• Asian equities traded mixed as sentiment remained at the whim of the ongoing US-China trade uncertainty
• US Trade Representative Lighthizer confirmed the US will increase tariffs on China on Friday if there is no deal and that China was reneging on commitments
• UK PM May is facing fresh calls from within her party to step down as she attempts to secure a deal with Labour to break the Brexit deadlock
• Looking ahead, highlights include German Industrial Orders, US JOLTS, EU Commission Economic Forecasts, EIA Short Term Energy Outlook, Fed's Kaplan & Quarles, BoE's Cunliffe & Haldane, Supply from US & Germany (I/L)
• Earnings: Allergan, Regeneron Pharmaceuticals, AB Inbev, BMW, Infineon

ASIA-PAC

Asian equities traded mixed as sentiment remained at the whim of the ongoing US-China trade uncertainty with Nikkei 225 (-1.5%) and KOSPI (-0.9%) the underperformers on return from holiday closures as they got their first opportunity to react to US President Trump’s tariff threat. Nonetheless, there was no lack of success stories in Japan with Sony among the biggest gainers after having waited through a 10-day closure to finally benefit from a return to profit in Q4 and with SoftBank boosted as it considers an IPO for its USD 100bln Vision Fund. ASX 200 (+0.3%) was positive with the index led by strength in mining names and after mostly encouraging Trade Balance and Retail Sales data, while some participants were also hopeful for a rate cut by the RBA although this failed to materialize and subsequently saw the index give back some of the gains. Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) nursed some of the prior day’s sell-off in which the mainland bourse had dropped nearly 6% due to the heightened trade tensions. Furthermore, the recovery also followed a substantial rebound on Wall St after reports that the China delegation will still travel to Washington D.C. provided a glimmer of hope, although this was later clouded after-hours as US Treasury Secretary Mnuchin and Trade Representative Lighthizer confirmed a deterioration in negotiations and that tariffs will be increased if there is no agreement by Friday. Finally, 10yr JGBs were higher as the risk-averse tone in Tokyo spurred demand government bonds and with the BoJ also present in the market for JPY 940bln of JGBs.

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.7614 (Prev. 6.7344)

US Trade Representative Lighthizer confirmed the US will increase tariffs on China on Friday if there is no deal and that China was reneging on commitments. Lighthizer also commented we have seen an erosion of commitments from China over the last week and that there has been no contact with China Vice Premier Liu He over the last 24 hours. (Newswires)

US Treasury Secretary Mnuchin said US-China trade deal was 90% done and that talks saw a big change in direction. Mnuchin added that there were communications over the weekend that moved the agreement substantially backwards and that the US were in the process of planning a Trump-Xi summit, while he also suggested the US would reconsider the duties if talks get back on track. (Newswires)

UK/EU

UK PM May is facing fresh calls from within her party to step down as she attempts to secure a deal with Labour to break the Brexit deadlock. (Times) These reports were also echoed by pieces in the Telegraph and Sky News. PM May is reportedly set to meet with the Graham Brady, Chair of the 1922 Committee today amid calls for her resignation. However, Downing Street insists that the meeting is routine. (BBC)

ECB's Chief Economist Praet said tiered deposit rates need to have a monetary policy reason and emphasised that care must be taken with any monetary policy strategy review. (Newswires)

FX

The DXY was slightly softer and traded just below 97.50 amid mild gains in its major counterparts in which EUR/USD reclaimed the 1.1200 handle and with GBP/USD back above 1.3100. However, upside in GBP was capped as participants look ahead to the resumption of business in Westminster following the long weekend, with PM May facing fresh calls to resign from within her party and was also said to have been warned that MPs will attempt to oust her as early as this week if she agrees to Labour proposals for a customs union deal with the EU. AUD/USD firmed amid strength in iron ore prices and following mostly encouraging data from Australia, with upside later exacerbated after the RBA kept rates unchanged, noted a strong labour market and refrained from adopting a clear easing bias as some had suggested. USD/JPY was subdued below 111.00 as the risk averse tone in Japan acted as a restraint, while TRY suffered heavily to print its weakest since October due to political concerns after Turkey’s High Election Board ruled to re-run the Istanbul local elections which the opposition party had won.

RBA kept the Cash Rate Target unchanged at 1.50% in what was seen as very close call, as markets had priced in a 51% probability for rates to be kept on hold vs. 49% chances of a 25bps cut. RBA said it will pay close attention to the labour market in approaching meetings and that the labour market remains strong, while it added there is still spare capacity in the economy and that there had been some pick up in in wages growth. However, the RBA also stated Q1 inflation data was noticeably lower than expected and that main domestic uncertainty remains around household spending as well as falling house prices. (Newswires)

Australian Trade Balance (AUD)(Mar) 4.95B vs. Exp. 4.30B (Prev. 4.80B Rev. 5.14B). (Newswires)

Australian Retail Sales MM (Mar) 0.3% vs. Exp. 0.2% (Prev. 0.8%)

Australian Retail Trade (Q1) -0.1% vs. Exp. 0.3% (Prev. 0.1%)

BoC Governor Poloz said that Chinese moves against Canadian canola and pork exports are downside risks to the Canadian economy and cannot say now if this risk will become long-term. (Newswires)

Turkey's High Election Board ruled to re-run the Istanbul local elections on the grounds that some of the ballot box officials were not actually civil servants with the rerun to be held on 23rd June. (Newswires)

COMMODITIES

Commodities were steady overnight amid the mixed risk tone with WTI crude flat above the USD 62.00/bbl level after the prior day’s rebound from support around USD 60.00/bbl with the recovery also attributed to increasing tensions between US and Iran with reports suggesting the US received intelligence about a potential Iranian plot to attack US interests in the Gulf. Elsewhere, gold saw mild upside due to the lacklustre greenback and copper plateaued overnight amid the mixed risk tone due to US-China trade uncertainty, while iron prices were underpinned on supply concerns after the resumption of Vale’s Brucutu mine was halted.

GEOPOLITICS 

US Secretary of State Pompeo said the US continues to see Iranian activity that suggests an escalation, while reports noted that Israel passed intelligence to the White House about a potential Iranian plot to attack US interests in the Gulf. (Newswires/Axios)

US

After the US President threw his trade toys out of the pram over the weekend, volumes and therefore moves were lacklustre as fixed income traders saw little reward to trading the now binary possibilities of a US/Sino deal/no deal (in addition to multiple market holidays). As such treasuries saw little volatility as the President’s huffing and puffing gave a tailwind to fixed income futures, which steadily climbed throughout the session in thin ranges. Harker also failed to add impetus after largely reiterating Fed guidance, stating that inflation dampening effects are likely transitory, and saw 10yrs close with gains of around 9 ticks and the curve moderately steeper. As such traders are likely looking ahead to a trading week set to be chock-full of trade talk deliberations and upcoming USD 84bln worth of supply this week kicked off by USD 38bln in 3yrs tomorrow. US T-note futures (M9) settled 9 ticks higher at 123-20+

Fed reportedly sees trade tensions as the preeminent short-term risk although it sees financial risks little changed since last fall as the sector appears resilient, while it added that risk appetite remains elevated and overall leverage remains low. (Newswires)

Fed's Kaplan (Non-Voter. Dove) said he would currently stand pat and doesn't see a need to lower rates to address inflation, while he added that he doesn't have a bias for the direction of the next rate move. Furthermore, Kaplan said he has been trying to flag issue of risky corporate debt which could be a burden on the economy in a downturn and is concerned global growth is decelerating. (Newswires)