• European Indices [Euro Stoxx 50 -0.6%] fail to maintain the positive lead from Asia-Pac as sentiment turns risk-off
• Bunds have breached the 167.00 level supported by the deteriorating sentiment and the ongoing political turmoil in Italy with the BTP spread blowing out further towards 300bp
• Looking ahead, highlights include US NY Fed Manufacturing, Retail Sales, Industrial Production, Manufacturing Output, Business Inventories, NAHB, Canadian CPI, Fed’s Quarles, Barking, Rosengren & George; ECB’s Coeure & Praet

ASIA-PAC

Asian equity markets eventually traded mostly higher following the positive lead from the US where sentiment was underpinned by President Trump's optimism regarding a US-China trade deal, but with gains in the Asia-Pac region capped as participants digested earnings, as well as disappointing Chinese Industrial Production and Retail Sales data. ASX 200 (+0.7%) was led higher by strength in tech as the sector tracked the outperformance of its counterpart stateside, while Nikkei (+0.6%) mirrored a somewhat indecisive currency with heavy losses seen in Takeda and Nissan shares post-earnings. Hang Seng (+0.5%) and Shanghai Comp. (+1.9%) were positive after President Trump’s encouraging rhetoric and with the first phase of the PBoC’s targeted RRR adjustment taking effect today which would release around CNY 100bln of long-term funds and resulted to a decline in Chinese money market rates, although the gains across the region were somewhat capped by disappointing Chinese Industrial Production and Retail Sales data. Finally, 10yr JGBs were flat with price action hampered by the ambiguous risk tone in Japan and with today’s BoJ Rinban operation at a relatively paltry JPY 505bln concentrated in the belly.

PBoC skipped open market operations for a net daily drain of CNY 10bln, although the first phase of its targeted lower RRR adjustment is effective today which would release around CNY 100bln of long-term funds. (Newswires) PBoC set CNY mid-point at 6.8649 (Prev. 6.8365); weakest fix since December 27th.

Chinese Industrial Production (Apr) Y/Y 5.4% vs. Exp. 6.5% (Prev. 8.5%). (Newswires) Chinese Retail Sales (Apr) Y/Y 7.2% vs. Exp. 8.6% (Prev. 8.7%); weakest growth since May 2003

Chinese President Xi said the international situation is more volatile and uncertain, while he called on nations to promote openness and trade. (Newswires)

US President Trump is expected to sign an executive order this week to ban US companies from using telecommunications equipment posing national security risks, which is aimed at perceived risks from firms such as China's Huawei. (Newswires) Subsequently, China's Foreign Ministry, regarding Huawei, states they hope the US stops using national security as a pretext and create a fair environment for Chinese companies. (Newswires)

US side have released signals to ease the situation these days. Threatening China while propping up the US stock market, in order to keep up the hope that there will finally be a deal. But the Chinese have seen through this., Chinese Global Times Editor. (Twitter)

China's MOFCOM spokesperson Geng states that China will take countermeasures to the 'bullying' from the US. (Newswires)

Tencent (700 HK) reports Q1 revenue CNY 85.47bln vs. Exp. CNY 88.7bln, net profit CNY 27.2bln vs. Exp. 19.4bln

US

Fed's Daly (Non-Voter, Dove) said US economic recovery and expansion doesn't appear as sluggish in context of financial crisis and aging population. (Newswires)

UK/EU

Reports that UK opposition Labour party leader Corbyn reiterated to PM May that they will not back her Brexit plan without concessions. (Twitter/Newswires) This comes amid reports that cross-party talks between the UK government and Labour may collapse on Thursday, according to ITV's Peston. (Twitter)

If UK PM May's deal is defeated, UK is set for either a no-deal Brexit or Article 50 will be revoked as the EU will not grant an extension beyond October 31st, according to BBC's Assistant Political Editor Norman Smith. (Twitter)

UK PM May's June deadline was reportedly aimed at avoiding "carnage" at the 1922 meeting tomorrow, according to ITV's Paul Brand citing sources on the 1922 Committee. (Twitter) For reference, ‘June deadline’ refers to the UK Government confirming that they will put the Withdrawal Agreement to Parliament in the first week of June.

