• Asian indices were mixed following the negative Wall St lead, although, respite was granted as the US announced a 90-day general license for Huawei
• The RBA further tied their outlook to the labour market and Governor Lowe stated the board will consider lowering rates at the June meeting
• Looking ahead, highlights include US Existing Home Sales, EZ Consumer Confidence (Flash), US & Japan Trade Talks, Fed’s Evans & Rosengren, ECB’s de Guindos

ASIA-PAC

Asian stocks eventually traded mostly higher after the US provided temporary relief for Huawei, which helped the region shrug-off the negative lead from Wall St where the tech sector suffered the brunt of the ongoing trade uncertainty. ASX 200 (+0.2%) was initially weighed on by underperformance in the tech sector but then recovered on expectations for a rate cut next month and with strength in financials after APRA proposed amending guidance on mortgage lending which could raise the maximum borrowing capacity for individuals, while Nikkei 225 (-0.2%) was subdued and failed to benefit from a weaker currency. Hang Seng (+0.2%) and Shanghai Comp. (+1.5%) were higher with sentiment underpinned following a CNY 80bln liquidity injection by the PBoC and after the US provided some temporary relief for Huawei and other entities in order to maintain their existing networks. However, Huawei’s founder seemed less than impressed as he stated the US reprieve does not mean much for Huawei and that no one will be able to catch up with it on 5G technology for the next 2-3 years. Finally, 10yr JGBs were flat despite the lacklustre tone in Japan and after the BoJ’s Rinban announce for over JPY 1.2tln of JGBs also failed to spur prices.

US Commerce Department provided Huawei with some reprieve as it announced a 90-day temporary general licence for the Co. and 68 other entities until 19th August in order to maintain existing networks. (Newswires)

PBoC injected CNY 80bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.8990 (Prev. 6.8988)

UK/EU

UK PM May is to ask her Cabinet today to agree on concessions to Labour, in order to keep her Brexit deal alive; senior Tory sources believe that Labour Leader Corbyn could be persuaded to support the Withdrawal Agreement Bill or abstain at the second reading. (Times)

UK Chancellor Hammond is to warn that the next Conservative PM will not have a mandate to take Britain out of the EU with a no-deal, in a speech which is seen as being largely aimed at Boris Johnson. (Times)

FX

The DXY was flat and remained near the 98.00 level amid a lack of key data and as a slate of Fed speakers failed to drive price action including Fed Chairman Powell, while its major counterparts were muted with EUR/USD and GBP/USDrangebound at the 1.1100 and 1.2700 handles respectively. GBP has stalled near the prior day’s lows amid Brexit woes, while there were also conflicting reports regarding potential indicative votes which some suggested were 100% dead and buried with efforts now centred on the Withdrawal Agreement Bill and how to get MPs on board. USD/JPY was higher after having rebounded from support at its 100 hourly MA line at 109.80 and reclaimed the 110.00 level, while antipodeans were choppy with AUD/USD initially underpinned after the APRA proposal on mortgage lending which analysts suggest could alleviate pressure for the RBA to lower rates. However, AUD was later pressured following a dovish perceived minutes release in which the central bank stated that an interest rate cut would be appropriate if there is no further improvement in the labour market and suggested that the outlook would be less favourable without policy easing over the next 6-months, while comments from RBA Governor Lowe supported the prospects for a looming cut as he stated the board will consider lowering rates at the next policy meeting and suggested that monetary policy can help achieve lower unemployment.

RBA Governor Lowe said the board will consider lowering rates at the June policy meeting and that they need further improvement in labour market as well as unemployment to decline below 5%. Governor Lowe also commented that recent data makes it less likely that the labour market will surprise to the upside and that forecasts for growth and jobs would have been weaker without the assumption of rate cuts, while he later added that they do have an easing bias and that APRA changes to mortgage rules would be complementary to a rate cut but do not have direct implications on rate policy. (Newswires) 

RBA Minutes from May 7th meeting stated that interest rate cut would be appropriate if no further improvement in the labour market and that it is important to pay close attention to the jobs market over the period ahead. The minutes also noted that the outlook would be less favourable without an easing in policy over the next 6-months and that Q1 inflation is noticeably lower than anticipated. (Newswires)

COMMODITIES

Commodities saw muted price action overnight amid a predominantly mixed risked tone for most of the Asia session with WTI crude futures marginally higher and back above the USD 63.00/bbl level amid ongoing tensions between US and Iran. Furthermore, the consensus remains for the OPEC+ output agreement to be rolled over at the next meeting although reports have suggested that officials are considering delaying the Vienna meeting from June 25th to early July. Elsewhere, gold remained near its lowest levels in more than 2 weeks as the DXY held firm around the 98.00 level, while copper found mild support from the outperformance in China.

GEOPOLITICS

US President Trump said Iran has been very hostile and that the US will conduct talks with Iran when they are ready. Furthermore, Trump stated that Iran will be making a very big mistake if it did anything which would be met with great force, but also commented there is no indication they are, while Iranian President Rouhani said he favours talks and diplomacy, although under current conditions he will not accept it. (Newswires/IRNA) 

US

Overnight, a better than expected Japanese GDP report for Q1 lent negative ticks in the Treasury complex, and while buyers stepped in at the European open, following more global trade tensions related news flow, the positive start for European equities capped the Treasury upside, and futures were flat as NY entered. The complex then began its gradual drift lower, and are heading into APAC lower, led by the belly; major curve spreads were mixed into the close, but moves were +/- 1bps or so. US T-Note futures settled ticks 6+ lower at 124-09.

Fed Chair Powell (Voter, Neutral) said wages are increasing in the context of muted inflationary pressures and vulnerabilities are more closely watched than before the crisis. Powell added that debt levels could stress borrowers if economy weakens but sees business lending risks as moderate and noted the business sector is healthy with debt servicing costs low relative to income. (Newswires)

Fed's Williams (Voter, Neutral) said policy makers ought to maintain a strong labour market and keep inflation low, while he added that he wants to maintain the expansion and has changed view on how low unemployment can get without sparking inflation pressures. (Newswires)

Fed's Bullard (Voter, Dove) said the US economy is performing quite well and that he would be more aggressively in favour for lowering rates if inflation remains at 1.6%. (Handelsblatt)