• Asian indices (ex-India) are subdued as US-China updates continue to drive markets; China’s Foreign Minister Wang Yi warned China will fight to the end
• FOMC minutes largely neutral, emphasis on patience and that the inflation downturn is transitory
• UK PM May is to meet 1922 Committee Chair Brady on Friday, where leadership changes will be discussed; HoC Leader Leadsom resigned
• Looking ahead, highlights include German GDP & Ifo, French, EZ Flash PMIs, US Initial Jobless Claims & New Home Sales, NZ Trade Balance, ECB Minutes, European Parliament Election, ECB's de Guindos & Lane, Fed's Kaplan, Riksbank's Ingves, supply from Spain

FOMC MINUTES

- FOMC minutes stated that policymakers noted that a patient approach for rate policy would likely be appropriate for some time even if global conditions keep improving although a few Fed members said policy may need to be tightened if the economy evolves as expected.

- Many members suggested the recent dip in inflation is likely to be transitoryand a number of members said some risks to the economic outlook have moderated, while some also noted low inflation could un-anchor inflation expectations.

- Many Fed members said holding shorter duration maturities on the Fed's balance sheet could help future maturity expansion programmes and others expressed concern that shorty maturity portfolio could keep the FFR lower over the long-term.

ASIA-PAC

Asian stock indices were mostly lower amid spillover selling from Wall St as US-China trade uncertainty remained at the forefront of market focus with the US mulling restrictions on several Chinese firms and as comments from China suggested and unwillingness to back down, as well as the potential for a prolonged trade dispute. ASX 200 (-0.2%) and Nikkei 225 (-0.7%) were negative with Australia dragged by weakness in its largest weighted financials sector and with energy names pressured after a more than 3% drop in WTI, while risk appetite in Tokyo was suppressed by a stronger currency and weak Nikkei Manufacturing PMI data which slipped into contraction territory. Hang Seng (-1.3%) and Shanghai Comp. (-0.9%) conformed to the negative tone due to the trade tensions and with some sabre-rattling from China in which Foreign Minister Wang Yi labelled US pressure on Huawei as pure economic bullying and warned they will fight to the end if the US uses extreme pressures, while China's top four official Wang Yang also suggested businesses should be prepared for a lengthy trade war. Indian markets bucked the trend and gained over 2% to record highs as the early election results showed PM Modi’s BJP and National Democratic Alliance were ahead in world’s largest democratic election with the BJP on course to achieve a majority on its own if the early results hold up. Finally, 10yr JGBs were higher as they tracked the upside in T-notes and with price action underpinned by safe-haven demand amid the mostly negative risk sentiment in the region.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.8994 (Prev. 6.8992)

China's Global Times Editor said President Xi has been discussing the possibility of using rare earth mineral exports to the US as a trade weapon and that the government will not do this immediately but is evaluating the need to do so. (Newswires/Twitter)

UK/EU

UK PM May will reportedly meet 1922 executive Brady on Friday where changes to leadership will be discussed and then a decision will be made. Furthermore, there were separate reports that the 1922 Committee Executive has the numbers to change the no confidence vote rules and a Twitter report suggested UK PM May will announce her resignation date as early as today, while the Times says that Friday could be a more opportune time. (Newswires/Guido Fawkes/Twitter)

UK Government is said to be seriously considering pulling the WAB due to the amount of opposition, according to Telegraph's Deputy Political Editor Swinford, while he also tweeted that the 1922 Executive wants PM May to announce to step down by June 10th at Friday's meeting with the 1922 Committee. (Twitter)

UK Leader of the House of Commons Andrea Leadsom resigned from UK government as she no longer believes UK PM May's approach will deliver on the referendum result. (Newswires)

FX

The DXY traded mildly firmer above the 98.00 level in the aftermath of an uneventful FOMC minutes in which Fed officials noted a patient approach for rate policy would likely be appropriate for some time even if global conditions keep improving, although a few members suggested policy may need to be tightened if the economy evolves as expected. The greenback’s major counterparts were lacklustre with EUR/USD rangebound near a large option expiry at 1.1150 ahead of today’s European Parliament Elections and GBP/USDlanguished around 4-month lows as PM May hangs by a thread to her position amid ever-increasing pressure for her resignation. USD/JPY was subdued by the risk averse tone and antipodeans weakened due to their high-beta characteristics with AUD/USD also weighed as the Australian 10yr yield declined to its lowest on record ahead of a widely anticipated rate cut next month, while INR was marginally supported as the early vote count points to a continuation of PM Modi’s pro-business agenda.

COMMODITIES

Commodities were subdued amid the mostly negative risk tone across the region which saw WTI crude futures extend on the prior day’s 3% slump and attempt a breakdown of the USD 61.00/bbl level with oil pressured following bearish inventory data in which both API and EIA crude inventories showed surprise builds, while reports out of Russia that clean crude oil had begun flowing through the Druzhba pipeline was another headwind for the energy complex. Gold was flat following an uneventful FOMC minutes and as the greenback remained negative, while copper suffered on the continued trade tensions and China underperformance.

GEOPOLITICS

US State Department said the US is not seeking a war with Iran and it is more about deterrence, while there were separate reports the Pentagon is expected to submit plans to the White House that would see as many as 10000 additional US troops deployed to the Middle East. In related news, the Iranian Revolutionary Guard Commander said Iran is in complete control of the North of the Strait of Hormuz and that US battleships in the region are under complete Iranian control. (Newswires)

US

Treasury yields fell by between 2-4bps on Wednesday, though the range was narrow. The usual concoction of trade sentiment, Brexit jitters, and Fedspeak were cited (on the latter, there were upticks on remarks from Fed's Bullard, who after overnight saying he did not see the need to cut rates, added that if inflation weakens, he would not rule out a rate cut this year). There was very little reaction to the FOMC meeting minutes, where the message was that the Fed does not plan to raise rates even if the economy evolves in line with their projections, though a few wanted to see tightening in this scenario; there was no discussion of rate cuts, it appears. The implied probability of a rate cut in 2019 fell from around 68% to 66% in wake of the release, according to the CME's Fedwatch. At settlement, major curve spreads were mixed. US T-note futures (M9) settled 9+ ticks higher at 124-14.

US President Trump said he will not work with Democrats on infrastructure because of "phony investigations", while he added that when Democrat probes are over, he will be ready to work with them on infrastructure and drug prices. (Newswires)

US House Financial Services Committee obtained US President Trump's financial records from Wells Fargo and TD Bank. (NBC)

Fed's Kaplan (Non-Voter, Dove) said US is flirting with yield curve inversion and that it points to expectations of sluggish growth ahead. Kaplan said he expects 2.25%-2.50% GDP growth rate for the US this year and sees inflation gravitating to the Fed's target. (Newswires)