• US President Trump increased tariffs from 10% to 25% on USD200bln of Chinese goods; however, he did comment that a trade deal is possible this week
• Major European Indices [Euro Stoxx 50 +0.8%] are firmer following the choppy overnight action as sentiment turned risk-on as market’s remain hopeful that a deal can be secured
• Looking ahead, highlights include US CPI, Canadian Building Permits & Jobs Report, Fed's Brainard, Bostic & Williams, ECB's 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 (+0.2%) and Nikkei 225 (-0.3%) 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 (+0.8%) and Shanghai Comp. (+3.1%) 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)

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)

China's MOFCOM spokesman says they are not aware of any phone call between US President Trump and China's Premier Xi. (Newswires)

China's market has largely withstood the initial wave of the psychological impact of Trump's tariff stick. It's the US market's turn next, according to the Editor-in-chief of Chinese and English editions of the 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

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)

Italian Deputy PM Di Maio says that spending on education, health and research should be removed from EU rules on deficit/GDP calculations. (Newswires)

UK GDP Prelim QQ (Q1) 0.5% vs. Exp. 0.5% (Prev. 0.2%)

- UK GDP Prelim YY (Q1) 1.8% vs. Exp. 1.8% (Prev. 1.4%)

- UK Manufacturing Output MM (Mar) 0.9% vs. Exp. 0.2% (Prev. 0.9%, Rev. 1.0%)

German Trade Balance, EUR, SA* (Mar) 20.00B vs. Exp. 18.2B (Prev. 18.7B)

- German Exports MM SA* (Mar) 1.5% vs. Exp. -0.3% (Prev. -1.3%, Rev. -1.2%)

- German Imports MM SA* (Mar) 0.4% vs. Exp. 0.5% (Prev. -1.6%)

GEOPOLITICAL

Venezuelan Interim President Guaido says he would probably accept US military intervention in the country. (Newswires)

Iran's Revolutionary Guard's Deputy Head states that Iran will not hold discussions with the US, and the US would not dare launch military action., Tasnim News Agency. (Newswires)

South Africa's ANC party has 57% of votes with 80% of districts counted, according to the Electoral Commission. (Newswires)

EQUITIES

Major European indices have held onto gains seen at the cash open [Eurostoxx 50 +0.8%] following on from a stellar session in China amid hopes of a trade deal by the end of the week. SMI (+1.0%) marginally outperforms its peers with all 20 stocks in the green. Sectors are posting broad-based gains, albeit the defensive sectors are somewhat lagging amid the risk-appetite. In terms of movers, Thyssenkrupp (+14.0%) shares spiked to the top of the Stoxx 600 after sources initially suggested that the company are to shelve their intended separation of materials and industrial divisions and are to instead consider a listing of its elevator business. Sources also stated that it anticipates a failure of Thyssenkrupp’s JV with Tata Steel, which the company later confirmed as it expects EU to block the planned JV. Meanwhile, to the downside, ADP (-9.3%) shares sharply declined after its privatisation plan is put on hold.  Elsewhere, the latest BAML flow show saw USD 20.5bln out of equities (US USD 14bln, EU USD 2.5bln and EM USD 1.3bln), the third largest YTD amid trade jitters. Finally, with a quarter of EU stocks left to report earnings, Deutsche Bank highlights that 54% of companies have thus far topped expectations (vs. 44% last quarter) which is the highest since early 2017. “Across countries, the strongest beats have come in Germany and Switzerland while Italy has disappointed slightly” Deutsche Bank says, adding that the largest earnings beats have come from the Consumer Discretionary and Healthcare sectors, whilst Material and Real Estate are at the other end of the spectrum.

FX

EUR/CAD/CHF/AUD/NZD/GBP - All on a firmer footing vs a broadly soft Greenback in wake of round 1 and reportedly little progress towards a US-China trade deal. Indeed, heading into the 2nd day of negotiations tariffs have now been lifted on another Usd200 bn Chinese imports and Beijing looks poised to retaliate, but the overall market reaction has been sanguine if not calm (or complacent some might argue) amidst optimism that an agreement will ultimately be forged. The single currency is consolidating above 1.1200, albeit just off Thursday’s highs and underpinned by decent option expiries at 1.1200-05 (1 bn), with the 30 DMA (1.1223) looking pivotal from a technical perspective. Meanwhile, the Loonie has pared more losses from 1.3500+ around a 1.3450 axis ahead of Canadian jobs and housing data and the Franc is holding its recovery gains within a 1.0160-30 range. Similarly, the Aussie and Kiwi are supported above post-RBA and RBNZ lows between 0.7018-0.6980 and 0.6613-0.6584 respective bands, with the former gleaning some traction from the overnight SOMP underscoring data dependency after Tuesday’s dovish hold. Finally, Cable is hovering around 1.3000 in the absence of fresh Brexit news and a raft of UK data that had little impact given that Q1 GDP was in line with consensus and the pick-up in growth from the previous quarter was largely due to inventory provisions for the original March 29 Article 50 deadline.