UK Brexit Secretary Barclays says the UK are exploring how much the Political Declaration can be changed. (Newswires)

Italy Deputy PM Salvini said they are planning to introduce tax breaks on VAT for the auto-sector in the next budget. (Newswires)

EU GDP Flash Estimate QQ (Q1) 0.4% vs. Exp. 0.4% (Prev. 0.4%)

-  EU GDP Flash Estimate YY (Q1) 1.2% vs. Exp. 1.2% (Prev. 1.2%)

German GDP Flash QQ SA (Q1) 0.4% vs. Exp. 0.4%. (Newswires)

French CPI (EU Norm) Final YY (Apr) 1.5% vs. Exp. 1.4% (Prev. 1.4%)

- French CPI (EU Norm) Final MM (Apr) 0.4% vs. Exp. 0.3% (Prev. 0.3%)

GEOPOLITICAL

Iran has officially stopped some Nuclear Deal commitments following orders from Iranian National Security Council, according to ISNA citing an official. (Newswires)

Turkish Foreign Minster says that canceling or postponing the S-400 is not currently on the agenda. (Newswires)

EQUITIES

Choppy trade in European equities [Eurostoxx 50 -0.6%] following on from a positive Asia-Pac as sentiment deteriorated in early trade. Major indices are now mostly lower after opening with marginal gains, although initial downside coincided with defensive comments from China’s Foreign Minister, which seemed to have dampened the prospects of a US-China trade deal in the near term. Sectors are mostly lower with defensive stocks buoyed for the time being and broad-based losses seen across the rest. In terms of individual movers, Renault (-4.0%) fell to the foot of the CAC as shares of its alliance partner Nissan tumbled in the wake of dismal earnings. Meanwhile, Italian banks [Intesa Sanpaolo -1.7%, Unicredit -1.5%, Banco BPM -1.5%] fell in tandem with the decline in BTPs (albeit off lows), given the banks’ large holdings of the sovereign debt. Elsewhere, given the looming US auto import tariffs deadline (May 18th), analyst at Morgan Stanley believe that the German economy will be hit the hardest due to direct impact and through supply chains, adding that Germany’s exports of vehicles and auto parts to the US make up around 2% of the total goods exports, thus, “a US car tariff increase to 25% could lower growth in Germany by ~0.25pp, with any knock-on impact on sentiment on top.”

FX

CHF/JPY/EUR/GBP - The Franc is back in favour and outperforming after a temporary loss of safe-haven appeal on Tuesday as a combination of sub-forecast Chinese data (IP and retail sales) and Italian fiscal jitters offset less acute angst on the US-China trade front, although the latest barbs from Beijing have been quite inflammatory. Usd/Chf has retreated towards 1.0050 again and Eur/Chf is back down below 1.1300 even though the single currency remains relatively resilient vs a broadly firm Dollar having survived another test of 1.1200 with the aid of some firm Eurozone GDP prints. Meanwhile, Usd/Jpy has also pulled back from yesterday’s rebound highs to probe bids under 109.50 and expose Fib support at 109.23 that was breached on Monday when the headline pair got to within a whisker of 109.00. Note, however, decent option expiry interest may keep the headline pair afloat given 1.2 bn rolling off between 109.00-20 and almost 1.8 bn at 109.40-50. Elsewhere, the Pound has also defended poignant big figure levels at 1.2900 in Cable and 0.8700 vs the Euro as UK PM May prepares for Thursday’s 1922 showdown and another stab at getting the WA through the HoC in early June.

AUD/NZD/CAD - All under pressure and down vs their US counterpart, with the Aussie hit by soft wages on top of the aforementioned disappointing Chinese macro releases ahead of tomorrow’s jobs report that has been flagged by the RBA as key in terms of near term policy and whether a rate cut is required. Aud/Usd is just off fresh multi-month lows around 0.6920 and Aud/Nzd is pivoting 1.0550 as the Kiwi hovers just above 0.6550 against the Greenback. Meanwhile, the Loonie is meandering between 1.3476-56 and in a tighter range than on Tuesday awaiting some independent impetus/direction from Canadian CPI that is due alongside US retail sales and with the DXY equally contained within 97.432-578 parameters and just above the 30 DMA (97.417).

