• Asian equity markets shrugged off the energy-led declines in US and traded higher across the board
• FX markets were flat overnight amid a lack of tier-1 data releases, which kept the DXY at the prior session’s highs
• Looking ahead, highlights include Riksbank and ECB minutes, US CPI, weekly jobs figures, supply from Italy and the US

ASIA

Asian equity markets shrugged off the energy-led declines in US and traded higher across the board with short covering in the region seen after the prior day’s trade-related losses. ASX 200 (+0.9%) and Nikkei 225 (+1.2%) were positive in which the latter coat-tailed on upside in USD/JPY and with Softbank among the biggest gainers after US investment fund Tiger Global took a stake of over USD 1bln in the Co., while broad gains were also seen in Australia aside from commodity-related sectors following recent weakness in the complex including a near-5% drop in crude. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp. (+1.9%) conformed to the improved risk tone after the PBoC conducted repo operations for the 1st time in over a week and amid continued positive rhetoric regarding A-shares valuations which were said to be at historic lows. Finally, 10yr JGBs were flat with price action uneventful throughout the session amid focus on riskier assets and with the 20yr auction results largely ignored, despite showing firmer demand and higher accepted prices than previous.       

PBoC injected CNY 30bln via 7-day reverse repos for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.6726 (Prev. 6.6234)

White House aide stated that US has conducted several high-level talks with China and are open to further discussions. However, there were later conflicting reports that talks between US-China have collapsed following the fresh tariff list and that there were no immediate plans to restart discussions. (Newswires/Twitter)

Bank of Korea kept the 7-Day Repo Rate unchanged at 1.50% as expected, with the decision not unanimous as board member Lee Il-Houng dissented. BoK Governor Lee commented that GDP growth forecast for 2018 was lowered to 2.9% from 3.0% and stated that recent depreciation in KRW against USD was rapid. (Newswires)

UK/EU

UK PM May is said to propose a looser relationship with the EU regarding financial services which would reduce access to the European market for UK-based financial firms post-Brexit. (FT)

Hardline Tory Brexiters are looking to try to force UK PM May to publish a rival draft of the white paper drawn up by David Davis in the run-up to last week’s Chequers summit, which Downing Street ditched. (Guardian)

French Finance Minister Le Maire said it is important to look at the impact on the car industry before considering cutting Europe tariffs on car imports. (Newswires)

UK RICS Housing Survey (Jun) 2 vs. Exp. -4 (Prev. -3). (Newswires)

FX

FX markets were flat overnight amid a lack of tier-1 data releases, which kept the DXY at the prior session’s highs seen in the aftermath of the firmer than expected PPI data. This saw its major counterparts languish with EUR/USD stuck at a sub-1.1700 level and with GBP/USD just about holding above 1.3200, while commodity-linked currencies were also softer after the aggressive pull-back in crude prices. Elsewhere, the improved risk appetite spurred outflows from safe-haven JPY, which coupled with the recent USD strength, underpinned USD/JPY to reclaim the 112.00 handle.

COMMODITIES

Commodities were quiet overnight which provided reprieve from the recent trade-triggered pressure. As such, WTI crude futures nursed some losses, although has far to go to make any meaningful recovery from yesterday’s near-5% drop that was attributed to the return of some Libya supply and ongoing trade concerns. Elsewhere, gold is also slightly off prior lows but with upside capped as the greenback held steadfast and copper strengthened amid outperformance of Shanghai metal prices and with China front-running the risk-appetite in the region.
 

Goldman Sachs lowered its copper price 3-month forecast to USD 6500/ton from USD 7300/ton. (Newswires)

US

The treasury complex drifted higher modestly on Wednesday as trade tensions between US and China intensified, with the latter working on alternatives to tariffs retaliation measures to the recently announced US tariffs. In late afternoon trade, Treasuries caught a bid as oil and equities slid. The yield curve further flattened on Wednesday, with yields lower by c.3bps across the curve, with the exception of the 2yr yield which was lower by c.2bps. 2s30s and 2s10s narrowed by c.2bps (the latter fell below 27bps), 2s5s narrowed by c.1bps. US 10YR T-notes futures (u8) settled 7+ ticks higher at 120-08.

Fed's Williams (Voter, Hawkish) said despite strength in equities and house prices, he is not seeing risk taking in financial system of last decade and stated that employers struggling to fill job vacancies which signals a strong economy. (Newswires)