• European indices [Euro Stoxx 50 -0.3%] have traded indecisively this morning as the region struggles to find direction
• In FX, the USD has lost a degree of its post-FOMC momentum, with the EUR garnering support from the EZ PMIs this morning
• On the trade front, reports indicate that Chinese Foreign Minister Yi is to travel to the US on Tuesday
• Looking ahead, highlights include, US Initial Jobless Claims and Labour Costs, US Factory Orders, BoE Rate Decision, QIR and Press Conference, ECB's Praet,
• Earnings: Activision Blizzard, Exelon

ASIA-PAC

Asian equity markets were mixed as the region partially shrugged off the negative lead from US where all major indices were pressured, and the S&P 500 snapped a 3-day streak of record closes after Fed Chair Powell downplayed prospects for looser policy at the post-FOMC presser. ASX 200 (-0.6%) traded negative with the index led lower by financials after AMP Capital reported net cash outflows widened in Q1 and with ‘Big 4’ bank NAB also weighed after it lowered its interim dividend by 16%. Elsewhere, both KOSPI (+0.4%) and Hang Seng (+0.8%) recovered from early losses on return from Labour Day holidays amid US-China trade optimism as reports suggested a trade deal could be possible by the end of next week, while China also recently announced several measures to open up its financial sector to foreign companies in a concession to the US. As a reminder, Japan and mainland China remained closed for holidays.

Chinese Foreign Minister Yi is to travel to the US next Tuesday, expected to close the trade deal next week., according to a Chinese newspaper. (Newswires)

UK/EU

UK PM May is reportedly preparing to accept that customs rules with the EU will be maintained for years post-Brexit in a deal with opposition Labour party. (The Times) However, separate reports state that a senior cabinet minister suggested a deal involving a customs union could be backed by as few as 90 Tory MPs and would mean a slew of resignations the government. (Guardian)

UK government may drop plans to conduct a 3-year spending review and instead opt for a 1-year programme amid Brexit fallout and uncertainty on PM May's future. (Guardian)

ECB's Nowotny says that regarding growth a medium-term perspective needs to be taken and that the US and Euro Zone have different measures of inflation, it would make sense to discuss how this is measured. (Newswires)

UK Markit/CIPS Cons PMI (Apr) 50.5 vs. Exp. 50.3 (Prev. 49.7)

EU Markit Manufacturing Final PMI (Apr) 47.9 vs. Exp. 47.8 (Prev. 47.8)

- German Markit/BME Manufacturing PMI (Apr) 44.4 vs. Exp. 44.5 (Prev. 44.5)

- French Markit Manufacturing PMI (Apr) 50.0 vs. Exp. 49.6 (Prev. 49.6)

- Italian Markit/IHS Manufacturing PMI (Apr) 49.1 vs. Exp. 47.8 (Prev. 47.4)

- Swedish PMI Manufacturing Sector (Apr) 50.9 (Prev. 52.8, Rev. 52.5)

- Spanish Manufacturing PMI (Apr) 51.8 vs. Exp. 51.2 (Prev. 50.9)

- Swiss Manufacturing PMI (Apr) 48.5 vs. Exp. 50.5 (Prev. 50.3)

EQUITIES

Major European indices have traded indecisively this morning [Euro Stoxx 50 -0.3%], as the region struggles to find direction post-FOMC where US indices were subdued but Asia did manage to somewhat shrug off the negativity. It is also worth bearing in mind that markets are playing catchup due to yesterday Labour Day holiday for much of Europe which may account for some of the volatility. Sectors are subdued this morning, although there was some mild outperformance in Healthcare and utility names at the open. This morning’s notable earnings release came from Shell (+2.3%) who beat on their Q1 adj. profit and have begun the next tranche of their share buyback programme, with the heavyweight lifting energy names higher in-spite of lower oil prices. Separately, Volkswagen (+4.5%) are towards the top of the Stoxx 600 after beating on Q1 revenue and confirming their FY outlook for car sales. Also of note are Bayer (+3.3%) whose share prices are supported this morning by the US Environmental Protections agency stating that glyphosate is not a carcinogen. Elsewhere Lloyds (-1.0%) are in the red post-earnings as the Co’s Q1 statutory pre-tax profit missed on Co. complied estimates, Lloyds have also made an additional PPI provision of GBP 100mln.

FX

DXY - Although the Greenback has a lost a degree of its post-Powell recovery momentum, the index remains above 97.500 and on a more stable footing as the Fed chair refrained from flagging any shift towards a rate cut or even a hint that soft inflation could tip the policy balance from neutral to dovish. In fact, after the 5 bp IOER reduction he stressed that the move was technical rather than fundamental and repeatedly downplayed slowing price developments as transitory. Hence, the DXY has rebounded from sub-97.200 lows and just above a Fib support level (97.121), albeit with the Buck now mixed vs G10 peers.

