• Major European indices [Euro Stoxx 50 +0.6%] are firmer as risk sentiment begins to unwind slightly after yesterday’s sell-off
• China Global Times Editor states that China may release additional retaliatory measures; notably, China declined to comment on US Treasury holdings
• Two Saudi Aramco oil pumping stations have been attack in Riyadh; Saudi Energy Minister states that Aramco has halted pumping in the east-west pipeline
• In FX, the risk sentiments improvement has happened at the detriment of safe havens while high-beta currencies have strengthened
• Looking ahead, highlights include US Import & Export Prices, OPEC Monthly Oil Market Report & Fed's George

ASIA-PAC

Asian equity markets were mostly lower as global risk sentiment remained pressured by the escalating US-China trade tensions, which resulted to substantial losses on Wall St. and the worst performance of the S&P 500 in more than 4 months. This followed the tit-for-tat between the world’s 2 largest economies in which China announced its retaliatory tariffs affecting over 5000 US products at a rate of between 5%-25% despite US President Trump's warnings, while the USTR office later posted details of potential duties on the approximate remaining USD 300bln of Chinese goods. ASX 200 (-0.9%) and Nikkei 225 (-0.6%) were both negative with the declines in Australia led by continued underperformance in its largest weighted financials sector and amid losses in energy names after a retreat in oil prices, while Japanese exporters felt the brunt of the recent flows into JPY. Hang Seng (-1.5%) and Shanghai Comp. (-0.7%) were weaker with Hong Kong playing catch up on return from the extended weekend, although the mainland bourse briefly recovered as participants found some encouragement from a CNY 200bln MLF announcement, as well as comments by US President Trump who suggested we will know the result of trade talks in 3-4 weeks and that he feels talks will be very successful. Finally, 10yr JGBs were uneventful amid a similar lacklustre tone in T-note futures and as the improved results in in the 30yr JGB auction also failed to spur prices.

PBoC skipped Reverse Repo operations but announced CNY 200bln in 1yr medium-term lending facility. (Newswires) PBoC set CNY mid-point at 6.8365 (Prev. 6.7954)

US President Trump said we will know in 3-4 weeks if talks with China are successful and that he feels talks will be very successful (Newswires)

USTR office posted details of tariffs on the approximate remaining USD 300bln of Chinese goods and will hold a public hearing on June 17th in which it stated that cellular phones and laptops computers are included on list that could be subject to potential tariffs, while the tariff list covers 3805 product categories of Chinese imports which would be subject to 25% tariffs. (Newswires)

China may release additional retaliatory trade measures, according to China Global Times. (Global Times)

- China has declined to comment on US Treasury holdings. (Newswires)

MSCI announced to increase weighting of China A shares in Emerging Markets, while it also included Saudi Arabia indexes and will reclassify Argentina indexes to EM. (Newswires)

US

Fed’s Williams (Voter, Hawkish) says that fiscal policy can improve the resilience of the economy, and that a new approach to policy is required for lower neutral rates. The Fed has seen solid economy growth in the US, and that monetary policy is currently in a good place with the Fed close to achieving their goals. Adds that the focus needs to remain on price stability & employment; balance of risks is approximately in-line with where it has been, with US data better than was expected. (Newswires)

UK/EU

UK PM May is said to be considering definitive votes on different Brexit options in an attempt to break the Brexit deadlock, while reports added she is expected to ask MPs to rank different outcomes in order of preference. (Telegraph) The report suggested that the government appears to be willing to go ahead with their plan for definitive votes regardless of support from the Labour Party.

Conservatives are reportedly preparing a new offer on a post-Brexit customs union; however, a source states that this offer has not been agreed with the Labour party. (CityAM)

Reports suggested no progress was made in cross party talks and that UK PM May is expected to face pressure in tomorrow's cabinet meeting to drop efforts for a compromise deal. (Independent) 13 of UK PM May’s former cabinet colleagues have reportedly written to PM May asking her to reject Labour leader Corbyn’s demand for a cross-party agreement to secure the Brexit deal. (Times)

UK PM May’s Europe adviser and negotiator is travelling to Brussels today to talk about how and how long it might take to change the political declaration if there were to be an agreement, according to BBC's Laura Kuenssberg. (Twitter) Subsequently, reported that the negotiatior (Olly Robbins), is not meeting the European Commission until tomorrow, Telegraph’s Crisp. (Twitter)

