• Asian stocks and US equity futures began the week negative as focus remained on the US-China trade tensions
• President Trump thinks China felt they were being beaten so badly on negotiations that they may as well wait around for next election, but warned that a deal will become far worse for them if it is negotiated during his second term
• UK PM May is being pressured by cabinet ministers to drop cross-party Brexit talks and launch a final attempt to reach a compromise in parliament
• An Observer poll ahead of the European elections has placed the Brexit party on 34%, with Labour slipping to 21% and the Conservatives collapsing to just 11%
• Looking ahead, highlights include Norwegian GDP, Fed’s Rosengren, Clarida, BoC’s Lane

ASIA-PAC

Asian stocks and US equity futures began the week negative as focus remained on the US-China trade tensions with US President Trump unwilling to backdown in a Twitter tirade during the weekend in which he alleged that China loves ‘ripping off’ America. Furthermore, President Trump suggested China may have felt they were being beaten so badly on negotiations that it may want to wait around for the next election but warned that a deal will be far worse for them if it is negotiated during his second term, while he also recently stated that the process has begun to place additional tariffs at 25% on the remaining USD 325bln of Chinese goods. ASX 200 (-0.4%) and Nikkei 225 (-0.7%) were negative with Australia led lower by weakness in financials after index top-component CBA reported a decline in Q3 profits and as ANZ Bank shares traded ex-dividend, while Tokyo sentiment was weighed by currency flows and a deluge of earnings, with the “Sell in May…” idiom holding true as the Japanese benchmark sits on losses of around 1000 points month to date. Elsewhere, the Shanghai Comp. (-1.0%) was also weaker amid the absence of Hong Kongparticipants and due to the ongoing trade dispute with negotiators said to be at odds on 3 major issues including disagreement on removal of all remaining tariffs as well as the wording of a deal and with China said to view US import targets as unrealistic, while the PBoC also skipped open market operations again which resulted to a daily net liquidity drain of CNY 20bln. Finally, 10yr JGBs were relatively flat with only minimal support seen despite the negative risk tone and BoJ’s presence in the market for a total JPY 750bln in 1yr-5yr JGBs.

President Trump suggested that he thinks China felt they were being beaten so badly on negotiations that they may as well wait around for next election, but warned that a deal will become far worse for them if it is negotiated during his second term and that it would be wise for China to act now but he loves collecting big tariffs. (Twitter)

White House economic adviser Kudlow said China has invited US Treasury Secretary Mnuchin and Trade representative Lighthizer to China to continue trade talks, while he also suggested that it is US importers are paying for the tariffs instead of China and that both sides will lose in the trade war. (Newswires/Fox)

China Vice Premier Liu He said trade talks with the US went "fairly well". Furthermore, Global Times Editor Hu Xijin said US/China trade talks have not broken down and that both sides see the talks as constructive, while Hu added that consultations will continue and both sides agreed to meet again in Beijing in the future. (Newswires/Twitter)

US and China trade negotiators were said to be at odds on 3 major issues including disagreement on removal of all remaining tariffs, differences in wording of the agreement and with China said to view US import targets as unrealistic. In related news, Chinese press accused the US of obstructing progress on bilateral trade talks. (Xinhua/People's Daily)

US reportedly gave China their bottom line in which China now have 3-4 weeks to react before more tariffs will be raised on the remaining USD 325bln of Chinese imports, according to Bloomberg's Jennifer Jacobs. (Twitter)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires) PBoC set CNY mid-point at 6.7954 (Prev. 6.7912)

UK/EU

UK PM May is meeting with the 1922 committee on Thursday in which she is expected to provide a clear road map for standing down as leader. In other news, UK PM May is reportedly promising to reopen Brexit talks with the EU in an attempt to breathe life back into negotiations with the opposition Labour Party and take UK out of EU by the summer, while UK Brexit Secretary Barclay reportedly seeks to ramp up preparations for abrupt exit before 31st October. (Newswires/FT)

UK PM May was said to be pressured by cabinet ministers last night to drop cross-party Brexit talks and launch a final attempt to reach a compromise in parliament. (Times) Separate reports suggest that cross-party talks are on the brink of collapse as Labour insists on having a second referendum as part of any deal. (Daily Mail)

