• Source reports indicate that China backtracked on legal issues affecting nearly every section of the proposed US trade agreement
• Major European indices [Euro Stoxx 50 -0.3%] have given up the mornings initial gains as sentiment turns once again on US-China updates
• FX markets are broadly reflecting the tentative tone, with JPY supported as a risk haven and Cable subdued on uncertainty around PM May’s departure
• Looking ahead, highlights include, ECB's Draghi, Fed's Brainard, Riksbank's af Jochnick, supply from the US
• Earnings: Walt Disney, Sage Therapeutics

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 (-0.4%) was led lower by weakness in tech, as well as disappointing corporate updates including CSR and Treasury Wine Estates. Nikkei 225 (-1.4%) was weighed by currency strength and with index heavyweight Fast Retailing subdued after a decline in April same store sales. Elsewhere, Hang Seng (-1.2%) andShanghai Comp. (-1.1%) 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)

Subseqently reported that, China has backtracked on legal issues throughout text of proposed US trade agreement, affecting nearly every chapter, as according to a source, and look for changes in the text of intellectual property protection and theft, technology transfer financial service access and competition policy. They reportedly miscalculated the resolve of the Trump administration, as according to these sources. (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)

Subsequently, UK PM May has been told by Conservative MP’s that she has until 16:00 BST to outline her resignation plans, if she refuses then the executive has the power to change leadership election rules allowing a no confidence vote., via Business Insider. (Business Insider)

UK Labour's negotiations on a Brexit pact with the Government may be pronounced dead today, according to ITV's Peston. (Twitter)

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

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)

GEOPOLITICAL

Iranian President Rouhani has given 60 days for remaining signatories of the Nuclear Deal to implement promises in the oil and banking sectors, adds that Iran will no longer sell its enriched uranium and heavy water to other countries. Iran’s Foreign Minister Zarif says that the nuclear deals other signatories did not fufill their obligations. (Newswires)

Subsequently, the French Defence Minister notes that European countries want to keep the Nuclear Deal alive. And Israel’s PM Netanyahu says they will not allow Iran to obtain nuclear weaponry. (Newswires)

EQUITIES

Major European bourses have given up their early gains [Eurostoxx 50 -0.3%%] following on from a mostly downbeat Asia-Pac session, as sources released details regarding the break-down in US-China trade talks. Sentiment deteriorated as China reportedly backtracked on legal issues throughout text of proposed US trade agreement, affecting nearly every chapter. Furthermore, the sources stated that China looked for changes in the text of intellectual property protection and theft, technology transfer, financial service access and competition policy. Nonetheless, DAX (-0.3%) whilst in negative territory is modestly firmer than its peers, buoyed by optimistic German industrial output, whilst heavyweight Siemens (+4.7%) alongside Wirecard (+2.4%) also underpinned the index amid optimistic earnings, with the latter upgrading guidance. Sectors are relatively mixed with no stand-out out/underperformers. In terms of individual movers, Imperial Brands (-4.6%) shares fell despite optimistic earnings as its e-cigarette sales in the US were disappointing.

FX

DXY - A relatively constrained 97.589-409 range in the index is fairly reflective of the tentative tone in currencies ahead of the pivotal and potentially game-changing talks in Washington between top level US and Chinese trade negotiators as sourced headlines intimate that China retracted legal pledges in virtually all sections of the proposal document. Looking at a breakdown of the basket, the Dollar is mixed vs major counterparts with the safer-havens outperforming in contrast to high betas, predictably.

NZD/AUD - The Kiwi has been the most volatile G10 unit for obvious reasons, with a swoon to circa 0.6530 lows vs its US peer and 1.0720 against the Aussie in the immediate aftermath of the 25 bp RBNZ rate cut that was rated as roughly 50-50 in terms of probability and was accompanied by a lower projected profile going forward. However, Nzd/Usd and Aud/Nzd have both reversed course rather sharply to around 0.6590 and 1.0640 respectively as RBNZ Governor Orr revealed in the post-meeting press conference and subsequent comments that the outlook appears more balanced than prior to the ease, with the Bank now inclined to monitor data as it unfolds. Meanwhile, Aud/Usd is sitting tight within a 0.7025-00 post-on hold RBA range and awaiting the SOMP on Friday in addition to the aforementioned US-China trade situation.