Riksbank's Ingves reiterates that the Bank's forecast is for the repo rate to be raised again towards the end of the year, or at the beginning of next year. (Newswires)

UK Avg Wk Earnings 3M YY (Mar) 3.2% vs. Exp. 3.4% (Prev. 3.5%)

- UK Avg Earnings (Ex-Bonus) (Mar) 3.3% vs. Exp. 3.3% (Prev. 3.4%)

- UK Claimant Count Unem Chng (Apr) 24.7k (Prev. 28.3k, Rev. 22.6k)

- UK ILO Unemployment Rate (Mar) 3.8% vs. Exp. 3.9% (Prev. 3.9%)

German ZEW Economic Sentiment (May) -2.1 vs. Exp. 5.0 (Prev. 3.1)

- German ZEW Current Conditions (May) 8.2 vs. Exp. 6.0 (Prev. 5.5)

German CPI Final MM* (Apr) 1.0% vs. Exp. 1.0% (Prev. 1.0%)

- German CPI Final YY* (Apr) 2.0% vs. Exp. 2.0% (Prev. 2.0%)

EU Industrial Production YY (Mar) -0.6% vs. Exp. -0.8% (Prev. -0.3%, Rev. -0.3%)

- EU Industrial Production MM (Mar) -0.3% vs. Exp. -0.3% (Prev. -0.2%, Rev. -0.2%)

Swedish CPIF YY (Apr) 2% vs. Exp. 1.9% (Prev. 1.8%)

- Swedish CPIF MM (Apr) 0.6% vs. Exp. 0.5% (Prev. 0.2%)

GEOPOLITICAL

A US defence official presented an updated military plan to the Trump administration which involves deploying 120k troops to the Middle East if Iran attacks US forces. (Newswires)

North Korea said US seizure of its ship is in direct violation of June 12 summit agreement, while it added US should return the ship immediately and that it will keep a close eye on US actions going forward. (KCNA)

Large military operation was undertaken against Saudi targets, and seven drones undertook attacks on key Saudi installations., according to Yemen's Hothi-Run television citing Military Officials. (Newswires)

EQUITIES

European stocks have nursed some losses from yesterday’s sell-off [Eurostoxx 50 +0.6%] in what seems to be (for now) a turn-around from the down-beat Asia-Pac session. Sectors are mostly in the green with defensive sectors underperforming, in-fitting with the “less risk off” tone in the markets.  DAX (+0.3%) marginally underperforms its peers as heavyweight Bayer (-2.7%) stumbled after the Co. lost a third trial related to claims its Roundup weed killer causes cancer and the jury awarded USD 2bln in punitive damages. Elsewhere, Renault (-2.5%) shares took a hit after its alliance partner Nissan cut operating profit forecasts whilst also slashing dividend. Sticking with autos, Volkswagen (-1.4%) shares were buoyed amid reports that the company decided to IPO Traton before the Summer break this year. Finally, as the European Q1 earnings season approaches its end, HSBC notes that from the 85% of EU companies that have reported, 55% topped estimates and the results are off the lows seen in Q4 2018 (49% beat). “Though the re-emergence of US-China trade tension remains a concern, we see limited downside to European earnings from here” says HSBC, whilst citing continuing improvement in earning revisions. Furthermore, The bank’s top-down model points to 2019 EPS growth of around 5.3%, marginally above expectations. Despite this, HSBC is underweight on Europe as US companies have outpaced its European counterparts and the “expected 2019 EPS growth forecast for Europe (c.5%) is lower than our [HSBC’s] EPS growth estimates for the US (7%) and global equities (8%)”, the bank concludes.

FX

USD - It’s too early to talk in terms of a turnaround Tuesday, but the risk pendulum has changed direction to the benefit of high beta currencies that were hit hard yesterday and to the detriment of safe-havens. The catalyst appears to be some respite in US-China trade anxiety as President Trump holds off on additional tariffs and remains optimistic that the 2 sides will reach an agreement down the line. The part reversal in sentiment has also helped the DXY recover some poise, albeit indirectly as a firm rebound in Usd/Jpy and Cable retreat combine to nudge the index back up from near 97.000 lows into a 97.270-390 range.

