• European Indices [Euro Stoxx 50 -1.2%] have continued to move lower, after a relatively uneventful opening, with the downside stemming from unconfirmed negative reports on US-China trade
• In FX, the USD is subdued vs all G10 counterparts in particular the AUD following PM Morrison’s surprise victory
• Saudi Energy Minister Al Falih, at the JMMC, stated that there is consensus to gently drive inventories down and that Saudi Arabia see no need to quickly boost production with oil around USD 70/bbl
• Looking ahead, highlights include 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 (+0.3%) 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 (-0.4%) and Hang Seng (-0.6%) 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.

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)

A 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)

Chinese President Xi visited a major rare earth mining and processing facility today amid growing discussions that China could consider banning the export of such minerals as part of the US-China trade war, according to SCMP. (SCMP)

PBoC state they will launch a pilot bond mutual fund which can be traded on stock exchanges or interbank markets. (Newswires)

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’ if MPs do not back PM May’s deal. (Sky News)

UK Cabinet are to discuss a new Brexit deal tomorrow and will decide on whether there will be indicative votes on customs, according to BBC's Political Correspondent Watson. (Twitter)

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)

Italian Cabinet Secretary Giorgetti says the League's loyalty to the 5 Star Movement can not go on forever. (Newswires) Subsequently, Italy's Economy Minister Tria states that it impossible to stick deficit/debt commitments while reducing taxed and increasing spending, as such the government will need to choose; public debt is sustainable, spread levels are ecessive and the government must retain control. While Deputy PM Salvini states that the only way to lower debt is to reduce taxes in order to increase growth.

US

Just after 09:00BST there were unverified rumours published via @Money_China implying that there had been a break down in US-China trade discussions, and that China will suspend business with all suppliers who have agreed to halt supplying Huawei. RANsquawk have not been able to verify these comments as such we are currently giving them no credence.

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)

GEOPOLITICAL

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)

EQUITIES

European equities have kicked off the week on the backfoot [Eurostoxx 50 -1.2%] following on from a mixed lead in Asia with sentiment in Europe dampened on speculation that China will retaliate against Huawei measures [NOTE: THIS IS UNVERIFIED] after Google suspended Huawei from Android access. As such, broad based losses are seen across European equities with Italy’s FTSE MIB (-2.0%) the clear laggard amid a slew of large cap ex-divs. Sectors are mostly lower with defensive sectors buoyed by the risk-averse tone whilst energy names are supported by the price action in the complex. On the downside, material and IT names are the clear underperformers with the former subdued by price action in base metals. Meanwhile, the latter is pressured amid a decline in semiconductor names following reports via the Nikkei that Infineon (-4.6%) reportedly halted shipments to Huawei, in turn moving fellow chip names lower in sympathy including Dialog Semiconductor (-3.4%), ASM (-3.0%) and STMicroelectronics (-8.3%).  On the flip side, the aforementioned Google/Huawei news supported Huawei’s European competitors with Nokia (+2.0%) and Ericsson (+1.0%) shares underpinned by the reports. Finally, in terms of individual movers, Ryanair (-2.7%) fell as much as 5% at the open following earnings coupled with a downbeat fares outlook. Elsewhere, Deutsche Bank (-3.0%) shares slid after anti-money laundering specialists at the Co. flagged up suspicious financial transactions involving legal entities controlled by US President Trump and his son-in-law Kushner. Turning to some analysis from Nomura, Quant Insights note that CTAs seem to be looking for opportunities to unwind long positions in US equity futures. Nomura also predicts that this week, US equities “looks likely to be influenced less by trend-following trading based on systematic rules than by fundamental trading based on discretionary calls.”, given the current supply/demand balance.

Apple (AAPL) - HSBC have cut the Co's price target to USD 174 from USD 180, have also cut the Co's operating margins to account for Q3 outlook and have cut their outlook on Iphone sales.

FX

AUD - A sharp rebound from recent multi-month lows vs its US counterpart following the weekend Australian election that saw PM Morrison upset the pre-vote odds to secure a 3rd term in office and his coalition gain a majority over the Labour Party. Aud/Usd has reclaimed 0.6900+ status in response having traded down to 0.6862 last week in wake of disappointing jobs data that heightened the prospect of a June RBA rate cut.

NZD - The next best G10 currency as the Kiwi catches a bid on the coattails of its antipodean peer, albeit hampered by Aud/Nzd cross-flows up to 1.0600 at one stage. Nevertheless, Nzd/Usd hit a 0.6550 overnight high compared to 0.6521 at worst and last week’s 0.6512 base (Friday), as the US Dollar loses momentum broadly after its post-data/survey and China trade war related rally. On that note, the DXY has topped out just above 98.000 and ahead of resistance including a 98.035 Fib and the early May high of 98.102.