EM - The Lira remains in the spotlight and volatile after yesterday’s seemingly impressive recovery, as Usd/Try bounced back over 6.0000 despite more efforts by the CBRT to stop the rot via a return of tax

Australian Wage Price Index QQ (Q1) 0.5% vs. Exp. 0.6% (Prev. 0.5%). (Newswires

FIXED INCOME

Core bonds have embarked on another rally after a pause for breath and shallow pull-back with technical becoming increasingly bullish as futures and cash yields breach more key/symbolic levels, Bunds continue to lead the way as BTPs flounder and have now been as high as 167.15 (+56 ticks), while the corresponding cash rate clears -10 bp. Gilts are still tagging along with US Treasuries, with the former up to 128.84 (+55 ticks) and edging closer to the next bullish chart objective at 128.97 and the latter testing interim technical resistance around 124-22 (11+ ticks over Tuesday’s close). For the 10 year T-note, 124-31+ would be the ultimate pinnace or rather represent and full retracement, but fundamentals could come in to play later given decent US data forthcoming in the guise of retail sales and ip, plus more Fed speak as Eurodollar futures soar and Short Sterling and Euribor strips follow suit.

COMMODITIES

WTI (-1.3%) and Brent (-0.9%) futures are on the backfoot with the initial decline sparked by a substantial surprise build in API crude inventories (+8.6mln vs. Exp. -1.3mln). Crude prices then recovered off lows amid positive sentiment in Asia-Pac trade before an intensifying risk-averse mood pressured the complex. Upside in the energy market is also capped by the IEA Monthly Oil Report which cut 2019 oil demand growth estimate by 90k bpd to 1.3mln bpd, in contrast to yesterday’s OPEC monthly report where the total world oil demand growth for 2019 was left unchanged at 1.21mln BPD. On a technical front, WTI Jun’19 futures reside just below its 50 DMA (61.45) ahead of its 200 DMA (60.40) whilst its Brent counterpart seems to have been recently finding support its 50 DMA (currently at 69.78). Looking ahead, traders will be keeping an eye out for the more widely followed EIA crude stocks release later today wherein ING agrees that numbers similar to the API would likely be seen as bearish in the immediate term.

Elsewhere, the receding buck and soured risk tone has modestly supported gold (+0.3%) in recent trade, as the yellow metal fluctuates above its 100 DMA (1296.64) and in close proximity to the 1300/oz level. Meanwhile, Chinese steel production increased by 12.7% Y/Y to the highest level on record as stronger margins allowed steel mills to increase utilisation rates. However, ING believes that margins can come under pressure moving forwards as “the more recent strength in Chinese steel prices [are] reflecting stock building following the Chinese New Year.”

IEA Monthly Report: Cuts 2019 oil demand growth estimate by 90k bpd to 1.3mln bpd

- Global oil supply in April fell 300k bpd; losses led by Canada, Iran, Azerbaijan and Kazakhstan

- Non-OECD countries will drive global oil demand in 2019, adding 1.1mln bpd of growth, with China and India growing by 0.7mln bpd

- OPEC crude output rose 60k bpd in April to 30.21mln bpd as higher flows from Libya, Nigeria and Iraq offset Iranian losses

- In Q2 2019, refining throughput is seeing a third consecutive quarter of lacklustre growth, but is expected to climb by 1mln bpd a month between May and August

- OECD oil stocks fell by 25.8mln bbls in March, more than the five-year average of 4mln bbls owing to counter-seasonal crude draws

- - For reference, yesterday’s OPEC report kept 2019 oil demand growth unchanged at 1.21mln, and prior to this the EIA did increase their 2019 demand forecast; however, as the EIA report was released prior to the implementation of US-China tariffs it is not seen as comparable.