NZD/EUR/CAD - The Kiwi is leading the comeback from Monday’s depths and is hovering just under 0.6600 vs its US peer, as NZ Finance Minister Robertson pledged to reallocate Nzd1 bn budget expenditure given that Brexit and the US-China tariff spat are both compounding risks faced by the nation’s exporters. Meanwhile, the single currency is holding above 1.1200 and outperforming Sterling near 0.8700 on renewed Brexit angst, with resistance not far above the big figure at 0.8722, and the Loonie has rebounded ahead of 1.3500 into a 1.3487-57 range. Back to Eur/Usd, a decent 1.2 bn option expiries at 1.1240 may influence direction into the NY cut as the pair meanders between 1.1244-20.

JPY/CHF/GBP/AUD - As noted above, the Yen and Franc have lost their safe-haven allure, or at least some appeal, with shorts caught in Usd/Jpy as 109.00 support held and the headline pair squeezed back up to 109.77. Note, 109.50 was a double bottom and 109.23 a key Fib that was breached, but not on a closing basis and this exacerbated the snap back, along with similar tech and stop-fuelled retracements in Yen crosses, like Eur/Jpy and Aud/Jpy according to market contacts. Meanwhile, Cable finally relinquished 1.3000+ status, 100 and 200 DMAs (at 1.3011 and 1.2959 respectively) on the way down to a fresh mtd base (sub-1.2930) before paring some losses and largely shrugging off mixed UK jobs and earnings data. Similarly, the Aussie is lagging either side of 0.6950 following a downbeat NAB business sentiment survey overnight.

SEK/TRY - Some respite for the Swedish Krona and Turkish Lira on top of the less risk averse environment in general as Swedish inflation eclipsed consensus to underscore the Riksbank’s view that it is broadly in line with target, while Turkish IP fell less than expected and latest reports suggest that its planned S-400 purchase from Russia may be shelved until 2020. Eur/Sek now closer to 10.7700 vs 10.8200+ at one stage and Usd/Try nearer 6.0500 than 6.1120 at the earlier high.

Australian NAB Business Confidence (Apr) 0 vs. Exp. 1 (Prev. 0, Rev. -1). (Newswires)

Australian NAB Business Conditions (Apr) 3 (Prev. 7)

FIXED INCOME

Not much in the way of range extension, but the 10 year benchmarks have gradually pared losses from intraday lows of 166.31, 128.02 and 124-09 in Bunds, Gilts and US Treasuries respectively. Indeed, the core German/Eurozone bond is back within a handful of ticks from early Eurex peaks in wake of a marked deterioration in ZEW economic sentiment that more than outweighed a beat in current conditions, while its UK peer actually eked a fresh Liffe best at 128.20 (-5 ticks vs -23 ticks at one stage) following softer than forecast wage data and against the backdrop of a well received 2054 syndicated issue. Ahead, US import and export prices and Fed’s George.

COMMODITIES

WTI (+0.4%) and Brent (+0.7%) futures trended lower for much of the session, but have subsequently reverted into positive territory following reports that two Saudi Aramco oil pumping stations have been attacked; for reference, This pipeline replaces the passage of oil through the Hormuz Strait, and as such a failure of this pipeline may increase Iran's influence of oil flow in the region, as according to Energy Economist Anas Alhajji. Up until this Saudi update, news-flow had been light for the sector, although the OPEC Monthly report is due later today ahead of the API crude stocks report, with the headline expected to build by 2.8mln barrels. Elsewhere, Gold is relatively uneventful and holding onto most its gains just under the USD 1300/oz level, whilst copper prices are just off lows after the red metal tested USD 2.70/lb to the downside amid the heightened US-Sino trade tensions

Polish Minister expects the Russian oil supply to Poland to be restored quickly although it is hard to tell exactly how long restoration will take. (Newswires)

Two Saudi Aramco oil pumping stations have been attacked in the districts of Aldowdami and Afifi in Riyadh, limited damage has been reported., according to the State News Agency. (Newswires)

- Saudi Energy Minister states that two pumping stations for the east-west pipeline was targeted, sabotage act is targeted at global oil supply.

- Energy Minister adds that Aramco has halted pumping in the east-west pipeline, until an evaluation of the pipeline can be evaluated and they are repairing station; update on prior comments that crude and products exports are operating without disruptions