• Asian indices were negative ahead of the Chinese delegation arriving in Washington for the resumption of trade talks
• In FX, the DXY was steady along with other safe havens while remaining G10 currencies are subdued/flat vs USD
• Looking ahead, highlights include US PPI & Wholesale Inventory, Norges Bank Rate Decision, ECB's Lane & Nowotny, Fed's Powell, Bostic & Evans, RBNZ's Orr, supply from the UK & US
• Earnings: UniCredit, Deutsche Telekom, Rheinmetall, ArcelorMittal, BT

ASIA-PAC

Asian equity markets were mostly negative as US-China trade uncertainty kept global risk sentiment cautious ahead of trade talks in Washington and as the region also digested a heavy slate of corporate earnings, as well as mixed Chinese data. Nonetheless, ASX 200 (+0.3%) was the exception due to corporate updates. Nikkei 225 (-1.0%) was weighed by currency effects and with individual stocks driven by a plethora of earnings releases, while Hang Seng (-2.0%) and Shanghai Comp. (-1.4%) were the worst hit on trade concerns after the US issued a notice confirming that tariffs will be increased on Friday and with China’s Mofcom mulling counter measures. There was also some sabre rattling from US President Trump who alleged that China broke the deal in trade talks and warned to not backdown until China stops cheating US workers, otherwise the US will not do business with them. Furthermore, overnight data releases were mixed in which Chinese CPI printed inline and PPI topped forecasts, although lending data disappointed with both New Yuan Loans and Aggregate Financing below expectations. Finally, 10yr JGBs initially saw mild upside on the risk averse tone and with the BoJ present in the market focused in the belly. However, the gains were later pared amid mixed comments from BoJ Governor Kuroda who reiterated to continue with powerful monetary easing under YCC given that inflation is still below target, but noted that JGB purchases are slowing and suggested that even if BoJ bond purchases slow to JPY 30tln annually, it would not cause huge trouble.

US President Trump stated that China broke the deal in trade talks and that China looted US for years, while he added that whatever happens in trade talks happens and suggested not to worry about it. Furthermore, President Trump commented that US will not backdown until China stops cheating our workers, otherwise we will not do business with them. (Newswires)

US trade official said the additional tariffs on Chinese goods would apply to goods exported from Friday and will not include goods already in transit, which reports noted provides negotiators a window between 2-4 weeks before the full impact of higher tariffs. (FT)

China Commerce Ministry said it may take countermeasures on US tariff moves and that escalating trade frictions is not in anyone's interest, while it deeply regrets US plans to raise tariffs. (Newswires)

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7665 (Prev. 6.7831)

Chinese New Yuan Loans (Apr) Y/Y 1020B vs. Exp. 1200.0B (Prev. 1690.0B). (Newswires) Chinese Aggregate Financing (CNY)(Apr) 1.36tln vs. Exp. 1.65tln (Prev. 2.86tln) Chinese M2 Money Supply (Apr) Y/Y 8.5% vs. Exp. 8.5% (Prev. 8.6%)

Chinese CPI (Apr) Y/Y 2.5% vs. Exp. 2.5% (Prev. 2.3%). (Newswires) Chinese PPI (Apr) Y/Y 0.9% vs. Exp. 0.6% (Prev. 0.4%)

UK/EU

UK PM May spokesperson said second round of talks with Labour shows seriousness of approach with more meetings and talks to occur in the approaching days. (Newswires)

UK PM May has agreed to meet and discuss her future with the executive of the 1922 committee of Tory backbenchers next week. (Guardian) The Chair of the 1922 Committee thereafter stated that PM May us aiming for a Brexit bill vote before May 23rd. (Newswires)

UK RICS Housing Survey (Apr) -23.0 vs. Exp. -22.0 (Prev. -24.0). (Newswires)

FX

The DXY was steady and held on to the prior day’s gains as the risk averse tone provided support for safe-havens, while its major counterparts were lacklustre after EUR/USD slipped back below 1.1200 and with GBP/USD stuck near this week’s lows circa 1.3000 ahead of next week’s discussions with the 1922 committee regarding PM May’s future. USD/JPY gave up 110.00 again and JPY-crosses extended on their declines due to the negative risk tone, which also hampered high beta currencies as CAD eyed its weakest levels in around 2 weeks and with AUD/USD at a further distance from the 0.7000 handle, while Westpac was also bearish on the latter and recommended to sell at 0.7085 levels with a target of 0.6960 and stop at 0.7120.

COMMODITIES

Commodities were lacklustre as the US-China trade uncertainty kept risk appetite subdued, which saw WTI crude futures slip back below the USD 62.00/bbl and give back the gains made from the prior day’s surprise DoE headline crude inventory draw. Nonetheless, Iranian tensions remained a concern after US President Trump issued sanctions on the Iran metals and US Special Envoy for Iran Hook reiterated a hard-line stance in which the US will not grant any more sanction waivers for Iranian crude and subsequently added that he believes the global oil market has already priced in Iranian oil exports falling to zero. Elsewhere, gold traded sideways as the greenback held near 2-week highs and copper suffered on China underperformance.

US President Trump issued an executive order for imposing sanctions on Iranian iron, steel, aluminium and copper. In related news, US Special Envoy for Iran Hook said the global oil market has priced in Iranian oil exports falling to zero and the US will not grant any more sanctions waivers to buyers of Iranian oil but added the US wants to negotiate a new deal with Iran, which if successful, will be presented to Congress to ratify it as a treaty. (Newswires/Al Arabiya)

US

The Treasury curve bear-steepened in Wednesday trade, with most of the action in the belly. The complex started out the day on the front foot, underpinned by trade anxiety. And while punchy trade rhetoric and geopolitical developments kept a floor under prices, there was downside in wake of a weak 10-year auction, where the US sold 10-year paper in a very soft auction, which saw the largest tail since August 2017, and the lowest cover ratio since March 2008; indirects performance was also the weakest since April 2018, giving rise to the usual (unverified) rumours that China was staying on the sidelines as trade tensions gain prominence; a Jeffries analyst also suggested that the auction may have been soft due to the 10s complex coming so far so quickly suggesting there may be limited upside. A heavy slate of corporate supply was also cited as a reason for the TPLEX weakness. The US will on Thursday sell 30s, completing the week's supply; SocGen holds a neutral/slightly negative outlook for the upcoming 30y auction. US T-notes (M9) futures settled 9+ ticks lower at 123-24.

US House judiciary panel voted to hold AG Barr in contempt of Congress related to Mueller report, while there were also reports that US President's son Donald Trump Jr. has been subpoenaed by the Senate Intelligence Committee. (Newswires)