EUR - The single currency has drawn a bit more encouragement from the run of Eurozone manufacturing PMIs, as all bar Germany posted better than expected headlines, including Italy that rebounded relatively firmly following a return to GDP growth in Q1. Eur/Usd is back above 1.1200 as a result having probed a few pips below the 200 HMA at 1.1194, but the headline pair may be hampered by heavy option expiry interest stretching from 1.1200-10 through 1.1225-40 and up to 1.1250 (1.5 bn, 2 bn and 1.1 bn respectively). Moreover, chart resistance could cap the upside given the 30 DMA at 1.1236 and a Fib at 1.1242.

NZD/AUD - The Kiwi and Aussie are marginally outperforming vs major counterparts amidst reports that a US-China trade accord may be in the offing as soon as next week and at the end of the next talks to take place in Washington, with Beijing said to be offering concessions in return for a recent olive branch from the US. Nzd/Usd is hovering between 0.6620-39 and Aud/Usd within a 0.7012-29 range as the Aud/Nzd cross sits just under 1.0600 and attention down under turns towards next week’s RBNZ and RBA policy meetings (notwithstanding NFP tomorrow of course). Both rate calls are seen tight with swap pricing not far from evens for easing, but as NAB contends that it may be to early for the RBA options are indicating higher break-evens as a result (circa 80 pips).

GBP/CAD/CHF/JPY - All on a more even keel vs the Greenback, with Cable straddling 1.3050 and braced for BoE super Thursday after only deriving modest support from a return to growth in the UK construction sector. However, the Pound is consolidating gains relative to the Euro over 0.8600 amidst some talk that 1 MPC voter could break ranks and switch into hike mode – full preview on the headline feed and via the Research Suite. Conversely, the Loonie is struggling to hold above 1.3450 against the backdrop of ongoing weakness in oil prices, while the Franc is back down near 1.0200 and sub-1.1400 against the Euro in wake of weak Swiss retail sales and a contractionary manufacturing PMI. The Yen has also retreated from Wednesday’s pre-FOMC peaks through 111.50 and the 30 DMA (111.42) into decent option expiries (1.2 bn between 111.50-55).

NOK/SEK - Disappointing Scandi manufacturing PMIs vs consensus and previous readings have soured sentiment to a degree, but Eur/Nok has also been driven higher by the aforementioned crude retracement, to 9.7400+ at one stage vs Eur/Sek topping out just shy of 10.7050.

FIXED INCOME

Bunds and Gilts have both rebounded further from worst levels, with the former erasing all and a bit more of its losses at 165.34 vs 164.97 and Tuesday’s 165.31 pre-Labour Day break Eurex close. Another poor German manufacturing survey is the obvious suspect behind the recovery, while chart impulses may also be contributing again as trend support held at 164.95. In contrast, the 10 year UK benchmark only reached 127.48 (still -13 ticks, albeit 28 ticks off the Liffe trough) following a modest construction PMI beat and now awaiting the BoE from noon, while US Treasuries are softer and the curve more mixed after the Fed reverberations as the focus shifts to weekly claims in the run up to Friday’s BLS release.

COMMODITIES

Brent (-1.0%) and WTI (-0.9%) prices are lower, with oil prices subdued as this week's large crude stockpile builds overshadows Iranian waiver woes and Venezuela concerns, although some of downside in the complex could be attributed to a firmer post-FOMC Dollar.  In terms of recent newsflow Russia’s April oil production stood at 11.23mln BPD vs. 11.3mln in March, with these levels being relatively in-fitting with recent IFX reports. Additionally, the Russian Energy Ministry have stated that they are to keep May's production in-line with the prior agreements; which was agreed at a reduction of 228k BPD (from the October baselines of 11.4mln BPD) in the OPEC pact.

Gold (-0.5%) was also afflicted by the surge in the Dollar, with the yellow metal unable to recover from this downside, in spite of the Buck easing off highs, and is currently trading firmly at the bottom of its USD 7/oz range. While copper prices are still around 2-month lows as the red metal is missing the support of its largest buyer China which is on Labour Day holiday for the remainder of the week.

World Gold Council said Q1 global gold demand rose 7% Y/Y to around 1.05K tons and noted continued growth in central bank purchases. (Newswires)

Russian April oil production stood at 11.23mln BPD vs. 11.3mln BPD in March, according to the Energy Ministry. (Newswires)

- Russian Energy Ministry states that Russia will keep May's oil production in-line with the prior agreements

EU commission state the EU are to seek to increase LNG Gas imports from the US to 8bln cubic meters per year by 2023, which is over double the level in 2018. (Newswires)

OPEC Secretary General Barkindo states that it is impossible to eliminate Iranian oil from the market., according to Shana. (Newswires)

Poland's Energy Ministry state that they released 500k T of strategic oil reserves on April 26th and 300k T on April 30th, due to the suspension of polluted oil supplies from Russia. (Newswires)