• Asian equity markets were cautious as the region mulled over the prior day’s central bank activity from both sides of the Atlantic
• FOMC Minutes stated that a majority of policy makers expected rates to remain steady this year
• EU's Tusk announced that EU27 and UK have agreed to a flexible Brexit extension to October 31st
• Looking ahead, highlights include US Initial Jobless Claims & PPI, IEA Monthly Report, ECB's de Galhua, Fed's Clarida, Bullard, Williams, Kashkari & Bowman, supply from US & Italy

FOMC MINUTES

- FOMC Minutes stated that a majority of policy makers expected rates to remain steady this year and that the Fed's patient approach on rates is needed given uncertainties including global and financial developments.

- The Minutes also noted that some policymakers thought a modest hike could be warranted later this year and several policymakers said their view could change on the Fed's next move whether that should be a hike or a cut. (Newswires)

- Furthermore, several policymakers preferred to stabilise reserves by resuming treasury purchases soon after balance sheet runoff and some suggested to discuss cost benefits of tools to reduce reserves demand and support interest rate control.

- Policymakers also saw continued US economic growth, strong labour market and inflation near the Fed's objective as the most likely outcome in the next few years, while several expressed concern over the flat yield curve, but highlighted that the historical relationship is less reliable. 

ASIA-PAC

Asian equity markets were cautious as the region mulled over the prior day’s central bank activity from both sides of the Atlantic. ASX 200 (-0.3%) and Nikkei 225 (Unch.) were subdued with Australia dampened by election risk after PM Morrison called for the election to be held on May 18th and with the ruling Coalition facing an uphill battle as it trails the opposition Labor Party by 52%-48% according to the latest polls, while risk appetite in Tokyo was hampered by recent currency flows in which USD/JPY briefly slipped below 111.00. Hang Seng (-1.0%) fell below the psychological 30k level and Shanghai Comp. (-1.4%) underperformed following somewhat inconclusive inflation data from China and as money market rates increased amid continued PBoC inaction. Comments from US Treasury Secretary Mnuchin also failed to inspire even though he noted that talks with China were very productive and that an enforcement mechanism had been agreed, as he also suggested there were still important issues to address. Finally, 10yr JGBs were subdued after a pullback from the 153.00 level and amid lacklustre trade in T-notes, while stronger demand at today’s enhanced liquidity auction for longer-dated bonds (20s, 30s, 40s) also did little to underpin demand for the 10yr.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7088 (Prev. 6.7110)

Chinese CPI (Mar) Y/Y 2.3% vs. Exp. 2.4% (Prev. 1.5%). (Newswires) Chinese PPI (Mar) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.1%)

US Treasury Secretary Mnuchin said they had a very productive meeting with Chinese officials, while he added that a call is scheduled for tomorrow morning and there are still important issues to address. Mnuchin also noted that an enforcement mechanism has been agreed and that the sides will set up enforcement offices. (Newswires/FT)

UK/EU

EU's Tusk announced that EU27 and UK have agreed to a flexible Brexit extension to October 31st which will give the UK an additional 6 months to find the best solution, while he added the extension is a little short of what he expected but still enough time to find the best solution and for the UK to not waste this time. There were also comments from Dutch PM Rutte that it is unlikely for Brexit to occur before June 30th and that it will be increasingly difficult to grant a further extension after October 31st. Furthermore, the deal will be subject to a review on June 21st to ensure the UK’s behaviour is in-fitting with the terms of the deal after it elects MEPs. (Newswires)

UK PM May said she agreed to an extension to end-October at the latest and that she wants to leave the EU with a deal ASAP. May also noted the UK will not need to participate in EU elections if a deal can be ratified before May 22nd and that she will make a statement to Parliament today. Elsewhere, there were separate reports that UK PM May will seek to stay on as PM if Brexit deal is not passed by end-Jun. (Newswires/Guardian)

UK Foreign Secretary Hunt said no-one knows if talks with Labour will solve impasse and that no-one in Tories wants to fight EU elections, while he also commented that a customs union will not work for a large economy like the UK. (Newswires)

UK RICS Housing Survey Mar -24 vs. Exp. -30.0 (Prev. -28.0, Rev. -27). (Newswires)

EU's Dombrovskis said EU is discussing trade issues with US and is hopeful the sides avoid an escalation of trade tensions, while Dombrovskis also noted they have seen some slowdown in the bloc's economies and that the Italian slowdown is partly due to government decisions. (Newswires)

ECB policymakers are in agreements that the Eurozone economy has held up in line with their March forecasts, despite recent disappointing economic metrics, according to sources. (Newswires)

FX

In FX markets, price action was relatively quiet in which the DXY consolidated below the 97.00 level following the prior day’s central bank-triggered turbulence which began at the ECB after President Draghi’s bearish tone on the economy which in turn pressured EUR/USD. FOMC minutes stated that a majority of policy makers expected rates to remain steady this year and that the Fed's patient approach on rates is needed, while some policymakers even thought a modest hike could be warranted later this year. Elsewhere, GBP/USD tested the 1.3100 level to the upside after the UK and EU27 agreed to a flexible Brexit extension to October 31st which averts the threat of crashing out without a deal on Friday, although upside was restricted as markets await the potential backlash PM May could receive from the hardline Brexiteers. Elsewhere, USD/JPY and JPY crosses attempted to nurse recent losses, while antipodeanswere lacklustre amid the uninspiring risk tone and inconclusive Chinese inflation data.

COMMODITIES

Commodities were lacklustre overnight with WTI crude futures slightly lower with prices constrained by resistance near its YTD highs and following the much larger than expected build in this week’s crude oil inventory reports, although prices remain above the USD 64.00/bbl level as threats to supply from the ongoing fighting in Libya, stems downside for oil. Elsewhere, gold was stable in the aftermath of an uneventful FOMC minutes and after the precious metal found a base at the USD 1300/oz level, while copper prices reflected the broad risk averse sentiment.

Libya National Oil Company said its Nageco unit was bombed outside of Tripoli. (Newswires)

GEOPOLITICS

North Korea Leader Kim said the country needs to deliver a serious blow to those imposing sanctions, while there were also reports that Kim may conduct talks with Russian President Putin in Russia soon. (Yonhap/Asahi)

US

Decent IP data out of Europe helped the TPLEX find sellers in the premarket, though buyers emerged ahead of the US cash equity open. A mixed CPI report (headline up, core down) saw a chunky block in the TY June contract. After the data, ECB President Draghi’s reiteration of downside risks saw the T-note move in sympathy with the Bund, sending Treasuries to 1-week highs. There was a breather after the European cash close, where book squaring was reported ahead of the 10-year auction. The auction itself was fairly good, stopping through the screens by 1bps, while indirect bidder participation provided some encouragement. The Fed’s latest meeting minutes stuck to the script, though perhaps weren’t as dovish as some might have predicted after the outcome of the March policy meeting. That left major curve spreads mixed at settlement. US T-note futures (M9) settled 5 ticks higher at 123-25+.

US President Trump tweeted that it was too bad the EU is being so tough on the UK and Brexit, while he added that EU is likewise a brutal trading partner with the US which will change and suggested that sometimes in life you have to let people breathe before it comes back to bite you. (Twitter)