• Asian equity markets were mostly negative as ongoing US-China trade uncertainty continued to take its toll on risk sentiment
• UK PM May will reportedly stay in office until the Conservative party conference in September after setting a new summer deadline to finalize Brexit talks
• RBNZ cut rates by 25bps and lowered its forecasts for the future OCR path
• Looking ahead, highlights include, Swiss Unemployment Rate, German Industrial Output, BoE's Ramsden, ECB's Draghi, Fed's Brainard, Riksbank's af Jochnick, supply from Germany & US
• Earnings: Marathon Petroleum, Walt Disney, 21st Century Fox, Sage Therapeutics, Commerzbank, Wirecard, Imperial Brands

ASIA-PAC

Asian equity markets were mostly negative as ongoing US-China trade uncertainty continued to take its toll on risk sentimentwhich resulted to heavy losses on Wall St and underperformance of the trade-sensitive sectors such as tech, industrials and materials, while the region also digested mixed Chinese trade data. ASX 200 (-0.5%) was led lower by weakness in tech, as well as disappointing corporate updates including CSR and Treasury Wine Estates. Nikkei 225 (-1.7%) was weighed by currency strength and with index heavyweight Fast Retailing subdued after a decline in April same store sales. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (-0.1%) conformed to the downbeat tone due to the US-China trade tensions as some reports noted the possibility of an escalation is seriously increasing (potential retaliatory tariffs by China on US imports) and as Chinese media also suggested China is not afraid to fight and will do so if necessary. However, mainland markets have nearly fully recovered on some optimism from confirmation Premier Liu He will travel to Washington for trade talks this week and after the mixed trade data. Finally, 10yr JGBs were mildly higher due to the risk averse sentiment in the region but with gains later pared amid a softer 10yr auction result.

Chinese press reports in Xinhua stated the US approach to trade negotiations is regrettable, while it added China is not afraid to fight and will do so if necessary. Further reports suggested that China is making preparations for retaliatory tariffs on US imports if Trump delivers on his threats. However, China was said to be confident of dealing with trade talk challenges and will stay calm in the face of trade talk challenges, according to People's Daily. (Xinhua/People’s Daily/Newswires)

PBoC injected CNY 10bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.7596 (Prev. 6.7614)

Chinese Trade Balance (CNY)(Apr) 93.6B vs. Exp. 216.8B (Prev. 221.2B). (Newswires) Chinese Exports (CNY)(Apr) Y/Y 3.1% vs. Exp. 8.0%  (Prev. 21.3%) Chinese Imports (CNY)(Apr) Y/Y 10.3% vs. Exp. 3.0% (Prev. -1.8%)

Chinese Trade Balance (USD)(Apr) 13.84B vs. Exp. 35.0B (Prev. 32.65B, Rev. 32.67B).(Newswires) Chinese Exports (Apr) Y/Y -2.7% vs. Exp. 2.3% (Prev. 14.2%) Chinese Imports (Apr) Y/Y 4% vs. Exp. -3.6% (Prev. -7.6%)

BoJ Minutes from March 14th-15th meeting stated it will take time to hit the 2% price target, while most members agreed momentum to reaching the target is maintained and that they must persistently continue with its powerful monetary easing. Furthermore, a member suggested they must maintain easy policy with an eye on the side effects such as on financial institutions and a member also suggested the central bank must be prepared to act if downside risks to the economy and prices were materializing. (Newswires)

UK/EU

UK PM May will reportedly stay in office until the Conservative party conference in September after setting a new summer deadline to finalize Brexit talks. (Times) Other reports suggest that a group of Tory backbenchers will meet again today to decide whether to change the party’s rules to permit another challenge to PM May’s leadership within weeks as some 1922 Committee members believe that they are close to securing enough support for another attempt to oust the PM. (The Guardian)

UK Brexit Secretary Steve Barclay was said to have raised the prospect of leaving the EU without a deal in October, although there was a push back from Business Secretary Clark who said it was clear now that that couldn't happen, while it was also reported that there was no substantive discussion of cross party talks at the cabinet meeting, according to BBC's Laura Kuenssberg. (Twitter)

UK government spokesperson said that talks with the opposition Labour Party were constructive and will continue on Wednesday. However, there were earlier reports that UK opposition Labour party were playing down the prospects of a cross-party deal being struck and suggested that all the briefing over the weekend came from the government’s side, while Labour sources also dismissed there was a temporary customs union offer and stated that all the government was offering is what’s already on the table, according to the Daily Mirror's Pippa Crerar. (Newswires/Twitter)

