• Major European indices [Euro Stoxx 50 -1.0%] remain subdued in-line with the performance seen overnight on continuing US-China uncertainty
• On the geopolitical front, and adding to the risk-off sentiment, reports state that North Korea fired what is likely to be two short-range missiles
• Looking ahead, highlights include US PPI & Wholesale Inventory, Fed's Powell, Bostic & Evans, RBNZ's Orr, supply from the US

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 (+0.4%) was the exception due to corporate updates. Nikkei 225 (-0.9%) was weighed by currency effects and with individual stocks driven by a plethora of earnings releases, while Hang Seng (-2.4%) and Shanghai Comp. (-1.5%) 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's Commerce Ministry says that China opposes tariffs which are unilaterally imposed, hopes US meets China halfway but are prepared for all outcomes. (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

BoE's Saunders estimates the neutral rate is around two per cent, "give or take"., adding that he is fairly sure the current 0.75% rate is below neutral, but a return to neutral doesn’t mean to the pre-crisis level, expects interest rates to go a bit higher over time, but this will not be far or fast. (Northern Echo)

Italy’s Finance Minister Tria states that the EU Commission will not demand additional budget measures., according to Il Sole 24. (Newswires)

Norges Bank kept rates unchanged at 1.0% vs. Exp. 1.0%.

- Current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in June

- The outlook and balance of risks continues to imply a gradual increase in the policy rate

- Overall, new information indicates that the outlook for the policy rate for the period ahead is little changedsince the March Report

Norges Banks Governor Olson says that should trade tensions deteriorate, growth amongst their trading partners could be lower than projected in March, and that rate signals are not a promise; does not comment on whether there will be further 2019 hikes after June. (Newswires)

GEOPOLITICAL

Following initial reports that North Korea had fired an unidentified projectile, further reports indicate this this was likely 2 short-range missiles. Prior to the further reports South Korea stated that it is unclear whether North Korea fired single or multiple projectiles. (Yonhap/Newswires)

EU have rejected nuclear deal ultimatums from Iran., Spectator Index. (Twitter)

Spokesperson for Iranian Atomic Energy Org. says Tehran wants to bring nuclear deal back on track. (Newswires)

EQUITIES

European bourses have succumbed to the risk aversion [Eurostoxx 50 -1.0%] seen in Asia and Wall Street, with the downbeat tone exacerbated by reports of further missiles tests in North Korea. Sectors are largely lower with the exception of defensive sectors such as Utilities (Unch) and Consumer Staples (+0.2%). A few themes are in play today; 1) a guidance cut by Intel yesterday has prompted a sell-off in European chip names with Infineon (-2.8%) and STMicroelectronics (-2.8%) shares plumbing the depths, albeit Dialog Semiconductor (+0.2%) is bucking the trend on the back of optimistic earnings. 2) Mining names bear the brunt of sentiment-subdued base metal prices coupled with ArcelorMittal’s (-3.9%) 33% drop in profits, thus Rio Tinto (-0.9%), Antofagasta (-1.3%) and Glencore (-1.8%) all weigh on the sector. 3) Against the backdrop of weaker auto earnings, Continental (-3.2%) also reported dismal numbers which dragged its peers Michelin (-0.9%) and Pirelli (-1.2%) lower in sympathy. Finally, Renault (-2.0%) shares declined amid press reports that Nissan could lower its 2022 guidance. Back to earnings, some analysis from JPM notes that thus far, 55% of the Stoxx 600 companies topped EPS estimates (vs. 76% in the S&P 500) whilst 58% of firms are beating on topline with sales growth at 1% Y/Y (vs. +5% Y/Y in the S&P 500), “This is consistent with our view that sales growth in Europe would underwhelm relative to the US, given the weaker macro momentum in the region” JPM says.

FX

JPY/CHF - Demand for the Yen remains fervent and the Franc is also back in favour as tensions rise ahead of the US/China face-off in Washington, while geopolitical factors are also weighing on sentiment given the US-EU-Iran sanctions dispute and NK firing an unidentified projectile. Hence, Usd/Jpy has retreated a bit further from 110.00+ to fill/trip a few stops between 109.75-70 and test the top end of decent option expiry interest spanning 109.60-50, while Usd/Chf and Eur/Chf have pulled back from 1.0200+ and 1.1400 respectively.