NOK/SEK - The Scandi Crowns have also bounced on the more bullish or less risk averse tone, and with the Norwegian Krona also inflated by above forecast CPI data hot on the heels of yesterday’s Norges Bank guidance for a rate hike in June. Eur/Nok is back under 9.8200 and Eur/Sek has retreated to 10.8000.

JPY - The major outlier or exception to the overall trend as Usd/Jpy hovers near the midpoint of 110.05-109.65 trading parameters even though the DXY is straddling a key chart level (30 DMA at 97.398) within a lower 97.455-298 range than of late.

EM - At last some respite for the beleaguered Lira as Usd/Try reverses sharply towards 6.0000 vs 6.2400+ on Thursday before the CBRT decided to suspend 1 week repos again in an attempt to tighten liquidity and deter short-selling. However, the recovery has come about in large part by direct intervention to the tune of circa Usd1 bn, in contrast to the latest Rand revival on SA election updates, as the ruling ANC has secured 55%+ of the votes with less than 20% left to be counted. Usd/Zar inching closer to 14.20000 at present.

EXPIRIES - Aside from the Eur/Usd options noted above, 1 bn in Usd/Cad between 1.3455-65, 2.3 bn in Aud/Usd at 0.6950 and 1 bn in Nzd/Usd from 0.6580-70 are also worth noting given current spot rates and price moves seen already thus week.

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)

Turkish State Banks sold in excess of USD 1bln of reserves yesterday and overnight, according to sources. (Newswires)

FIXED INCOME

Even though participants have been starved of top-tier/hard data since the return from May Day, Gilts, and Short Sterling largely shrugged off the deluge at first glance. In truth, the Q1 GDP prints and trade balances were close if not bang on consensus, while stronger than expected ip and output readings were offset by a contraction in the overall economy in March. However, the 10 year UK benchmark did subsequently succumb to a bit more selling pressure alongside Bunds that slipped through 166.00 to a fresh Eurex base at 165.94 and US Treasuries in sympathy. So, trade remains choppy and volatile pending more news on the US-China trade front and US CPI data in the interim.

COMMODITIES

WTI and Brent futures trade with mild gains with the former straddling USD 62.00/bbl whilst the latter meanders just above USD 70.50/bbl. Price action in the complex has been mostly dictated by risk-sentiment as the expected US tariff hike on Chinese goods came into effect, ahead of potential Chinese retaliation, although President Trump has not ruled out a possible trade deal this week. Elsewhere, some desks have been keeping an eye on the more pronounced backwardation in Brent futures with ING highlighting that the July/August spread has been trading above USD 0.90/bbl vs. Wednesday’s USD 0.75/bbl, which points towards a tightening market. Meanwhile, some traders noted that the Brent 3M time-spread is at the deepest backwardation in over 4 years. Metals are relatively tentative with precious metals trading flat whilst copper and iron ore are somewhat stable and awaiting China’s response to Trump’s tariff hike. Barclays expects a tighter iron ore market and have thus raise its FY forecast for the base metal to USD 83/tonne (vs. Prev. USD 75/tonne) whilst expecting copper declining to USD 5900/tonne by Q4 2019 before recovering to USD 6300/tonne by Q2 2020 due to trade risk and a potential global slowdown.

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

Barclays has raised FY iron ore price forecasts to USD 83/tonne (vs. Prev. USD 75/tonne) whilst expecting copper declining to USD 5900/tonne by Q4 2019 before recovering to USD 6300/tonne by Q2 2020. (Newswires)

Exxon (XOM) reports operation issues at their Baytown Texas refinery (584k BPD), this is because of heavy rainfall which has resulted in flaring. (Newswires)

Chevron report the shut down of some process units at its 110k bpd Pasadena, Texas refinery, citing adverse weather, according to a community alert. (Newswires)