GBP - The Pound has also pared some losses partly on the aforementioned Dollar downturn, but also against a lagging Euro, with Cable bouncing off a 1.2723 trough to just over 1.2750 and Eur/Gbp easing back to 0.8750 from 0.8775. Brexit and UK political uncertainty are still to the fore, but Sterling appears to be benefiting from some short covering/profit taking alongside technical buying, with a Fib in the cross sitting at 0.8779.

CHF/CAD - Also benefiting from the Buck fade, as the Franc rebounds through 1.0100 and Loonie further from 1.3500+ lows amidst more reports that a deal is done to lift US steel and aluminium tariffs. The Cad may also be gleaning traction from a post-JMMC bounce in crude prices, like the NOK, which is outperforming its Scandi rival with the Eur cross back down under 9.8000 vs Eur/Sek at 10.7600.

EUR/JPY - As noted above, the single currency is a relative underperformer as Eur/Usd struggles to recover between 1.1168-51 parameters despite reports of bids/support at 1.1150 protecting near term support at 1.1135 and the 1.1112 ytd low. Decent option expiry interest may be keeping the headline pair in check given almost 1 bn running off from 1.1150 to 1.1160 at today’s NY cut, while chart resistance resides at 1.1190-1.1200 in the form of 100 and 200 HMAs. Meanwhile, the Yen has lost a bit more of its safe-haven allure following overnight Japanese Q1 GDP that topped consensus considerably, with Usd/Jpy up over 110.00 and as high as 110.31 at one stage.

EM - The Turkish Lira has failed to sustain recovery gains towards 6.0000 and higher vs the Greenback yet again after weekend comments from President Erdogan suggesting that it may bring forward its planned purchase of S-400 missiles from Russia rather than delaying the order amidst opposition and the threat of sanctions from the US.

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)

FIXED INCOME

Several potential factors behind a sprited recovery in Bunds, Gilts and US Treasuries including more US-China-global trade jitters and a retreat in stocks, oil prices and Italian debt, while the latest Buba monthly report is hardly encouraging. The respective 10 year benchmarks are still looking top heavy or leggy, but the German bond just hit a marginal new Eurex high at 167.07 (+1 tick vs -43 ticks), while its UK and US equivalents are both flat vs -29 and -6+ ticks at worst. Ahead, April’s national activity index and Fed speakers including Harker, Clarida (twice) and Williams.

COMMODITIES

The energy complex is ultimately in the green, albeit off highs, as sentiment dampened amidst unconfirmed reports of a deteriorating relationship between US and China. WTI (+0.2%) and Brent (+0.4%) prices are underpinned in the aftermath of the JMMC meeting as key oil figureheads noted that concerns of rising stockpiles outweighed supply issues from Iran and Venezuela. Thus, energy ministers hinted at their dedication to extend the OPEC+ output pact beyond June, although any revisions to the current deal will be decided at next months meeting. Rhetoric from the energy ministers deviated slightly, with sources stating that Saudi Arabia is in no rush to increase production as the Kingdom is satisfied with oil around USD 70/bbl, whilst its Russian counterpart noted that all options are still on the table ahead of June, including a hike in production. Furthermore, sources noted that the Russian and Saudi oil figureheads reportedly discussed two options for June. The first scenario would see an elimination of over compliance currently over 150%, equating to an output cuts just under 2mln BPD, according to calculations. This would mean a continuation of the current deal and an increase in production of around 0.8mln BPD. The second scenario would see an ease of the agreed cuts to 0.9mln BPD from 1.2mln BPD.  Analysts at ING do not believe that the output cut deal will continue in its current form, with their balance sheets showing “significant tightening” heading into Q3. On a technical front, WTI prices hover just above their 21 DMA (62.93) while Brent straddles around the psychological USD 72.50/bbl mark ahead of its 21 DMA (71.80). Elsewhere, gold (-0.2%) prices lost more ground to the rising Buck with prices now flirting with the 1275/oz mark. Meanwhile, copper prices extended losses amid the souring risk tone given the aforementioned unconfirmed reports regard US/China. Furthermore, last week money managers increased their net short positions in COMEX copper by almost 8.5k lots, holding a net short of 35.3k lots, whilst speculators increase gross shorts by 4.8k lots and liquidated 3.6k gross long positions over the week.

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)

Equinor say they are investigating the source of an oil leak at the Statfjord loading buoy; offloading is taking place via an alternative buoy, output unaffected. (Newswires)