longest run of gains since September. ASX 200 (-0.4%) was lacklustre with the telecoms sector dragged by weakness in Telstra shares while tech outperforms as Link Administration shares rally on reports the Co. is exploring options with Pexa in which it is the 2nd largest shareholder of. Nikkei 225 (-0.1%) traded lacklustre with focus for individual stocks on corporate earnings, while Shanghai Comp. (-0.2%) and Hang Seng (-1.0%) also lacked impetus despite a firm liquidity operation by the PBoC, with profit taking observed in Hong Kong following the recent streak and as varied tier-1 data from China added to the cautious tone after Industrial Production topped estimates but Retail Sales disappointed. Finally, 10yr JGBs were subdued following similar trade in T-notes which extended on the prior day’s losses as the US 10yr treasury yield rose back above 3.000%, while a mixed 30-yr JGB auction added to the subdued tone as it showed a decline in accepted prices.

US & China are reportedly closing in on a deal which would give ZTE a reprieve from US sanctions, in exchange for Beijing removing tariffs on billions of US agricultural products, according to people familiar with the matter. In related news, there were also comments from US Ambassador to China Branstad that China and US remain at a far distance on trade and that President Trump wants a dramatic rise in farm exports to China. (Newswires)

PBoC injected CNY 100bln via 7-day and CNY 80bln in 14-day reverse repos for a CNY 180bln daily net injection. (Newswires)
PBoC set CNY mid-point at 6.3486 (Prev. 6.3345).

Chinese Industrial Production (Apr) Y/Y 7.0% vs. Exp. 6.4% (Prev. 6.0%); YTD (Apr) 6.9% vs. Exp. 6.7% (Prev. 6.8%). (Newswires)
Chinese Retail Sales (Apr) Y/Y 9.4% vs. Exp. 10.0% (Prev. 10.1%); YTD (Apr) 9.7% vs. Exp. 9.8% (Prev. 9.8%)
Chinese Fixed Assets Ex-Rural YTD (Apr) 7.0% vs. Exp. 7.4% (Prev. 7.5%)

UK/EU

UK PM May admitted that the current options regarding UK customs plan are unworkable. This has subsequently increased fears among Eurosceptics that further delays will mean an extension of the 21-month transition period with a Conservative meeting yesterday leading to a clash between PM May and backbencher Rees-Mogg. Further reports suggested that extending the transition arrangement with the EU could be the only way to find a solution to the Irish border issue. (Telegraph/Times/Newswires)
UK Trade Secretary Fox warned of the cost to delays in trade deals. (Times)

UK opposition leader Corbyn has told Labour MPs that a Norway-style option cannot be considered by the party, but faces a party divide after rebel Lords passed an amendment to the EU withdrawal bill which would keep membership of the European Economic Area (EEA) as an option. (Guardian)

Incoming ECB member Rehn (Finland) said short term indicators suggest the pace of growth has somewhat cooled in the early months of this year and that this could be temporary, but the data is indicating a slowdown in growth. Rehn also stated that overall economic outlook for euro area is strong although medium term growth is tilted to the downside. (Newswires) Rehn will enter the ECB in July

Italy’s anti-establishment Five Star Movement and the far-right League have pleaded for a “few more days” to seal their alliance to govern the nation. (FT)

FX

FX markets consolidated throughout most the session following yesterday’s swings with the USD-index near the prior session’s highs. The predominantly quiet overnight trade in currencies provided brief respite from the pressure in EUR/USD and GBP/USD, although both remained firmly below the 1.2000 and 1.3600 handles respectively and later extended on lows as US yields rose. Elsewhere, JPY was slightly weaker with USD/JPY underpinned by importer demand and on the firmer greenback, while commodity-linked currencies were subdued amid recent losses in the metals complex and with AUD kept lacklustre following an unsurprising RBA minutes release in which the central bank reiterated there wasn’t a strong case for a near-term policy move.

RBA minutes from the May 1st meeting stated that the board agreed there was not a strong case for near-term policy move and that the next move would likely be a hike rather than a cut. Furthermore, the minutes stated that progress on inflation and unemployment is likely to progress gradually, while it also added that inflation is to remain subdued for some time amid retail competition and slow growth in wages. (Newswires)

COMMODITIES

Commodities were subdued overnight with the metals complex pressured by a firmer greenback, which saw further marginal losses to gold prices, while copper also extended on the prior day’s lows amid the cautious risk tone. Elsewhere, oil was flat with WTI crude futures stuck at the USD 71.00/bbl level while Brent held above the USD 78.00bbl with geopolitical concerns cited by some for the widening spread.

GEOPOLITICS

Satellite images reportedly showed that North Korea has started to dismantle its Punggye-Ri nuclear test site. (Twitter/38 North)

US

US President Trump and Canadian PM Trudeau discussed via phone call the possibility of a quick NAFTA agreement, in which US President Trump urged for a prompt NAFTA agreement. (Newswires)

US Commerce Secretary Ross accused China and Europe of being highly protectionist and accused China of stealing intellectual as well as forcing tech transfers. Ross also commented that China hasn’t obliged to rules since joining the WTO and warned that agricultural tariffs will come at China’s cost. Ross further stated the US will be impose EU steel tariffs if no deal is met before June 1st and that key NAFTA topics remain a work in progress. (Newswires)

Fed nominee Clarida said he fully supports Fed dual mandate and will seek to maintain financial resilience, while he added he will take a balanced approach on reaching Fed targets. (Newswires)