UK and Ireland will sign a MOU on Wednesday to guarantee Common Travel Area rights will continue post-Brexit. (Irish Times)

BoE's Haldane said it would be deeply arrogant for MPC to say markets are wrong on interest rates due to economic uncertainty and that it is very reasonable for others to take a different view on the economic outlook to the BoE. (Newswires)

UK BRC Retail Sales (Apr) Y/Y 3.7% vs. Exp. (Prev. -1.1%), largest increase since April 2017. (Newswires)

UK Barclaycard Consumer Spending for April rose 2.5% Y/Y vs. Prev. 3.1% in March, while 33% of consumers were said to be confident about UK economy vs. 26% in March. (Newswires)

FX

The DXY eased back below the 97.50 level overnight amid mixed trade in its major counterparts in which EUR/USD just about reclaimed the 1.1200 handle to the upside, while GBP/USD rebounded from support around 1.3050 as the tone of the latest headlines from the UK provided some relief with PM May reportedly to stay in office until the Conservative party conference in September after setting a new summer deadline to finalize Brexit talks. This was in in sharp contrast to yesterday’s rumours that PM May resigned which her spokesperson denied any knowledge of, and the government also suggested cross-party talks were constructive. Elsewhere, USD/JPY broke below 110.00 as the risk averse tone underpinned safe-haven JPY and antipodeans were mixed with NZD/USD pressured after the RBNZ cut rates by 25bps and lowered its forecasts for the future OCR path. However, NZD has since recouped the majority of the losses given that a cut was expected and the central banks raised its TWI NZD forecast, while some also suggested position squaring prior to the Chinese data and RBNZ press conference where Governor Orr suggested RBNZ are in a good position to observe data and that the outlook ahead now seems more balanced.

RBNZ cut the OCR by 25bps to 1.50% as expected with the decision reached by consensus. RBNZ said lower OCR is needed to support employment and inflation policy, while it added that outlook for employment growth is more subdued and that uncertainty about global outlook and trade concerns remain. RBNZ also lowered its OCR forecastto 1.38% for June 2020 from 1.81% and lowered September 2020 forecast to 1.36% from 1.88% but raised forecast for June 2020 TWI NZD to 72.8% from 71.9%. RBNZ Governor Orr commented at the press conference that he thinks the RBNZ are in a good position to observe data as situation unfolds and suggested that outlook seems more balanced looking ahead than before the cut. (Newswires)

COMMODITIES

Commodities saw mild support overnight with WTI crude futures higher after support around 61.00/bbl held and after upward revisions to EIA global demand forecasts although a larger than expected build in API crude inventories has contained the rebound for oil. Elsewhere, gold saw mild support from a weaker greenback and the risk averse tone, while copper also benefitted amid mixed Chinese data in which Imports topped estimates.

US API weekly crude stocks (29 Apr) 2.81M vs. Exp. 1.2M (Prev. +6.8M). (Newswires) EIA raised forecast for global oil demand for 2019 by 20k BPD and now sees a 1.38mln BPD Y/Y increase, while it raised forecast for 2020 global oil demand by 80k BPD and now sees 1.53mln BPD Y/Y increase. (Newswires)

GEOPOLITICS

US will deploy B-52 bombers in the Middle East over Iran concerns and it was also reported that Iran is likely moving short-range ballistic missiles aboard boats in the Persian Gulf. In related news, Iran's Foreign Minister Zarif said Iran will cut back on voluntary commitments in nuclear deal but will not withdraw from it. (Newswires) 

US

The Treasury curve bull-flattened on Tuesday, as risk aversion lent a bid to the complex. There was upside in the European morning after the European Commission's latest forecasts saw Germany growth view cut, while warning of Euro area risks. And in the European afternoon, the equity price slide gave a further boost to the T-Note. The US sold USD 38bln of 3-year notes, in a weak offering, which tailed by 0.7bps, and cover a touch softer than recent averages; direct bidders ended-up taking their largest share of a 3s auction since 2014. At settlement, major curve spreads were a touch flatter. US T-notes (M9) futures settled 12 ticks higher at 124-00+

Fed's Quarles (Voter, Neutral) said he sees current level of inflation as being at the Fed's goals. (Newswires)