• US President Trump has increased tariffs to 25% from 10% on USD 200bln of Chinese goods; China says they will take countermeasures
• Choppy price action in Asian equities with Chinese Vice Premier Liu He reportedly stating that it is now up to President Trump and President Xi to work this out
• Looking ahead, highlights include German Trade Balance, UK GDP, Industrial, Manufacturing & Construction Output, US CPI, Canadian Building Permits & Jobs Report, Fed's Brainard, Bostic & Williams, ECB's Lautenschlager, de Galhau & Coeure

ASIA-PAC

Asian equity markets were mixed with some seemingly hopeful for a resolution to the US-China trade dispute despite the higher tariffs taking effect overnight, as markets initially found solace from US President Trump’s comments that he received a ‘beautiful’ letter from his Chinese counterpart and suggested a trade deal is possible this week. ASX 200 (+0.1%) and Nikkei 225 (-0.8%) began positive amid hopes of an 11th hour trade-breakthrough which failed to materialize and subsequently saw their early gains wiped out, with sentiment in Tokyo also at the whim of currency moves and a deluge of earnings. Hang Seng (+0.7%) and Shanghai Comp. (+1.1%) initially outperformed on early trade optimism but then retreated off their highs as the steeper tariffs took effect, which China announced it is forced to retaliate against but hoped the sides would meet halfway. Furthermore, some reports noted there was little to no progress talks, although discussions will continue on Friday and it was also suggested that President Trump and President Xi are expected to speak over the phone. Finally, 10yr JGBs were choppy with support seen in late trade after the increased US tariffs kicked in and following stronger demand at the 10yr inflation-indexed bond auction.

PBoC skipped open market operations for a net weekly injection of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.7912 (Prev. 6.7665)

US tariff increase to 25% from 10% on USD 200bln of Chinese goods took effect after the deadline passed with no breakthrough made. In response to the tariff increase, China issued a statement that it hopes the sides can meet halfway on trade and said it will take countermeasures against the US tariff hike. (Newswires)

US President Trump said the US cannot have China trying to renegotiate the trade deal but added that he received a letter from Chinese President Xi which suggested to work together to see if we can get something done. President Trump also said he may speak with his Chinese counterpart on the phone soon and that "we'll see" regarding a trade deal, while he noted that it is possible to get a Chinese trade deal this week. (Newswires)

Chinese Vice Premier Liu He said additional tariffs is not a solution and hopes to have rational and candid exchanges with the US side, while he reportedly no longer held the title of President Xi's "Special Envoy" which suggested he was on a "tighter leash" and compromises were limited. In related news, Chinese Vice Premier Liu He is said to have told USTR Lighthizer & Treasury Secretary Mnuchin there is nothing more he can do and it’s up to President Trump and President Xi to work this out, while it was also reported that US President Trump and Chinese President Xi are expected to conduct a phone call. (Xinhua/Twitter)

Reports stated that even if a trade deal is reached, it will be limited in actual meaning and could be broken constantly, while many Chinese believe US is obsessed with "comprehensively containing" China. (Global Times/Twitter)

BoJ Summary of Opinions from April 24th-25th meeting stated that although it will take time to achieve price stability target, it is necessary to persistently continue current powerful monetary easing as the momentum toward 2% target is maintained. (Newswires)

UK/EU

UK PM May is reportedly planning a new round of indicative votes in the next 2 weeks if cross-party talks fail, while she has been warned that it could lead to a Brexit deal that nobody wants. (Telegraph)

FX

The DXY was lacklustre with price action rangebound following the recent outflows attributed to trade uncertainty, which also weakened CNH and prompted the PBoC to set its weakest fix since January. EUR/USD was firmer above 1.1200 following a breakout from this week’s range and GBP/USDtraded steady near support at 1.3000. Elsewhere, the temperamental overnight risk appetite ensured jittery trade in USD/JPY, while AUD/USD was choppy around the 0.7000 level with initial gains seen following the RBA Statement on Monetary Policy in which the central bank suggested upcoming meetings will be focused on jobs data and raised its near-term outlook for export growth and terms of trade. Furthermore, the RBA increased CPI inflation forecast through to December 2019 but lowered its trimmed mean inflation estimates and Real GDP growth forecast for the same period, with the forecasts based on technical assumptions including the cash rate moving in line with market pricing of 2 cuts to 1.00%.

RBA Statement on Monetary Policy said the board judged lower unemployment rate is possible given subdued inflation and that the board will pay close attention to labour market in upcoming meetings. RBA commented that domestic price pressures were more subdued than previously anticipated and near-term indicators of labour market softened since February, although it added that some signs growth has picked up in China and revised upwards its near-term outlook for export growth and terms of trade. Furthermore, the RBA lowered forecasts for GDP growth through to December 2019 and lowered trimmed mean inflation estimates but raised some CPI inflation forecast and noted that technical assumptions include the cash rate moving in line with market pricing of 2 cuts to 1.00%. (Newswires)

US is said to be considering labelling Vietnam as a currency manipulator and also looking at other potential trading partners as potential currency manipulators, while India and South Korea are expected to be removed from the watchlist. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude futures oscillated around the 62.00/bbl level with initial gains amid hopes of breakthrough last minute breakthrough in US-China trade talks, although this were later pared given the lack of progress and as the higher US tariffs on Chinese goods took effect. Elsewhere, gold saw mild gains amid a subdued greenback but with price action restricted ahead of today’s US CPI data, while copper prices also mirrored the overnight jittery tone.

China's Sinopec and CNPC suspended Iran oil purchases following the end of US sanction waivers. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said Iran has engaged in escalating series of threatening action and statement in recent weeks, while he warned that any attack on US interests will be met with swift and decisive response. (Newswires)

US

Major curve spreads are slightly wider at settlement, though yields are lower by 3-4bps across the curve. The complex caught a haven bid on Thursday trade, as trade anxiety and geopolitics dominated. In early trade the 3m/10-year curve inverted again for the first time since March, amid distinctly risk off trade, which saw China’s yuan temporarily climb above the psychological 6.85 mark. The buying of the Treasuries in recent days has seen a reassessment of Fed rate cut probabilities too: Money markets imply the chances of a Fed rate cut this year are around 60%, falling from around 50% a week ago. The trade and geopolitics distracted from the US 30-year supply, which saw a small 0.2bps tail (beneath recent averages); the breakdown was lacklustre: dealers takedown was slightly above recent averages, though it was the largest takedown at a 30s auction since November; direct participation fell slightly below recent averages, and was the smallest takedown since November; the indirect bid was slightly above recent averages, though didn’t conjure the same outcries as the 10s auction, which saw indirect participation fall sharply, which yesterday led to speculation that the Chinese were not participating in Treasury auctions amid escalating tensions. US T-notes (M9) futures were up 10 ticks at 124.02 by the close of electronic trade.