GBP - Sterling remains vulnerable amidst the overall cautious risk environment and on Brexit uncertainty, as talks continue between the Conservative and Labour Parties, and while UK PM May battles to fend off latest leadership challenges. Indeed, Cable is now testing support ahead of 1.3000, such as the 30 DMA and a Fib (1.3036/1.3021), with Eur/Gbp nudging higher towards 0.8600 and the Pound not gleaning any support from firm Halifax house prices or decent BRC and Barclaycard retail surveys.

CHF/JPY - As noted above, the Franc and Yen are both benefiting from risk-off flows, as Usd/Chf retreats from 1.0200+ to revisit recent lows near 1.0170 and Eur/Chf slips back below 1.1400. Meanwhile, Usd/Jpy is just hovering around 110.00 after breaching Fib and daily support at 110.44 and 110.31 respectively, and a dip to 109.90, with stops said to be sitting between 109.75-70.

EUR - The single currency remains resilient either side of 1.1200 and 30 DMA resistance at 1.1224 vs Fib support at 1.1186 and lows seen earlier this week around 1.1160. A decent beat vs consensus in German ip has provided some traction against more Italian fiscal largesse.

NOK - In contrast to the above, weak Norwegian manufacturing output has undermined the Nok and pushed the Eur cross back over 9.8000 vs Eur/Sek that remains sub-10.7500.

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 forecast to 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)

FIXED INCOME

It’s not quite a safety flight (yet), but Gilts continue to head an increasingly firm rally and just hit 128.16 (+62 ticks), as Bunds reach 166.38 (+30 ticks) and US Treasuries 124-03 (+2+ ticks). To recap, renewed US-China trade tensions alongside ongoing Brexit uncertainty are prompting the latest bout of safe-haven positioning with the back-stop of a broad shift in global CB policy towards neutral-easing from normalisation. Technically, the German 10 year bond is now inching closer to 166.42 ahead of the 166.75 contract peak, while Gilts are approaching 127.21 before 128.37 and their US equivalent is just 1 tick away from the nearest upside chart objective. Conversely, the Italian benchmark has now fallen through its nearest support at 129.65 to expose 129.01 and then 128.50.

COMMODITIES

Choppy trade in the energy complex with Brent and WTI futures straddling just above USD 69.40/bbl and USD 61/bbl respectively amid the release of details regarding the deterioration of US-Sino trade discussions. The release of the a wider-than-forecast build in API stocks did little to sway prices in the immediate aftermath as the sector was overshadowed supply woes emanating from Libyan and Iranian tensions, Venezuelan sanctions and scope for OPEC to curb output till year-end.  Yesterday also saw the release of the EIA Short-Term Energy Outlook which showed a raise in 2019 global oil demand expectations by 20K to 1.38mln, whilst 2020 demand forecasts were increased by 80K. Elsewhere, China’s trade balance showed that the country imported a record 10.7mln BPD of crude in April, +11%Y/Y and +15% M/M, albeit, ING notes that the strong oil numbers were likely due to heavy stockpiling ahead of Iranian waiver expiries. From a technical point, the benchmarks remain above their respective 50 and 200 DMAs (WTI: 60.95 and 60.75; Brent: 69.29 and 69.16 respectively, having formed a golden cross yesterday.

Gold (+0.3%) largely benefits from the safe-haven flows amid the step-backs in US-China trade discussions and as US are set to hike tariffs on USD 200bln worth of Chinese goods at 12:01 ET tomorrow. Meanwhile, copper came off highs after sources reported that China’s backtracking in talks affected every chapter in the trade accord. The red metal did gain some impetus during Asia-Pac hours as imports from China topped estimates. Finally, iron ore prices rose to near five-year highs on supply woes after Vale, the worlds largest iron ore producer, lowered its production forecasts for the base metal.

US API weekly crude stocks (29 Apr) 2.81M vs. Exp. 1.2M (Prev. +6.8M). (Newswires) 

Australia's Pilbara Port notes that throughput shipments in April have declined 1% Y/Y. (Newswires)

Azerbaijan Oil Minister says that Saudi stated they will not take any unilateral decisions until June. (Newswires)

Iraq have signed a USD 1.07bln deal with China's CPECC to process gas from the Halfaya oilfield. (Newswires)