• Asian indices mixed with focus on Australian elections and reports that US-China trade talks have stalled
• Saudi Energy Minister Al Falih stated that there is consensus to drive down inventories gently and Saudi Arabia sees no need to boost production quickly now with oil at around USD 70/bbl
• Reports around UK PM May’s Brexit bill differ, some indicate it contains improved measures others that it contains nothing new and retains the Irish backstop
• Looking ahead, highlights include ECB’s Praet, Fed’s Harker, Clarida, Williams, BoE’s Broadbent and Riksbank’s Skingsley

ASIA-PAC

Asia equity markets were somewhat mixed as lingering trade uncertainty clouded over a buoyant start to the week. ASX 200 (+1.7%) and Nikkei 225 (+0.4%) were rampant at the open with the Australian benchmark at its highest since 2007 following a surprise win by PM Morrison’s ruling Coalition which defied the opinion polls to beat the Labor party and even reportedly secured a majority, while Tokyo sentiment was underpinned by a weaker currency and after much better than expected GDP growth for Q1. However, some of the gains were later pared as China entered the fray in which Shanghai Comp (-0.6%) and Hang Seng (-0.4%) resumed their losses amid US-China trade tensions after reports suggested negotiations were in flux and that talks have stalled, while comments from China were also concerning as Foreign Minister Wang warned the US to not go too far. Finally, 10yr JGBs were lower amid a lack of demand for safe-havens in Japan and after the better than expected GDP numbers, while an enhanced-liquidity auction for longer-dated bonds also saw slightly weaker demand from prior.

The next round of US/China trade negotiations are reportedly "in flux" and talks are said to have stalled. (CNBC)

China Foreign Minister Wang Yi said recent words and actions by US have harmed interests of China and its enterprises, while he added that China oppose these actions and warned the US to not go too far. Wang added that the trade dispute must be solved through negotiation on an equal footing and hopes both sides will avoid escalating tensions. (Newswires)

China's Global Times said China will certainly retaliate to the barbaric suppression of Huawei and suggested that this is the unanimous attitude of officials and the Chinese people. In related news, People's Daily Op-Ed said US intellectual property complaints are a political tool intended to suppress China's economic development. (Twitter/ People's Daily)

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.8988 (Prev. 6.8859)

Japanese GDP (Q1) Q/Q 0.5% vs. Exp. 0.0% (Prev. 0.5%, Rev. 0.4%). (Newswires)Japanese GDP (Q1) Y/Y 2.1% vs. Exp. -0.2% (Prev. 1.9%, Rev. 1.6%)

UK/EU

UK PM May said the Brexit withdrawal agreement bill will have an improved package of measures according to an Op Ed, however there were separate reports that her new offer to UK lawmakers contains nothing new on customs arrangement and retains the Northern Irish backstop. (Sunday Times/Telegraph)

UK Brexit Secretary has warned that no-deal preparations should be brought forward ‘at pace’ in MPs do not back PM May’s deal. (Sky News)

ECB’s Knot commented that Eurozone inflation is not where the central bank wants it. (Newswires)

Austria Chancellor Kurz called for snap election in September following resignation of coalition partner and Vice Chancellor Strache resigned. (Newswires)

Fitch affirmed Ireland at 'A+'; Outlook Stable. (Newswires)

UK Rightmove House Prices (May) M/M 0.9% (Prev. 1.1%). (Newswires) UK Rightmove House Prices (May) Y/Y 0.1% (Prev. -0.1%)

FX

The DXY was flat near last week’s highs around the 98.00 level amid feeble attempts by its European counterparts to recoup Friday’s losses with EUR/USDand GBP/USD firmly below the 1.1200 and 1.2800 handles respectively. Brexit-related headwinds continued to be a hindrance on GBP after cross-party talks between PM May’s government and opposition Labour collapsed. Furthermore, reports suggested scepticism on PM May’s new offer to UK lawmakers which contains nothing new on the customs arrangement and retains the Northern Irish backstop. USD/JPY extended above the 110.00 level on the risk appetite in Japan and antipodeans were also higher with outperformance in AUD/USDfollowing PM Morrison’s election miracle. Elsewhere, MXN and CAD were mildly supported following reports that suggested US is to lift tariffs on steel & aluminium from Canada and Mexico, while USD/INR gapped below the 70.00 handle with INR boosted after exit polls suggested PM Modi and his BJP Party are on track to secure a 2nd consecutive term following their 7-phase election which finished over the weekend with the results to be declared on Thursday.

Australia’s ruling Coalition led by PM Morrison is set to remain in power for a 3rd consecutive term following the Federal election on Saturday with the incumbents having at least 75 seats vs. 67 seats for Labor, while other reports suggested that the Coalition has managed to obtain a majority. (News.com.au)

COMMODITIES

Commodities were mixed with the energy complex the outperformer as both Brent crude and WTI crude futures rallied over 1.0% following the OPEC+ JMMC meeting on Sunday where Saudi Energy Minister Al Falid suggested that the consensus among producers is to drive down crude inventories gently and that an extension of the output cut agreement for H2 was the main option discussed, although they will meet in June for the final decision. Elsewhere, gold prices languished at Friday’s lows as the greenback remained firm, while copper prices were indecisive amid the mixed risk sentiment overnight.

Baker Hughes (May 17): oil rigs -3 at 802, nat gas rigs +2 at 185, US total rigs -1 at 987. (Newswires)

Saudi Energy Minister Al Falih stated that there is consensus to drive down inventories gently and Saudi Arabia sees no need to boost production quickly now with oil at around USD 70/bbl, while Kuwait Oil Minister said OPEC+ countries’ compliance to oil output cuts is very large and assured Kuwait’s continued cooperation as well as commitment to output agreement to create balance in the market. (Newswires)

Saudi Arabia and Russia are said to be discussing two main scenarios for a meeting of OPEC/Non-OPEC in June and both frameworks propose raising crude output from the second half of 2019, according to sources familiar with the matter. (Newswires)

OPEC+ cut compliance was about 150% in April according to delegates, while there were also reports that Iranian crude exports have fallen to 500k BPD or lower since the imposition of new tariffs. (Newswires)

GEOPOLITICS

US President Trump stated it would be the official end of Iran if the country wants to fight, while he warned Iran to never threaten the US again. (Twitter)

Turkey’s President Erdogan has stated that Russian may bring forward the delivery date of S-400’s from June and has ruled out demands from the US to delay purchase of the S-400 system. (Newswires) 

US

Treasury yields were lower, and the curve flattened a touch on Friday, after hawkish trade rhetoric out of China. Decent University of Michigan data brought the complex off highs in the US afternoon, and there was further downside on reports that the US would drop metals tariffs on Canadian and Mexican steel and aluminium. US T-Note futures settled 2 ticks higher at 124-15+.

US President Trump said beginning on Monday, US farmers can resume business with Mexico and Canada as both have taken the tariff penalties off US agricultural products. This follows reports on Friday that a deal was said to have been reached for US to lift tariffs on steel & aluminium from Canada and Mexico, while a Mexican Official said Mexico and Canada will lift retaliatory tariffs on US products once the US announces a deal on lifting tariffs on metal import. (Washington Post)

US President Trump stated the EU is treating the US worse than the US is treating the EU and suggested the US does love Europe but has to be careful. (Newswires)