UK opposition Labour party trade policy chief Gardiner said biggest sticking point is uncertainty PM May's successor will deliver on deal negotiated with government, while UK Shadow Brexit Secretary Starmer is pessimistic on passing any cross-party Brexit deal which lacks a confirmatory referendum and stated that as many as 150 Labour MPs would reject a deal which didn’t include a confirmatory referendum. (Newswires/Guardian)

An Observer poll ahead of the European elections has placed the Brexit party on 34%, with Labour slipping to 21% and the Conservatives collapsing to just 11%. Ominously for Theresa May, support for the Tories at the European elections is now less than a third of that for Farage’s party, and below that for the Liberal Democrats, who are on 12%. (Observer)

ECB’s Nowotny (Hawk) said he expects euro-zone growth to rebound in H2 which will pave the way to deliberate normalizing crisis-mode stimulus policies, while he also suggested markets should not interpret recent comments by ECB President Draghi as a signal ultra-loose monetary policy would be prolonged. (Nikkei)

FX

In FX markets, the DXY was flat on the session and remained despondent following last Friday’s softer than expected CPI data, while its major counterparts traded mixed as EUR/USD was contained between a cluster of shorter-term DMA levels and with GBP/USD faring better after the 1.3000 level provided a base for the pair. Nonetheless, GBP/USD could be set for a tumultuous week ahead as PM May is expected to meet with the 1922 committee on Thursday and provide a clear road map for standing down, while there were also reports she is promising to reopen Brexit talks with the EU in an attempt to woo the opposition Labour party and fulfil the Brexit by summer, although cabinet ministers were said to pressure her to end cross-party talks. Elsewhere, USD/JPYand JPY-crosses were dragged by the risk averse tone, which was also detrimental to high beta currencies in which AUD/USD and NZD/USD retreated below the 0.7000 and 0.6600 levels respectively with weak Australia Home Loans data adding to the gloom. Australian Home Loans (Mar) -2.5% vs. Exp. 2.3% (Prev. 2.0%). (Newswires)

COMMODITIES

Commodities were lacklustre amid the risk averse tone with WTI crude futures contained within the tight range seen last week and below the USD 62.00/bbl, but with downside stemmed on news related to supply including a decline in the latest Baker Hughes rig count and closure of the Houston shipping channel, as well as a sabotage on several vessels including 2 Saudi oil tankers off UAE’s Fujairah. Elsewhere, gold prices were subdued amid an uneventful greenback and copper mirrored the underperformance of its main buyer China due to the ongoing US-China trade dispute.

Baker Hughes rig count (May 10) oil rigs -2 at 805, gas rigs unchanged at 183, total US rigs -2 at 988. (Newswires)

Saudi Energy Minister Al Falih condemned an attack on 2 Saudi vessels that were sabotaged on Sunday morning near UAE. (Newswires)

Houston ship channel was closed following a collision of ships. The collision happened between a tanker and two oil barges which resulted in as much as tens of thousands of gallons of gasoline productions leaking into the shipping channel. (Newswires/abcNews)

GEOPOLITICS

US Acting Defense Secretary Shanahan approved new deployment of patriot missiles to Middle East over Iran concerns. (Newswires)

US Treasury Department issued fresh Venezuela-related sanctions, targeted on two companies and two vessels. (Newswires) 

US

At settlement, Treasuries were more-or-less unchanged on the session, with gains being pared after constructive comments from US Treasury Secretary Mnuchin on talks with the Chinese, while China’s officials also sounded a constructive tone, and said the sides would meet in Beijing in the coming weeks. The complex was a function of sentiment on trade, often whipsawed by tweets from the US President, as well as China press. The positive sentiment unwind gains that the TPLEX made on Friday – there was some buying in wake of a the April CPI data, which did not show any signs of ‘transitory’ weakness. Nevertheless, on the week, 10-year yields have slipped by 8bps, the sharpest weekly fall in seven weeks. At settlement, major curve spreads were a touch steeper. US T-notes (M9) futures settled unchanged at 123-31+.

White House may nominate European Bank for Reconstruction and Development’s US Executive Director Judy Shelton to the Federal Reserve board. (Newswires)