USD - Notwithstanding the greater appeal for safer-havens noted above, the Dollar retains a firm underlying bid vs the other G10s and especially EMs that are suffering in their own right. Indeed, the DXY continues to find support below 97.500 and its 30 DMA (97.398) with the index currently hovering in a 97.702-517 range.

AUD - The major underperformer and most prone to the threat of a complete breakdown in US-China trade dialogue that would trigger an exchange of more aggressive tit-for-tat tariffs. Aud/Usd has recoiled from recent recovery highs towards this week’s multi-month low around 0.6963 and Aud/NZD has unwound more post-RBNZ spike gains to sub-1.0600 as Nzd/Usd holds more comfortably above 0.6550 and depths plunged in wake of Wednesday’s NZ rate cut. On that note, Governor Orr has reiterated that the policy outlook is now more neutral and it is too soon to assess if more easing is required ahead of testimony on the latest meeting and action to a parliamentary select committee.

NOK - Staying with the Central Bank theme, but in stark contrast to the RBNZ, Norway’s Norges Bank flagged a hike at next month’s meeting and the Nok shot up across the board in response. However, gains were rapidly eroded and reversed at one stage amidst the aforementioned risk-averse tone before the Norwegian Crown regained bullish momentum on the fact that rates are set to rise against the general global grain of steady to easier policy. Eur/Nok is back under 9.8000, albeit just within 9.7784-8393 trading parameters and eyeing hefty expiry interest (1.1 bn) at the strike.

EUR/GBP/CAD - All narrowly mixed vs the Greenback, but with a bearish bias below 1.1200, 1.3000 and only just over 1.3500 respectively. Eur/Usd has multi-bn expiries stretching from 1.1150 to 1.1200 and beyond to keep price movement contained along with the 30 DMA (1.1223) and interim chart support at 1.1155, while Cable has gleaned some traction around a Fib (1.2980) and ahead of the 200 DMA (1.2960), but needs to recapture the 100 DMA (1.3013) to revisit best levels of 1.3025. Back to the Loonie, Canadian trade data looms alongside house prices.

EM - More widespread losses vs the Usd, but once again the Try is underperforming and has been down to through 6.2450 with the Lira lamenting another decline in Turkish foreign reserves.

FIXED INCOME

It remains to be seen whether this is just another bout of consolidation and chance for bulls to refuel, but in keeping with the pattern seen yesterday Bunds, Gilts and US Treasuries have eased back from best levels ahead of the US open. For UK debt, supply may be an issue given a so-so DMO auction vs more solid Spanish sales, as the 10 year benchmark slips through 128.00 from 128.19, with Bunds down to 128.35 vs 166.53 and US Treasuries hovering just above 124-00 against 124-03 and Wednesday’s 124-06 high. Ahead, top-tier US data and the final leg of this week’s refunding via Usd19 bn long bonds after a somewhat disappointing 10 year offering last night.

COMMODITIES

Brent (-0.5%) and WTI (-0.4%) prices are choppy, with prices initially subdued amid the general risk sentiment as markets await US-China updates and the most recent geopolitical developments being reports that North Korea has fired an unidentified projectile at 16:30 local time, although it is still unknown whether it was a single or multiple projectiles. Despite the recent price action being sentiment-driven, the macro picture still stands, with Iranian/Venezuelan sanctions, Libyan tensions and OPEC-led cuts still on the table. Thus, Barclays revised their Q3 2019 Brent and WTI forecasts higher by USD 4/bbl amid expectations of tightening market conditions. In terms of US supply, ING highlights that refinery run rate remain at a season-low at 88.9% last week amid a heavier maintenance season alongside several unplanned outages. Meanwhile, gold (+0.3%) has been accumulating some risk premium in light of the aforementioned developments in the Korean peninsula whilst conversely, copper is pressured by the humdrum risk tone emanating from the seemingly escalating US-Sino tensions and geopolitical concerns. Finally, China State Planner stated that strict pollution related controls will be imposed on steel-making capacity in key pollution area whilst also raising domestic iron ore production. It’s worth noting that earlier in March, a level 1 smog alert was issued which requires steel mills to curb production by 40-70%. Although, it is worth assuming that iron ore production will be hiked to offset volatility in the base metal.

China's State Planner state they will impose strict controls on steel-making capacity in key pollution areas. (Newswires)

Phillips 66 reports flaring at their Wood River, Illinois refinery (200-220K BPD). (Newswires)